G-7 Rejects Putin Demand for Ruble Payments for Russian Gas

(Bloomberg) -- Energy ministers from the Group of Seven industrialized nations unanimously rejected Russian President Vladimir Putin’s demand that natural-gas contracts be paid in rubles.

The order represents a “one-sided and clear breach of contracts,” German Economy Minister Robert Habeck said Monday after chairing G-7 talks. “That means that a payment in rubles is not acceptable and we urge the relevant companies not to comply with Putin’s demand.”

The order to have “hostile states” make natural-gas payments in rubles would essentially force European companies to directly prop up the currency after it was sent into free-fall by sanctions placed on the Russian economy following Moscow’s invasion of Ukraine. Putin ordered his government, Gazprom and the central bank to prepare all the necessary documents to switch to ruble payments by March 31. 

Germany currently holds the presidency of the G-7 club of developed economies and Habeck is also responsible for energy in Chancellor Olaf Scholz’s ruling coalition.

Payment Confusion

Even as the March deadline looms, neither officials in the Russian government nor Gazprom executives have been able to shed light on how the surprise order will be implemented. 

European Union leaders last week also forcefully rejected Russia’s attempt to require payments be made in rubles. “It’s a contract violation, and contracts will be considered violated if Russia implements this condition,” Italian Prime Minister Mario Draghi told reporters in Brussels on March 24. 

Europe gets about 40% of its gas from Russia and is already grappling with fallout from record prices this winter.

“Putin’s effort to drive a wedge between us is obvious but you can see that we won’t allow ourselves to be divided and the answer from the G-7 is clear: the contracts will be honored,” Habeck said.

Separately, Scholz reiterated Monday that gas contracts must be honored in the currency in which they are originally agreed.

“As I have already said, the contracts that we are aware of are overwhelmingly in euros and the companies will pay them accordingly,” Scholz told reporters after talks with his Swedish counterpart in Berlin. “We have a situation in which, to put it very simply, contracts must be fulfilled.”

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