(Montel) European gas prices surged on Wednesday after Russian president Vladimir Putin announced that gas deliveries would be charged in rubles “in the shortest possible time”.
But he added that Russia would respect all of its contractual obligations.
In response, the TTF front month was last seen up by EUR 19.56 to EUR 118.31/MWh at Ice Endex.
While traders agreed that the market had been “spooked” by the announcement, it was not yet clear to what extent it would affect the market.
Following Russia’s full invasion of Ukraine on 24 February, Western countries have issued a multitude of sanctions, effectively barring the country from access to global financial markets and thus foreign currencies. Western sanctions have frozen nearly half of Russia's USD 640bn in foreign and gold reserves.
“I think it’s a way for Putin to inject some fear into the market without weaponizing the flows, and it’s also a good way of putting a brake on the ruble depreciation,” said an analyst with a large gas supplier. “But it is still unclear what impact it will actually have on the transactions.”
Support for rubles
“To get rubles, you will need to buy at the central bank in Russia, so Russia can source [euros and dollars] in spite of the sanctions,” said Marina Tsygankova, analyst at Refinitiv.
As such, the market could be anticipating further sanctions on Russia, she noted.
“[But] this should support the ruble, as you'll need to buy quite a lot of it now,” she said.
The euro was last at 109.66 against the ruble, while the currency had stood at 89.17 rubles on 23 February, the day before the start of the Ukraine war.
Sanctions start to bite
“With fighting in Ukraine dragging on, international sanctions are beginning to bite the Russian economy,” said FocusEconomics analysts in a note, adding however the country had averted a possible debt default last week.
“Nevertheless, the economic outlook continues to darken, with risks tilted firmly to the downside,” they added.
Another analyst said Russia’s central bank only issues rubles to companies from “unfriendly countries” at additional costs.
“It is a message with a different tone than ‘we will keep delivering, do not worry.’ Now it is ‘you might have to pay more because of your own sanctions’,” he said.
“Still, the currency shouldn’t matter – there might be losses of money but not losses of gas," a trader added.