Threatening to cut off gas, Russia uses the tactic of ‘stirring up a storm in a cup of tea’

Russian President Vladimir Putin on March 31 signed a decree declaring that `unfriendly` countries must open accounts in Russian banks and pay for gas contracts in rubles.

Countries considered `unfriendly` by Russia include the US, European Union (EU) member states, UK, Japan, Canada, Norway, Singapore, South Korea, Switzerland and Ukraine.

A week has passed, and no European gas purchase contract has been frozen as Mr. Putin threatened, although European countries resolutely refused this payment request, arguing that it violates the terms of the contract.

During a press conference on April 1, Kremlin spokesman Dmitry Peskov explained that this regulation could `be implemented in the second half of April or early May`, and does not apply to current shipments.

Gazprom’s Siberian Energy Plant, which processes gas extracted in the Russian Far East, in November 2019.

`There is no need to rush. Change will take place in stages, very carefully, with considerations for financial and economic realities in the global market. Of course we cannot make sudden changes

Along with the reassuring message, the Kremlin also left the door open to normalize contract payment methods for countries `unfriendly` to Russia, ending the ruble payment condition if the situation changes.

Experts and Russian tycoons have warned that the decision to request gas payments in rubles could be a double-edged sword for Moscow.

In the long term, if selling goods in rubles, Russian gas corporation Gazprom will be in a situation of not having hard currency to pay foreign debts or buy equipment for production, according to the Research Center.

The decision to immediately `turn off` gas to Europe also lacks practicality for Russia.

Analysts say that the threats in President Putin’s decree are more likely just a `wind blow` to protect Russian businesses and support the ruble rather than a measure to retaliate against European sanctions.

According to Jeffrey Schott, an expert at the UK’s Peterson Institute for International Economics, President Putin’s decree is actually intended to protect the Gazprom group, stipulating that Gazprombank, the bank of this gas supplier, is the focal point for the gas suppliers.

Gazprombank is still outside the financial sanctions list of the US and its Western allies, creating conditions for the European Union (EU) to continue buying gas from Gazprom.

If Gazprombank is chosen as the collector, the EU cannot impose sanctions on the bank if it wants the gas to keep flowing, Schott said.

`Those threats turned out to be just a storm in a teacup,` said Jack Sharples, an expert at the UK’s Oxford Energy Research Institute.

Russian President Vladimir Putin chaired a government meeting in Moscow on March 31.

BBC quoted a European official as saying that Mr. Putin wanted to use this threat of cutting off gas to test which Western countries were willing to accept concessions at the risk of no longer having an important energy source for production.

`When witnessing the West’s tough attitude, Russia sought to switch to a different system so that it could claim that it had won the confrontation, while the status quo remained almost unchanged,` the official said.

Italian Minister of Ecological Transition Roberto Cingolani also commented on April 1 that the request set by Mr. Putin does not change too much the nature of payments between the EU and Russia.

`That model hasn’t changed much, but Mr. Putin can still claim that Europe is paying for gas in rubles, while the EU continues to pay in euros,` Cingolani analyzed.

The Central Bank of Russia has required the country’s export businesses to convert 80% of foreign currency revenues into rubles.

Some analysts see Putin’s decree as a `push` in a series of measures to rescue the ruble after the value of the Russian currency fell to a record low on March 7.

The Russian Central Bank cannot rescue the ruble in the usual way of mobilizing foreign currency reserves, when this agency is one of the first targets of Western sanctions.

Therefore, when asking for gas purchases in rubles, Russia expects to create increased demand for the local currency, because Gazprom’s major partners usually do not reserve large amounts of rubles.

Along with a series of currency control measures, President Putin’s decree also helps strengthen market confidence in the Russian currency and restrain sell-offs, helping the ruble gradually recover.

Therefore, analysts believe that beyond the calculation of supporting the ruble and protecting its important revenue source, Russia does not really intend to completely cut off gas to Europe.