TROSTYANETS: President Vladimir Putin threatened on Thursday to halt contracts supplying Europe with a third of its gas unless they are paid in Russian currency, his strongest economic riposte so far to crushing Western sanctions over his invasion of Ukraine.

European governments rejected Putin’s ultimatum for Friday, with the continent’s biggest recipient of Russian gas, Germany, calling it “blackmail”. Moscow did, however, offer a mechanism for buyers to obtain roubles via a Russian bank.

The energy showdown has huge ramifications.

Europe wants to wean itself off Russian energy but that risks further inflating soaring fuel prices. Russia has a huge revenue source at stake even as it reels from sanctions.

Putin’s five-week invasion of Ukraine has killed thousands, pulverised residential buildings, left masses of terrified people cowering in basements, and uprooted about a quarter of the 44 million population from their homes.

Facing stiff resistance from Ukraine’s military and a militant Western stance, Putin has played one of his biggest cards in the demand on European energy buyers.

“They must open rouble accounts in Russian banks. It is from these accounts that payments will be made for gas delivered starting from tomorrow,” he said on Thursday, adding that Europe had until now been getting some gas for free because it was paying in euros then freezing them.

“If such payments are not made (in roubles), we will consider this a default on the part of buyers, with all the ensuing consequences ... existing contracts will be stopped.”

Western companies and governments say that would be a breach of contracts in euros or dollars, but they were anyway preparing for a potential full-blown energy crisis.

However, the order signed by Putin does allow them to send foreign currency to a so-called “K” account at Russia’s Gazprombank, which would then return roubles for the buyer to make payment for the gas.

“Russia would have to physically halt gas flows to EU 27 (European Union member states) to force the issue, marking a major escalation not even performed at the height of the Cold War. It would mark another major financial blow to Russia’s coffers,” said analysts at Fitch Solutions. Putin sent troops on Feb. 24 for what he calls a “special military operation” to demilitarise and “denazify” Ukraine.

Published in Dawn, April 1st, 2022