Putin talks tough on gas-for-rubles deadline. But Europe is not too

Russian President Vladimir Putin has sought to ratchet up the pressure on foreign buyers of natural gas, telling so-called “unfriendly” countries to pay in rubles from Friday — or have their supplies cut off.

Perhaps surprisingly, however, the leaders of Germany and Italy appear unfazed by Putin’s rhetoric.

That’s because they believe European customers won’t be bound by the Kremlin’s new mechanism and can instead continue paying for Russian gas in euros or dollars.

Putin on Thursday issued a decree insisting foreign buyers of Russian gas must pay in rubles from Friday by opening a Russian bank account or have their contracts for deliveries canceled.

Russia’s president has repeatedly demanded that so-called “unfriendly” countries make the currency switch for Russian gas, targeting those behind the heavy economic sanctions designed to isolate Russia over its unprovoked onslaught in Ukraine.

“Today I signed a decree that establishes the rules for trading Russian natural gas with the so-called ‘unfriendly’ states. We offer counter parties from such countries a clear and transparent scheme, in order to purchase Russian natural gas, they must open ruble accounts in Russian banks,” Putin said in a televised address, according to a translation.

“If these payments are not made, we will consider it a failure of the buyer to fulfill its obligations with all the ensuing consequences.”

Putin said existing contracts would be stopped if these terms were not met from Friday.

Germany, Europe’s biggest consumer of Russian gas, said Putin’s decree amounted to “political blackmail,” while the U.S. said the measure shows the financial “desperation” on the part of the Kremlin.

Instead of stoking panic in Berlin and Rome, German Chancellor Olaf Scholz and Italian Prime Minister Mario Draghi believe the decree does not apply to them.

A German government readout of a call between Scholz and Putin on Wednesday said the Russian president had informed Scholz that gas deliveries would have to be settled in rubles from April 1.

“At the same time, [Putin] emphasized in the conversation that nothing would change for the European contractual partners,” the readout said.

Payments would continue to be made in exclusively in euros as usual to Russia’s Gazprombank, which is not affected by economic sanctions, and the bank would then convert the money into euros.

The Kremlin’s readout of the same call said the currency switch was necessary due to the fact that the foreign exchange reserves of the Bank of Russia had been frozen by EU member states. It was agreed that experts from Russia and Germany would continue to negotiate on this matter, the Russian statement said.