BERLIN — Germany has taken the final step in brinkmanship with Russia’s President Vladimir V. Putin over his demand that Moscow be paid in rubles for critical energy supplies, announcing Wednesday that it was willing to ration natural gas if Russia cut its supplies.
Hours later, the Kremlin appeared to be overcoming the deadlock by devising a plan that would allow Berlin or other European customers to continue to pay in euros. The plan was relayed by Mr Putin in a telephone conversation with Chancellor Olaf Scholz, according to statements released late Wednesday by the German government and the Russian state news agency Tass.
In the phone call, Mr Putin said a new Russian law requiring gas deliveries to be settled in rubles would come into effect on April 1. affected by the sanctions,” said a statement from Mr Scholz’s office summarizing the appeal. “The bank would then convert the money into rubles.”
Western sanctions aim to cripple the Russian economy by shutting down the country’s central bank, threatening the country’s currency, the ruble.
But the Moscow-based Gazprom Bank, which handles energy contracts, received no sanctions, a concession to Europe’s heavy reliance on Russian coal, oil and natural gas. More than 40 percent of all gas imported by Europe comes from Russia. According to Bruegel, an economics institute in Brussels, Europe’s energy payments to Russia, which have risen due to rising prices, could average $850 million per day in the first half of 2022.
By going through the Gazprom Bank, Russia can convert western currencies into rubles.
Earlier Wednesday, the German government activated the first step of a national gas emergency plan that could lead to the rationing of natural gas. The action — the first step, or “early warning phase” — involves setting up a crisis team of representatives from federal and state governments, regulators and the private sector, said Robert Habeck, the economy secretary and vice chancellor.
The move illustrates the risk faced by European countries dependent on Russian oil and gas as the war in Ukraine continues. On Monday, energy ministers of the Group of 7 countries rejected a demand from Russia to pay the country for its supplies in rubles. Several European energy companies have said that payment in rubles will require renegotiation of long-term contracts.
“We do not accept any breach of private contracts,” Mr Habeck said.
Eswar Prasad, a trade policy professor at Cornell University, said the demand to be paid in rubles made little economic sense: “Paying euros actually helps Putin rather than hurt him.” Euros, which are considered strong and stable, can be used by Russia to support the ruble when its own currency has weakened.
The dispute over natural gas comes as the prices of energy, food and other staples rise across the continent as war rages on, disrupting supply chains already strained by the pandemic. On Wednesday, both Germany – Europe’s largest economy – and Spain reported inflation levels in March that reached a 40-year high.
The German Council of Economic Experts, which advises the government in Berlin, warned in a report that the “prospects for the economy in Germany and the eurozone have deteriorated sharply” as a result of the war in Ukraine.
The ongoing deadlock in natural gas pricing is part of Mr Putin’s efforts to back out of a wide range of economic sanctions aimed at punishing the Kremlin for invading neighboring Ukraine.
“We must take precautions to be prepared for an escalation on the part of Russia,” Mr Habeck told reporters. “A crisis team has been convened with the announcement of the early warning level.”
The war between Russia and Ukraine and the world economy
The team will meet daily to monitor the situation and identify measures that can be taken if supplies begin to run out, which Mr Habeck said were not yet the case. Only if the situation were critical enough would the government intervene to ration natural gas supplies. In that case, according to a planning document, households and critical public services, including hospitals and emergency services, would be given priority over industry.
About half of Germany homes depend on natural gas for heating, and 55 percent of the country’s gas comes from Russia. It arrives via land pipelines through Ukraine and Poland and via the original Nord Stream pipeline under the Baltic Sea. A sister pipeline awaiting German approval, Nord Stream 2, was effectively frozen by the government two days before Russian tanks entered Ukraine.
“Security of supply remains guaranteed,” said Mr Habeck. “There are currently no supply bottlenecks. Nevertheless, we must step up precautions to be prepared for an escalation on the part of Russia.”
Gazprom, Russia’s state-owned energy company, said on Wednesday that it had continued to supply gas to Europe via Ukraine in accordance with requests from European consumers and flows remained high. Gas was also flowing west through a pipeline crossing Poland from Russia for the first time since March 15.
Poland is lobbying its partners in the European Union to end their dependence on Russian energy as soon as possible. The government in Warsaw has a pipeline connecting the country to Norway, which is expected to open by the end of the year, and to increase the capacity for liquefied natural gas. The country also announced that it would stop importing Russian oil by the end of the year.
In Athens, the Greek Ministry of Energy convened an emergency meeting of all players in the country’s gas market to discuss alternative options for purchasing natural gas in the event of an interruption in Russian gas supplies, the ministry said.
Mr Habeck also urged German consumers and businesses to make an effort to reduce their energy consumption where possible. “Every kilowatt hour counts,” he said.
Patricia Cohen† Ivan Nechepurenko and Niki Kitsantonis reporting contributed.