The Kremlin warned yesterday it will not supply gas to Europe for free, as it works out methods for accepting payments for its gas exports in roubles.
Government spokesman Dmitry Peskov said: “In our situation, this is hardly possible and appropriate to engage in charity with European customers.”
President Vladimir Putin revealed last week that unfriendly countries would have to pay in roubles rather than euros or dollars for its gas, following the West’s ramping up of sanctions on the country.
This has raised concerns over supply security, with energy companies scrambling to establish the potential ramifications.
The G7 nations refused the demand earlier this week, alongside European Union (EU) member states.
Nevertheless, Dutch and British wholesale gas prices spiked 20 per cent yesterday amid raised concerns about potential gas supply shortages – with prices rising a further five per cent today.
The situation will come to a head later this week with the Russian central bank, the government and Gazprom set to present their proposals for rouble gas payments to Putin by March 31.
The escalating dispute over gas payments has become a game of bluff, argues Craig Erlam, senior markets analyst at OANDA.
He suggested the current impasse between the West and Russia over gas supplies places a lot pressure on both the Kremlin – which will be loathe to break contracts – and the West, with the European Union (EU) dependent on the country for 40 per cent of its natural gas supplies.
Erlam told City A.M. “It now becomes a case of which side will blink first as the G7 is of the belief that contracts are in their favour. It would be a big move for Russia to break those contracts and stop deliveries, given its previous determination to be a reliable provider of gas and oil. Perhaps a ceasefire agreement today will allow for a compromise here too.
If Russia opted not to honour agreed contracts establishing euro and dollar payments could set a difficult precedent for the country and further antagonise the West.
However, it has seen the value of the rouble rise – soaring seven per cent to 83 to the dollar on Tuesday.
The EU is also aiming to cut its dependency on Russian gas by two-thirds this year and end Russian fossil fuel imports by 2027.
Russian gas exports to the EU were around 155bn cubic metres (bcm) last year.
Last Friday, the US revealed it will aim to supply 15 bcm of liquefied natural gas (LNG) to the EU this year in hopes of easing supply worries.
However, the trading bloc remains split over the prospect of following the UK and US in bringing in energy sanctions.