Putin tells Europe: Pay in roubles or we'll remove your gas

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BERLIN/LONDON, March 31 (Reuters) - Russian President Vladimir Putin is requesting unfamiliar purchasers pay for Russian gas in roubles from Friday or, more than likely have their provisions cut, a move European capitals dismissed and which Germany expressed added up to "extort".

Putin's declaration on Thursday leaves Europe confronting the possibility of losing in excess of 33% of its gas supply. Germany, the most intensely dependent on Russia, has previously enacted a crisis plan that could prompt proportioning in Europe's greatest economy.

Energy exports are Putin's most powerful lever as he tries to hit back against sweeping Western sanctions imposed on Russian banks, companies, businessmen and associates of the Kremlin in response to Russia's invasion of Ukraine. Moscow calls its Ukraine action a "special military operation".

Putin said buyers of Russian gas "must open rouble accounts in Russian banks. It is from these accounts that payments will be made for gas delivered starting from tomorrow," or April 1.

"If such payments are not made, we will consider this a default on the part of buyers, with all the ensuing consequences. Nobody sells us anything for free, and we are not going to do charity either - that is, existing contracts will be stopped," he said in televised remarks.

It was not immediately clear whether in practice there might be a way for foreign firms to continue payment without using roubles, which the European Union and G7 have ruled out.

Italy said it was in contact with its European partners to give a firm response to Russia, adding its own gas reserves would allow economic activity to continue even in the event of disruptions. read more

Meantime, Germany's energy firms said they were in close talks with Berlin about how to respond to possible supply disruptions and draw up a roadmap on what to do should Russia stop gas exports.

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Under the mechanism decreed by Putin, foreign buyers would use special accounts at Gazprombank to pay for the gas. Gazprombank would buy roubles on behalf of the gas buyer and transfer roubles to another account, the order said. read more

A source told Reuters that payments for gas delivered in April on some contracts started in the second half of April and May for others, suggesting the taps might not be turned off immediately. read more

Putin's decision to enforce rouble payments has boosted the Russian currency, which fell to historic lows after the Feb. 24 invasion. The rouble has since recovered much lost ground.

"What sounded grandiose has turned into a storm in a teacup. By making it the main recipient of money for gas, it puts an extra shield against sanctions around Gazprombank," said Jack Sharples of the Oxford Institute for Energy Studies.

Western companies and governments have rejected any move to change their gas supply contracts to another payment currency. Most European buyers use euros. Executives say it would take months or longer to renegotiate terms.

Payment in roubles would also blunt the impact of Western curbs on Moscow's access to its foreign exchange reserves.

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