Germany Calls Russia's Bluff in Gas Dispute. It Looks to Have Worked

Germany appears to have called Russia's bluff in a dispute over payments for gas after President Vladimir Putin demanded so-called "unfriendly countries" pay for his country's energy in rubles.

German Vice Chancellor and Economy Minister Robert Habeck announced on Wednesday that he was triggering the first in a series of three warning levels for gas supplies in the first step to deal with a potential cut-off of gas from Russia, which is struggling under Western sanctions over its invasion of Ukraine.

Following Habeck's announcement, the Kremlin said the switch to paying in rubles would not take place immediately, after Putin gave his government and the Central Bank of Russia one week to work out a solution.

The government, central bank and energy giant Gazprom are due to deliver proposals on Thursday, but Kremlin spokesperson Dmitry Peskov said the switchover would not start on March 31.

"As we discussed before, payments and delivery is a time-consuming process," Peskov said on Wednesday. "This does not mean that a tomorrow's delivery should be paid [in rubles]. From a technological point of view, this is a more prolonged process."

It was not immediately clear if Peskov's comments were directly prompted by Germany's announcement. The Group of Seven major economies, which includes Germany, also rejected the idea of paying in rubles earlier this week.

Around 58 percent of gas purchases from Gazprom by European and other nations were paid in euros as of January 27, while 39 percent was in U.S. dollars in the third quarter of 2021. On Monday, Russian Deputy Chairman of the Federation Council Committee on Economic Policy Ivan Abramov told state media that Russia could cut off supplies to the G7.

"If these countries refuse to buy gas for rubles, this will definitely lead to the termination of its supplies. We have a clear position," Abramov said.

Newsweek has asked the Russian Foreign Ministry for comment.

Germany's early warning level will see a crisis team established in Habeck's office to handle the stability of Germany's gas supply, while the vice-chancellor called on people and companies to reduce their consumption of energy.

The move comes after Putin announced last week that "unfriendly countries" would be required to pay for Russian gas supplies with the ruble, which had suffered major declines in the wake of Western sanctions.

"There are currently no supply shortages," Habeck said on Wednesday.

"Nevertheless, we must increase precautionary measures in order to be prepared in the event of an escalation on the part of Russia," he said. He also urged reductions in consumption.

"I would look to combine the triggering of the early level for gas with an appeal for help to companies and private consumers," Habeck said. "You are helping Germany, you are helping Ukraine, when you reduce your use of gas or energy in general."

Under Germany's emergency plan, the government would likely intervene in the supply of gas at the third warning level, with the country's regulator potentially taking over distribution in order to provide gas to "protected customers" such as households, hospitals and essential services.

On March 23, Putin announced the decision to sell gas in exchange for rubles during a televised event with senior government ministers. He said Russia would continue to supply gas at volumes and prices "fixed in previously concluded contracts."

"The changes will only affect the currency of payment, which will be changed to Russian rubles," Putin said.

The move was likely aimed at boosting the ruble and led to the Russian currency briefly reaching a three-week high. Robert Habeck, who is also Germany's energy minister, said on Monday that all G7 counterparts "agreed that this is a unilateral and clear breach of the existing agreements."

"Payment in rubles is not acceptable and ... we call on the companies concerned not to comply with Putin's demand," Habeck said.

Germany is heavily dependent on Russian gas and imported 55 percent of its gas supplies from Russia in 2021, though this figure fell to 40 percent in the first quarter of 2022.

The country's government is aiming to reduce its dependence on Russian energy imports, but Habeck said on Wednesday that Germany would not achieve full independence from Russian supplies until mid-2024.

Robert Habeck Speaks to the Media
German Economy and Climate Protection Minister as well as Vice Chancellor Robert Habeck speaks to the media during the official opening of the new Tesla electric car manufacturing plant near Gruenheide, Germany, on March 22, 2022. Habeck has issued an early warning for the country's gas supplies from Russia. Christian Marquardt/Getty Images