Germany has urged households and businesses to cut their gas consumption to the bare minimum before a deadline set by President Putin for European energy companies to pay their bills in roubles.
Moscow has given the European Union until tomorrow to switch payments from euros or dollars to roubles, which would force the bloc to undermine its own sanctions and help to prop up the Russian currency.
The Kremlin has not specified what it will do should the EU fail to comply, but its chief spokesman appeared to threaten that gas deliveries could be curtailed or even suspended, saying it would “definitely not supply gas for free”.
This would wreak economic havoc in Germany and a number of other European countries that depend heavily on Russian gas for heating, electricity and industrial processes and have carried on paying Moscow hundreds of millions of euros a day for energy since the beginning of the war.
Although Berlin said this week that Russia’s share of its gas imports had fallen from 55 to 40 per cent in recent months, government forecasts suggest that an abrupt supply cut could drag the country into its steepest recession for decades, lopping up to 5 per cent off the economy.
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Yet the German government and its allies in the G7 have said they will call Putin’s bluff. “We cannot accept any blackmail,” Christian Lindner, the German finance minister, told Bloomberg. “Whatever happens, we are ready and will find solutions.”
This morning Germany activated the “early warning” phase of its emergency gas plan, pulling together a crisis unit to monitor the supply network for signs of weakness.
Robert Habeck, the energy minister and vice chancellor, insisted that there were “no supply shortages for the time being” but said stronger steps could be taken to guarantee that the country had enough gas. These contingency options include rationing the fuel or temporarily stopping supplies to some businesses to ensure that private citizens have enough gas.
“There is enough gas available on the markets for household customers, social services such as hospitals, district heating, electricity generation and the Germany economy,” Habeck’s ministry said. “However, from now on every gas consumer — from businesses to private households — has a duty to reduce their consumption as much as possible.”
Germany would be particularly hard-pressed to cope without Russian gas for more than a few months because it relies overwhelmingly on pipeline deliveries and has only minimal infrastructure for importing liquefied natural gas (LNG) from alternative sources such as the US and Qatar.
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This month it announced that it could reduce its dependence on gas from Russia by 90 per cent over the next two years through a “massive collective effort” including the construction of floating LNG terminals and a national efficiency drive to cut consumption by 30 per cent.
However, Olaf Scholz, the chancellor, has implacably resisted Ukraine’s appeals for an immediate EU energy embargo on Russia, which he said would have “devastating” consequences for German industry and put hundreds of thousands of jobs in jeopardy.
At an energy summit in Berlin yesterday Habeck decried years of “stupid” mistakes as Germany had leant ever more heavily on Moscow for gas, selling its largest storage facility to Gazprom and waving through the two Russian-owned Nord Stream pipeline projects despite strident complaints from its allies.
He said it was almost impossible to understand how Germany had “blinded” itself to the risk that Russia could exploit this strategic vulnerability even after the invasion of Crimea in 2014.
“And nevertheless we counted on Nord Stream 2, the big gas pipeline,” Habeck said. “We knew, or we could have known, that it wasn’t just stupid to place all our security bets on one country, but that it probably wasn’t a clever idea to carry on doing so.”
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In early trading on the spot markets this morning European gas prices rose by 8 per cent. It is unclear how strictly Putin will insist on tomorrow’s deadline.
Gazprom and the Russian central bank have yet to set out their proposed mechanism for making the payments compatible with western sanctions.
The ultimatum appears to be an attempt to drive a wedge between EU member states and force the bloc to damage the credibility of its own sanctions regime by buying roubles, either directly from the Russian central bank, indirectly by way of other Russian banks, or on the international currency markets.
Any of these options would help to prop up the value of the rouble, which has already made up most of the heavy losses it suffered against the dollar and the euro at the start of the invasion.
It may also be a gambit by Putin to seize the initiative in anticipation of a possible EU embargo on Russian energy.
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Russia will not immediately demand that other countries pay for its gas exports in roubles, the Kremlin said today, promising a gradual shift and saying Russia should work on an idea to widen the list of its exports requiring rouble payment.
Vyacheslav Volodin, chairman of Russia's Duma, warned the EU this morning that if it wanted Russian natural gas then it would have to pay in roubles, and cautioned that oil, grain, metals, fertiliser, coal and timber exports could also soon be priced the same way.
Over the past fortnight Germany has struck longer-term deals to import LNG from Qatar and Israel, while the US has offered to substantially scale up its LNG shipments to the EU. Other large producers such as Norway and Australia have said they are prepared to send more gas to Europe.
