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Russia will accept only rubles for gas from ‘unfriendly’ nations

Russia will accept payment only in rubles for gas from ‘unfriendly’ countries that include all Member States of the European Union, Russian President Vladimir Putin announced on Wednesday.

“I have decided to implement a set of measures in the shortest possible period to transfer payment for our natural gas supplies to the so-called unfriendly countries, for Russian rubles”, he said during a televised meeting with the government members.

He also underlined that Russia would continue to supply natural gas “in accordance with the volumes and prices, according to the pricing principles fixed in the contracts concluded earlier.”

In parallel, Putin gave one week to the Bank of Russia and the government to develop a mechanism for the purchase of Russian rubles for foreign consumers.

The new circumstances imply that countries that buy Russian gas from now on, will have to procure large amounts of rubles on the international foreign exchange markets in order to be able to pay for the uninterrupted Russian energy supply.

The announcement on changing procurement terms of Russian fossil fuels coincided with Brussels’ plans to fill gas storage facilities and jointly purchase gas ahead of next winter together with all EU countries.

The energy market reacted to the announcement of the Russian president quickly. The Netherlands-based virtual natural gas trading point (TTF) reports that the price per megawatt-hour of natural gas in Europe increased 22.42 per cent from 97 euros to 118.75 euros.

The buyers of Russian gas already called the new demand the breach of contracts while major banks are unwilling to trade in Russian assets.

According to Reuters’s Gazprom (GAZP.MM) profile, 58 per cent of the company’s sales of natural gas to Europe and other countries as of 27 January were settled in euros. On the other hand, US dollars accounted for about 39 per cent of gross sales and sterling around 3 per cent.

It is unclear what the Russian President’s announcement means for gas contracts signed with some Member States in 2021 or whether the EU’s sanctions against Russian energy sources will have unanimous support, as Hungary’s example has shown.

Hungary’s Prime Minister Viktor Orbán is opposing the extension of sanctions against Russia to the energy sector as this could put the country in a difficult situation, according to him. As per Hungarian government information, 64 per cent of Hungarian crude oil imports come from Russia and gas accounts for 85 per cent of household heating. In 2021, Hungary signed a 15-year gas purchase agreement with Russia.

Russia’s list of unfriendly nations includes the United States, the United Kingdom, all the Member States of the European Union, Japan, Canada, Norway, Singapore, South Korea, Switzerland and Ukraine.

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