Ruble standoff between Russia & European Union may trigger a de facto gas embargo

Moscow: The European Union and Russia are at risk of triggering a de facto embargo on Russian gas after the bloc's lawyers drafted a preliminary finding that the mechanism President Vladimir Putin is demanding for payment in rubles would violate the bloc's sanctions.

Countries including Germany are still scrutinizing an initial EU assessment that Putin's ruble demand would breach the bloc's sanctions imposed over Russia's invasion of Ukraine. The Netherlands has told its energy firms to refuse the new payment system in light of the EU legal analysis.

Russia could still provide clarifications or adjustments to its decree that could affect how the EU and companies move forward. Moscow has been pulling in roughly 1 billion euros a day from Europe in energy purchases, which has helped insulate it from the impact of EU sanctions.

If Russia follows through on its threat to cut off gas supplies to buyers that don't comply, it poses a serious threat for the EU, which gets 40 per cent of its gas from Russia. The bloc is scrambling to find alternative energy sources as it comes to terms with the outsize leverage Moscow has over its security, but the transition will take time. The EU is working on its sixth sanctions package, but moves to target Russian energy have been fraught given the bloc's dependence.

Germany could face a 220 billion-euro ($238 billion) hit to output over the next two years should the gas supply be cut immediately, according to a joint forecast of economic institutes, Bloomberg reported.

That's the equivalent of a 6.5 per cent annual output cut and it could tip the country into a recession of more than 2 per cent next year. Putin's ruble standoff with Europe risks de facto gas embargo

On March 31, Putin issued a decree stipulating that "unfriendly" buyers of its gas open two accounts, one in a foreign currency and one in rubles, with Gazprombank.

The Russian bank would convert the foreign currency payments into rubles before transferring the payment to Gazprom PJSC, the state-owned gas company.