Russia invades Ukraine

Julia Hollingsworth

CNN

2 min

Ukrainian President Volodymyr Zelensky spoke in a taped interview with Fox News on Friday April 1.

Vladimir Putin's deadline has come and gone and Russian natural gas is still flowing to Europe.

The Russian President delivered an ultimatum Thursday to "unfriendly" nations to pay for their energy in rubles starting April 1 or risk being cut off from vital supplies. Was that a bluff?

It's too early to say, but Kremlin spokesman Dmitry Peskov said Friday that Russia would not turn off gas supplies to Europe immediately.

Putin's high-stakes threat has sent shockwaves through Europe, which cannot keep its economy running for long without Russian energy. Moscow sent a clear signal that it could at some point reduce natural gas flows — perhaps to deter or respond to even tougher Western sanctions over the war in Ukraine.

Why does all this matter? Europe gets about 40% of its natural gas from Russia, carried on pipelines through Belarus, Ukraine, and Poland or under the Baltic Sea. Germany is the biggest buyer and its huge manufacturing industry guzzles the gas, and the power it generates, in vast quantities.

The German government this week activated the first of three stages of a crisis management plan that could ultimately result in energy rationing, and is appealing to the public to use as little as possible.

Any significant loss of Russian supply would likely tip Europe's biggest economy into recession — and potentially the wider region too. Soaring gas prices are already making energy-intensive industries unprofitable and causing pain for many households. Survey data published Friday showed German manufacturing at its lowest ebb in 18 months. The picture isn't much brighter elsewhere in Europe.

What does Russia want? Most of Russia's gas export contracts are currently priced in euros or US dollars. According to the decree signed by Putin on Thursday, foreign buyers must open accounts at a Russian state-controlled bank, instead of dealing directly with state gas giant Gazprom. They would deposit euros into one account. The bank would sell the euros for rubles and transfer those into another account in the buyer's name to be used to pay for gas.

Moscow may be trying to bolster demand for the ruble — which has recovered after crashing in the immediate aftermath of the invasion and ensuing sanctions. But the Kremlin had already forced Gazprom (and other big Russian exporters) to convert 80% of their foreign currency revenues into rubles, so any gain would be limited.