European energy crisis looms after Germany rejects Putin 'blackmail' over rouble payments

Europe is facing a full-blown energy crisis after Vladimir Putin signed a decree saying "unfriendly" foreign buyers must pay in roubles for Russian gas from 1 April.

The demands have been immediately rejected by France and Germany, who say they will continue to make payments in euro or dollars.

"In order to purchase Russian natural gas, they must open rouble accounts in Russian banks. It is from these accounts that payments will be made for gas delivered starting from tomorrow," Putin said in televised remarks.

"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."

Watch: Ukraine war: Putin demands payment in roubles for Russian gas supplies or contracts will be 'halted'

Europe's reliance on Russian gas has been thrown into the spotlight by the war in Ukraine, with the EU and many other western nations vowing to phase out both Russian gas and oil as soon as possible.

But for the time being Russia is making hundreds of millions of dollars a day by sending gas to Europe.

If Putin follows through with the move it would mean hindering the largest part of Russia's economy, which accounts for almost half of its yearly income, at a time when the rest of its economy is hobbled by sanctions.

Read more: Norway told to get nuclear bunkers ready amid fears of Chernobyl radiation fallout

On Thursday, Downing Street said Putin’s statement showed "the impact that our sanctions are having on the Russian economy".

A No 10 spokesman said: "We are obviously monitoring the implications of the Russian demand for the European market."

Asked if there were any circumstances in which the UK would pay for gas in roubles, the spokesman said "that’s not something that we will be looking to do".

"There are no gas pipes directly linking the UK with Russia, our imports from Russia made up less than 4% of total UK gas supply in 2021 so we are obviously less reliant on it than many of our European partners", the spokesman added.

Putin's decision to enforce rouble payments has boosted the Russian currency, which fell to historic lows after the invasion but has since recovered.

Read more: Vladimir Putin being 'lied to by scared advisers' over Ukraine invasion

Western companies and governments have rejected the move as a breach of existing contracts.

France's economy minister said France and Germany were preparing for a possible scenario that Russian gas flows could be halted.

Many EU nations including France, Germany and Austria have been preparing for a limiting of Russian gas imports in recent days, activating various back-up plans after Putin hinted he would make the change earlier this week.

The UK imports relatively little gas from Russia so will not be directly impacted by the move, but it would likely spark a crisis in the wholesale energy markets pushing prices even higher than they already are.

Speaking during a news conference on Thursday, German economy minister Robert Habeck said the West was determined to not be "blackmailed" by Russia and added his country was prepared for all scenarios, including a stoppage of Russian gas flows to Europe.

German chancellor Olaf Scholz said on Thursday he had told Russian president Vladimir Putin that his country has checked its contracts with Russia for gas deliveries and will keep paying for them in euros and sometimes dollars.

Scholz reiterated that Germany hoped to become independent of Russian oil and coal imports this year, but it would take longer to reduce its dependence on Russian gas, he told a news conference with his Austrian counterpart Karl Nehammer.

A Western official said on Thursday they did not think Russia would be able to offset the lost revenue from oil and gas sales to Western Europe by increasing them to other parts of the world.

"It is also incredibly difficult for Russia to stop selling oil and gas to western Europe and even if over a period they might be able to increase some sales to the east, to China, to India, it is not going to replace sales that they are currently making to western Europe," the official said.

"I am very skeptical these sorts of threats will be seen through, I think it would just be too damaging to the Russian state," the official added.