Hungary sides with Russia on gas payments

Hungary has broken ranks with the EU by saying that it is willing to yield to Russian demands to pay for gas with roubles.

Vladimir Putin last week signed a decree saying that “foreign buyers” must pay for gas supplies using Russia’s currency, Reuters reported, warning that “contracts would be halted if these payments were not made”.

The Russian president said in a televised address: “In order to purchase Russian natural gas, they must open rouble accounts in Russian banks… Nobody sells us anything for free, and we are not going to do charity either. Existing contracts will be stopped.”

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Moscow supplies “about a third of Europe’s gas”, the news agency said, meaning “energy is the most powerful lever at Putin’s disposal” in response to biting Western sanctions.

Russian cash for Russian gas

Putin’s demand that countries buy gas using roubles has been interpreted as “an attempt to boost the rouble, which has been hit by Western sanctions”, the BBC said.

The decree means foreign buyers will “have to open an account at Russia’s Gazprombank and transfer euros or US dollars into it”, the broadcaster explained. The bank will then “convert this into roubles which will then be used to make the payment for gas”.

BBC economics editor Faisal Islam said that the measure was intended to be seen as “a dramatic escalation in the economic battle between the West and Russia over the invasion of Ukraine”.

Putin essentially “outlined a pathway for the cutting of gas supplies to Europe if Western customers refuse to pay for supplies in the Russian currency the rouble”, he added. But Russia ultimately “still needs the money for the gas, and still wants to leave the possibility of a market for its main export once a peace deal is signed”.

Hungary, which has long-standing economic and political ties to the Kremlin, yesterday became the first country to publicly state that it would go along with the decree. Fresh from his election victory, Prime Minister Viktor Orbán told a press conference: “It causes us no problem… so if the Russians request it, we will pay in roubles.”

Orbán is “one of Russia’s closest EU allies and his stance is markedly different from other European importers of Russian gas”, the Financial Times said. Germany, in particular, has already said it is ready for “supply interruptions and might have to ration gas if Moscow shut off or delayed shipments”.

But the Hungarian prime minister’s stance is a “challenge to the EU’s rejection of Putin’s attempts to shift the terms of energy contracts”, the paper added, especially as he comes under “increasing pressure” from his EU allies to loosen his ties with Moscow.

‘Energy trolling’

Moscow is currently “working out methods for accepting payments for its natural-gas exports in rubles”, Radio Free Europe (RFE) reported, and has said “it will make decisions in due course should European countries refuse to pay in the Russian currency”.

Kremlin spokesperson Dmitry Peskov said last week after Putin’s televised address: “We are not going to supply gas for free, this is clear. In our situation, it is hardly possible and appropriate to engage in charity” with European buyers.

But as it stands, the G7 appears ready to “reject the demand”, RFE added. German energy minister Robert Habeck last week said that “all G7 ministers agreed completely that this [would be] a one-sided and clear breach of the existing contracts”.

“Payment in ruble is not acceptable and we will urge the companies affected not to follow Putin's demand,” he added after a meeting between officials from France, Germany, Italy, Japan, the US, the UK and Canada.

The move is an effort by Putin to “troll the West over its energy addiction”, Politico said. But it is “a high-stakes gamble” when Russia’s economy is already in freefall.

“Either the West caves and complies with Putin’s demands,” the site said, “or it balks and risks seeing how far Putin will go in withholding gas supplies and potentially cutting off the cash needed by his flailing domestic economy.”