Putin’s gas-for-roubles plan could trigger energy outages and rationing

Russia is expected to outline its gas-for-roubles plan later today as Europe braces for possible energy outages and rationing.

Vladimir Putin’s threat to seek payment in roubles for gas sales to “unfriendly” countries, which includes all EU members, has thrown energy markets into chaos and threatens to unravel the short-lived recovery from Covid-19.

Putin last week ordered the Russian central bank and oil giant Gazprom to prepare the roubles payment scheme by Thursday, March 31st though the Kremlin has indicated customers will not be obliged to switch to roubles straight away as "payments and delivery is a time-consuming process".

A German government spokesperson said Putin had told Chancellor Olaf Scholz on Wednesday that payments could still be made in euros to Gazprombank, a bank affiliated with the Russian gas export monopoly, which would convert the money to roubles.

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However, the Russian business newspaper Kommersant said Gazprom was looking into shutting off supplies: "Gazprom ... is indeed working on an option of a complete stoppage of gas supplies to 'unfriendly countries' and is evaluating the consequences of such measures," it wrote.

Russia is also threatening to widen its roubles demand to other commodities such as nickel.

Commodity prices

Western countries have said payment in roubles would breach contracts that can take months or more to renegotiate, a prospect that has driven commodity prices higher. It would also blunt the impact of Western curbs on Moscow’s access to its foreign exchange reserves and bolster its currency.

The European Union is preparing more sanctions against the Kremlin, EU sources said, with their scope depending on Moscow's stance on gas payments in roubles.

Germany, which imports more than half its gas needs from Russia, has already activated emergency plans that could eventually lead to gas rationing if Russia disrupts or halts supplies. Heavy industry, which accounts for a quarter of German gas demand, would be hit first, threatening jobs and the country's economic recovery from two years of pandemic.

British and Dutch gas prices were mostly higher on Thursday morning ahead of an expected announcement from Russia . In the Dutch gas market, the May contract was €5 higher at €124 per megawatt hour (MWh). In the British gas market, the day-ahead price was 2 pence higher at £2.80 e per therm. “Prices have been rallying all week..there is still a lot of uncertainty about supply given the stand-off between Europe and Russia,” a gas trader said. - Additional reporting by Reuters