Russian President Putin is demanding unfriendly countries now pay for their gas in Roubles.
We have been warning all through this crisis that harsh sanctions against Russia would place the gas pipeline supply in jeopardy.
It is also a way of throwing the Swift and transfer difficulties back on the very countries who imposed the restrictions.
It is wishful thinking indeed to imagine that the existing gas pipeline is somehow sacrosanct and safe from interruption purely because it is a major income provider to Russia. The gas pipeline has now been placed firmly on the table as being “in the game”.
While not yet a suggestion that the flow could be reduced or cut, it is clearly in play as a possible consideration.
Europe is scrambling to create diversification of energy supply, but solutions are no overnight affair. Putin knows this, and he also recognises that his maximum power with regard to the pipeline, is now.
Before any sustained energy diversification occurs. The response of various European nations to the demand to be paid in Roubles, will be one of the most important moments economically in this crisis.
Oil prices are likely to respond in a big way should these nations refuse the Rouble payment demand.
Economically speaking, Europe just entered a new and immediately at-risk phase in the Ukraine war.
This, at the same time as Eurozone Consumer Confidence continues to fall off a cliff.
It had barely recovered from Covid-19 before this shock.
Falling 9.9 points to -18.7. And it is likely to fall further as consumers deal with higher energy and food prices. As well as recognising the possible wisdom of saving rather than spending in the current situation.
A significant recession, due to the conflict, sanctions and inflation is already unavoidable in Europe. A further massive energy shock in the form of both supply and prices would drive Europe into very dangerous economic territory indeed.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
