European leaders on Thursday pushed back against President Vladimir V. Putin’s latest threat that all natural gas imported from Russia must be paid for in rubles starting Friday — or risk having the supplies shut off. Mr. Putin said in a TV address that companies purchasing gas from Russia would need to open ruble accounts in Russian banks, effective Friday, and pay for the gas through those accounts.
“If such payments are not made, we will consider this a default on the part of buyers — with all the ensuing consequences,” Mr. Putin said. “Nobody sells us anything for free, and we are not going to do charity either. That is, existing contracts will be stopped.”
At the same time, Mr. Putin said that Russia will comply with its “obligations” in its contracts with energy buyers and “continue to supply gas in the established volumes.”
It was unclear how the standoff would be resolved. At stake for European nations are vital supplies of natural gas that drives their economies. For Mr. Putin,it is the hundreds of millions of dollars that Russia pulls in every day in energy payments by Europe.
Mr. Putin’s insistence on being paid in rubles — instead of taking dollars or euros and converting them to rubles on his end — has been rejected by European leaders. It has also raised questions about his real motives. The Russian government and central bank have already taken several measures to increase the demand for rubles and prop up the currency, which plunged in value after sanctions froze the Russian central bank’s foreign assets.
The heads of state of two of Russia’s largest gas customers in Europe — Chancellor Olaf Scholz of Germany and Prime Minister Mario Draghi of Italy — refused the call for payments in rubles, saying it was not part of the terms of existing contracts.
“It remains the case that companies want, can and will pay in euros,” Mr. Scholz told reporters in Berlin on Thursday, a day after he spoke with Mr. Putin by telephone about the impending decree.
“It is absolutely not easy to change the currency for payments without breaching the contracts,” Mr. Draghi told reporters in Italy. A former president of the European Central Bank, he drew a parallel to a previous attempt by the European Union to impose its currency in a series of global transactions, with little success, given the challenges of altering existing contracts.
He added that he did not believe that Europe was “in danger,” of having its gas deliveries shut off, citing his own phone call with Mr. Putin on Wednesday, in which he said that he understood that the Russian president had granted a “concession” to European countries. The conversion of payments from dollars or euros into rubles was “an internal matter of the Russian Federation,” Mr. Draghi said.
“Contracts are contracts,” Bruno Le Maire, the economy minister of France said, after meetings in Berlin.
The Russia-Ukraine War and the Global Economy
Rising concerns. Russia’s invasion on Ukraine has had a ripple effect across the globe, adding to the stock market’s woes. The conflict has already caused dizzying spikes in energy prices and is causing Europe to raise its military spending.
The cost of energy. Oil prices already were the highest since 2014, and they have continued to rise since the invasion. Russia is the third-largest producer of oil, so more price increases are inevitable.
Gas supplies. Europe gets nearly 40 percent of its natural gas from Russia, and it is likely to be walloped with higher heating bills. Natural gas reserves are running low, and European leaders worry that Moscow could cut flows in response to the region’s support of Ukraine.
Food prices. Russia is the world’s largest supplier of wheat; together, it and Ukraine account for nearly a quarter of total global exports. Countries like Egypt, which relies heavily on Russian wheat imports, are already looking for alternative suppliers.
Shortages of essential metals. The price of palladium, used in automotive exhaust systems and mobile phones, has been soaring amid fears that Russia, the world’s largest exporter of the metal, could be cut off from global markets. The price of nickel, another key Russian export, has also been rising.
Financial turmoil. Global banks are bracing for the effects of sanctions intended to restrict Russia’s access to foreign capital and limit its ability to process payments in dollars, euros and other currencies crucial for trade. Banks are also on alert for retaliatory cyberattacks by Russia.
Robert Habeck, Mr. Scholz’s minister for the economy and energy, repeated the insistence of the Group of 7 industrial countries that existing contracts for Russian gas must be respected. “It is important for us not to give a signal that we will be blackmailed by Putin,” he said.
On Wednesday, Mr. Habeck activated the first step of a national gas emergency plan — that could lead to the rationing of gas — to prepare the country’s citizens and its powerful industrial base for the possibility that gas deliveries could be stopped.
Both Germany and Italy have been scrambling over the past month to diversify their natural gas resources, after years of depending heavily on imports from Russia. Last year, Russian imports accounted for 55 percent of Germany’s gas needs, while roughly 40 percent of gas burned in Italy came from Russia.
With his demand, Mr. Putin seems to be seeking to force Europe and other buyers to violate their own sanctions by making them purchase rubles, which would also serve to prop up the Russian currency, said Eswar Prasad, an economist at Cornell University. “Putin seems determined to show that he can dictate terms and force countries that are dependent on his country’s natural gas exports to sing to his tune,” he said.
Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics, said “it seems Putin’s motivation is to prevent hard currency payments from being frozen,” so he is requiring the money to be delivered directly to Russian banks.
Anton Troianovski and Gaia Pianigiani contributed reporting.