One of Europe’s biggest economic fears since Russia invaded Ukraine has been a cut-off in Russian natural gas supplies. This week such a threat seemed more real. G7 ministers rebuffed Vladimir Putin’s demand to switch to paying in roubles, not euros, for gas; Moscow warned it would not continue deliveries “for free”. Germany, Austria and others began preparations for rationing. Despite further verbal threats from Russia’s president, and European warnings that they were preparing for all contingencies, a face-saving solution appears in prospect. After much smoke and mirrors from the Kremlin, what the episode may highlight is Russia’s difficulty in imposing “counter-sanctions” that do not inflict still greater harm on its own economy.
Last week’s presidential order that payments for gas exports must be made in roubles by “unfriendly countries” — those that have placed sanctions on Russia — was heavily political. Putin said it was a response to an EU freeze on the Russian central bank’s foreign reserves. In part, it appeared an attempt to force European gas buyers to transact in the beleaguered rouble, and interact with Russia’s financial sector or central bank to exchange the euros or dollars they use to settle bills into the Russian currency.
The demand may have helped to fuel the rouble’s recent rebound to close to prewar levels. Yet its impact is largely cosmetic. The Russian central bank had already ordered Russian exporters, including Gazprom, to convert 80 per cent of their foreign-currency receipts into roubles; the Kremlin decree only increases the proportion to 100 per cent and shifts responsibility for buying roubles to energy buyers.