Putin: Existing Contracts on Russian Gas Will Be Frozen If They Aren't Paid in Rubles

Last week, the Russian president ordered the Central Bank and government to work out the means for countries designated as 'unfriendly' by Moscow to pay for Russian gas in rubles. The G7 objected to the move and vowed not to pay. However, Berlin, one of the biggest buyers of Russian gas, has since asked how such transactions may take place.

Russian President Vladimir Putin has signed a decree regulating gas trade with designated 'unfriendly' states, saying that countries wishing to do business with Moscow must open bank accounts in Russian banks, and stressing that existing contracts will be frozen unless payments are made in rubles.

"We are offering contractors from these countries a clear and transparent scheme. To buy Russian natural gas, they must open ruble accounts in Russian banks. It is from these accounts that payments will be made for gas which has been supplied as of tomorrow, 1 April," Putin said, speaking at a meeting on aviation industry matters on Thursday.

Putin stressed that Russia would continue to meet its obligations to supply gas at volumes and at prices set under existing contracts. However, the need to pay in the Russian currency is not up for negotiation, according to the president.

"No one sells anything for nothing, and we too will not engage in charity. That is, existing contracts [not paid for in rubles] will be stopped," he said. "If such payments [in rubles] are not made, we will consider this a default on obligations by buyers - with all the ensuing consequences," Putin added.

Putin announced on 23 March that Russia would require countries which have introduced sanctions against Russia to pay for their natural gas purchases in rubles. The Russian Central Bank, the government and Gazprom were given one week to amend existing contracts into rubles.

Details

Sputnik has obtained the full text of the gas-for-rubles directive. The document, entitled "On a special procedure for the fulfillment of obligations by foreign buyers to Russian suppliers of natural gas", orders that payments for gas exported as of 1 April to countries which have engaged in "unfriendly actions against the Russian Federation, Russian legal entities and individuals" be made in rubles.

Supplies will be frozen if an attempt is made to pay in foreign currency, in the event of a failure to pay in full, or a failure to make payment from an authorised Russian bank.

"The Joint Stock Company Gazprombank, which for the purposes of this decree is an authorised bank ... opens special type K ruble accounts and special type K foreign currency accounts for payments for the gas supplied on the basis of applications made by foreign buyers," the document notes.

Gazprombank is given authority to open accounts on behalf of foreign buyers without their direct presence if they wish. The special accounts are not subject to the Russian Tax Code until appropriate amendments are made, and the suspension, arrest or write-off of these funds is prohibited for any reason other than payment for gas contracts.

The decree allows the Russian government commission which is responsible for the control of foreign investments to issue permits exempting the ruble payments rule.

Berlin 'Hasn't Seen' Directive

European gas futures jumped to more than $1,450 per thousand cubic metres immediately after Putin's comments.

German's Ministry of Economy chief Robert Habeck told reporters that he "hasn't seen" the directive, but stressed that Berlin was well prepared for Russia's decisions on gas supplies and that it wouldn't allow Putin to "blackmail us".

On Wednesday, German government spokesman Steffen Hebestreit told reporters that Chancellor Olaf Scholz had asked Putin to explain the procedure for paying for Russian gas in rubles during a recent telephone conversation "to understand the procedure better".

Putin was said to have informed Scholz that the Russian move on gas payments was caused by the West's decision to freeze some $300 billion in Russian reserves abroad, including in European countries, in the wake of Moscow's military operation in Ukraine.

Russian supplies account for more than 40 percent of Germany's natural gas consumption.

Global Crisis

In his remarks on Thursday, Putin also touched on the global economic crisis threatening the planet, and who he believes is responsible.

"Global markets are falling, but the value of shares in companies in the US military-industrial complex are only growing. Capital is flowing to the United States, depriving other regions of the world of resources for development," Putin said.

US attempts to get Europe to buy expensive American liquefied natural gas are part of the same bag of tricks, according to Putin. "As a result, the Europeans are forced not only to fork out cash, but, in essence, to undermine the competitiveness of European companies with their own hands, removing them from the global market. For Europe, this means large-scale de-industrialisation and the loss of millions of jobs," he said.

Step by step, Putin suggested, western politicians were making decisions pushing the world economy to a crisis state. "They will lead to a breakdown in production and logistics ties, cause inflation to rise, and a decrease in the wellbeing of millions of people, and in the poorest countries, to the tragedy of mass starvation. The food crisis will be followed by another wave of migration, including - and above all - to European countries," he predicted.

Putin also commented on the prospects facing Russia's aviation industry, and the economy in general.

"I propose to proceed from the fact that previous levels of interaction with our former partners will not be reached in the near future. We are not going to close ourselves off from anyone, and we will not be a closed country. But we must proceed from the realities that are emerging," Putin said. "We have every opportunity to ensure that the aviation industry not only overcomes the present difficulties, but also receives a new impetus for development," he suggested.

There is also "room for opportunities for Russian aircraft manufacturers, design bureaus, suppliers of materials, assemblies and components," Putin said. The president expressed confidence that the proportion of domestic aircraft in the fleets of Russian airlines will "grow dramatically" in the years to come.

Russia's domestic aircraft manufacturing industry has a rich and storied history. During the Cold War, Soviet-made civilian passenger airplanes and helicopters accounted for nearly one-third of all aircraft produced globally. Output plunged in the Nineties and Noughties thanks to market reforms, the breakdown of Soviet-era supply chains and lobbying by global aviation giants such as Airbus and Boeing to supply planes to Russian carriers. However, in the 2010s - and particularly after western countries started sanctioning Russia amid the Ukraine crisis that began in 2014 - the government began to devote considerable material resources and other forms of support to domestic aircraft manufacturers.