Olaf Scholz rejects Vladimir Putin's demand of payments in rubles for gas-related trade

German Chancellor Olaf Scholz on Thursday refused to pay for the Russian gas deliveries in rubles after Moscow’s leader Vladimir Putin told “unfriendly countries” that Russia will only accept payment in its currency as the unprecedented Western sanctions depreciated Ruble. While the gas prices soared, Putin’s announcement came as an effort to strengthen Ruble’s worth. The value of the Russian currency soared against the Dollar and Euro on Thursday shortly after Russia’s President clarified that he would no longer be accepting the foreign currency for gas export. 

Contracts to render 'null and void'

At a Group of Seven (G7) press conference in Brussels on March 24, German chancellor Scholz dismissed the prospect of paying in Ruble, citing the contracts signed with Russian companies earlier that he asserted will make them “null and void.” German Economy Minister Robert Habeck said Putin’s demand was a breach of contract and that Berlin will discuss with European partners “how we would react to that”. German cabinet also scheduled a meeting to discuss a package of measures to deal with the increased energy costs. 

Scholz said, "there are fixed contracts" that specify the payments must be made in euros or dollars. “That's what counts," he stated, according to Politico. "What we have learned so far boils down to the fact that there are fixed contracts everywhere, where the currency in which payment is made is also part of the contract," said Scholz. "Those are the starting points that we have to work from,” he continued. “I don't think anybody in Europe really knows how rubles look like,” meanwhile the Slovene Prime Minister Janez Jansa also said. “Nobody will pay in rubles,” he stated.  Italian Prime Minister Mario Draghi, the former chief of the European Central Bank, also backed the decision. He rejected the plan saying, "We consider it a violation of existing contracts."

Drawing a line over reliability

Earlier this week, Putin condemned the Western sanctions targeting the Kremlin and Russian assets, as he told his officials that the West was "effectively drawing a line over the reliability of their currencies, undermining the trust for those currencies.” EU, US, and the allied nations have frozen an estimated $300 billion of Russia’s foreign currency reserves abroad, an act that the Russian Foreign Minister Sergey Lavrov described as “theft”. Washington also banned the import of Russian oil and gas after President Biden labeled Putin “a war criminal".

Brussels, however, only slashed the Russian gas imports by two-thirds and has been mulling a total oil embargo by the end of the year as it seeks alternatives. Russia, though, is now seeking to “de-dollarise” its economy in the face of coordinated sanctions. Moscow’s Deputy Prime Minister Alexander Novak said that the shift of currency in trading by the Kremlin would “increase reliability”.

During the first day of the EU summit, the European leaders refused to pay for Russian gas in Ruble. Belgian Prime Minister Alexander De Croo who briefly saw possibility in the proposal also expressed uncertainty. “In any case, if one element of a contract is changed, then we can talk about a whole range of issues, including the price,” he told the summit. Russia, one of the largest suppliers of gas to the EU, fulfills nearly 40 percent of the bloc’s total energy needs. 

EU countries import over 90 percent of the natural gas from Moscow. But as Russia was hit with crippling sanctions over its invasion of Ukraine, the 27 leaders of the European Union remained divided over oil, natural gas, and coal imports. "Sanctions must always have a much bigger impact on the Russian side than on ours,” Belgian Prime Minister Alexander De Croo said, reflecting on the reliance of Germany, Austria, and the Netherlands on Russian gas. “We are not at war with ourselves,” he went on to add.

"As long as we are purchasing energy from Russia, we are financing the war, and this is the big problem that we have," Finland Prime Minister Sanna Marin said.

Latvian Prime Minister Krisjanis Karins told reporters that his country will not consider heeding to Russia’s demands. "We have to continue to isolate Putin's economy, Russia's economy, to stop the money flowing into the war machine," he said. He emphasized on EU’s independence from Russia’s oil and gas imports, saying that the “most logical place to move forward is in oil and coal." Analysts on Thursday expressed doubts that the EU leaders will even pay in Ruble as the volumes of gas outlined in contracts had been legally binding to pay in Dollars or Euros, their own currency.

Putin, however, ordered the central banks to set up the new payment system within a week, adding that the process must be “transparent” and must involve purchases in Ruble to benefit Russia’s domestic market. 

“It is clear that delivering our goods to the European Union, the United States and receiving dollars, euros, other currencies no longer makes sense to us,” Putin said.

A key economic battle

Ukraine had earlier denounced Russia’s “economic war” on the EU and had derided the bloc’s so-called efforts to “strengthen the ruble” by importing Russian gas. “But the West could hit Russia with an oil embargo that would cause the Russian economy to plunge,” Ukrainian presidential advisor Andriy Yermak wrote on Telegram. “This is now a key economic battle, and the West must collectively win it,” he added. Ukrainian Foreign Affairs Minister Dmytro Kuleba on Thursday took to his Twitter handle to warn the EU against paying Russia in Ruble for gas supply and funding Putin’s regime to fuel the war and atrocities. “If any EU country bows to Putin’s humiliating demands to pay for oil and gas in rubles, it will be like helping Ukraine with one hand and helping Russians kill Ukrainians with the other,” he wrote. “I urge relevant countries to make a wise and responsible choice,” he added.