German Chemical Giant Warns Of “Total Collapse” If Russian Gas Supply Cut

German Chemical Giant Warns Of “Total Collapse” If Russian Gas Supply Cut

He wasn’t bluffing

Putin Signs Decree Ordering Gas Exports To Be Halted If Buyers Don’t Pay In Rubles

Contrary to expectations that Vladimir Putin was bluffing about collecting rubles in exchange for Russian energy exports, moments ago a decree signed by the Russian president confirmed that that was not the case.

According to Bloomberg, Putin said he had signed a decree demanding payment in rubles for Russian gas supplies, which is set to begin April 1 as previously reported. According to the decree, while Russia will continue to supply gas at set volumes and prices, it will demand that buyers of gas open accounts in Russian banks, and warned that Moscow can halt gas contracts if buyers don’t pay in rubles; additionally, new proceedings in EUR or USD could be blocked. Pushing what many viewed as a bluff to the edge, Putin said that active contracts will be halted if demands are not met, and explained that the move is meant to increase settlements in national currencies.

Putin’s decree follows an earlier report in the Russian press that Gazprom was studying options of halting gas supplies to Europe amid RUB payment issues. It also follows comments from the Kremlin which suggested that it would look into the idea from lawmakers to ask other nations to pay for a wider range of Russia exports in rubles.

Indicating Russia’s operational readiness to follow through with the plan, Interfax adds that Putin has ordered for special accounts for gas payments to be opened at Gazprombank which will sell gas FX on a Moscow exchange.

In kneejerk response to the news, US nat gas prices spiked – perhaps in anticipation that much of US output will now be LNG-ed over to Europe, potentially creating a US shortage in due course…

… while oil also rose from session lows following the latest SPR release jawboning which has yet to be confirmed by the White House.

Finally, now that it appears the ruble will have to be purchased by western powers, the currency has completed its roundtrip to pre-invasion levels.

Putin sets deadline for ruble gas payments

The measure will take effect on April 1

Putin sets deadline for ruble gas payments

Russian President Vladimir Putin has signed a decree, on Thursday, demanding ruble gas payments for buyers from so-called “unfriendly” countries. These are states which have placed sanctions on Moscow in connection with the ongoing conflict in Ukraine.

The measure takes effect on Friday and requires that buyers open accounts in Russian banks to facilitate the payments. Putin first flagged the move, last week, explaining that the West’s seizure of a large amount of his country’s foreign currency reserves meant that receiving euro or dollars for supplies was counter-productive. 

If unfriendly countries do not pay in rubles starting from April 1, we will consider this a default on gas contracts, in which case the existing contracts will be scrapped,” the president said. 

Putin explained that Russia “supplied gas” to Western states which “paid us in euros, which they themselves froze.”

“This means that  that we supplied the gas virtually free of charge,” he added. According to the Russian leader, his new decree represents a step towards the financial sovereignty of his country.

The ‘unfriendly’ states Putin referred to are the US, UK, Canada, Australia, Japan, Taiwan, South Korea, Switzerland, the 27 nations of the European Union, and a number of smaller countries.

READ MORE: What happens if Russia turns off the gas taps to Europe

The announcement instantly sent the ruble surging from historic lows against the US dollar and the euro, with the Russian currency recovering nearly all its losses since the military attack on Ukraine began over a month ago.

German Chemical Giant Warns Of “Total Collapse” If Russian Gas Supply Cut

CEO of Germany’s multinational BASF SE, the world’s largest chemical producer, has warned that curbing or cutting off energy imports from Russia would bring into doubt the continued existence of small and medium-sized energy companies, and further would likely spiral Germany into its most “catastrophic” economic crisis going back to the end of World War 2

Company CEO Martin Brudermuller issued the words in an interview with Frankfurter Allgemeine newspaper just ahead of German officials by midweek giving an “early warning” to industries and the population of possible natural gas shortages, as Russia appears ready to firmly hold to Putin’s recent declaration that “unfriendly countries” must settle energy payments in rubles, related to the Ukraine crisis and resultant Western sanctions. 

According to Bloomberg he mused that while “Germany could be independent from Russia gas in four to five years” it remains that “LNG imports cannot be increased quickly enough to replace all Russian gas flows in the short term.”

CEO of BASF Martin Brudermüller, file image

But in the meantime, Brudermuller described that “It’s not enough that we all turn down the heating by 2 degrees now” given that “Russia covers 55 percent of German natural gas consumption.” He emphasized that if Russian gas disappeared overnight, “many things would collapse here” – given that we would have high levels of unemployment, and many companies would go bankrupt. This would lead to irreversible damage.” He continued:

“To put it bluntly: This could bring the German economy into its worst crisis since the end of the Second World War and destroy our prosperity. For many small and medium-sized companies in particular, it could mean the end. We can’t risk that!”

The dire warning of coming disaster in the event Russian gas is shut off came in response being questioned over whether it’s at all possible to abandon Russian energy. 

Asserting that this issue is not “black and white” – and that the German economy stands on the brink of catastrophe, the BASF CEO said that if this standoff continues to escalate it will “open the eyes of many on both sides”

Below is the question posed by the newspaper, and Brudermuller’s response:

And what if, for example, Putin’s demand for payment in rubles leads to an immediate stop in gas supplies?

“A delivery stop for a short time would perhaps open the eyes of many – on both sides. It would make clear the magnitude of the consequences. But if we don’t get any more Russian gas for a long time, then we really have a problem here in Germany. At BASF, we would have to scale back or completely shut down production at our largest site in Ludwigshafen if the supply fell significantly and permanently below 50 percent of our maximum natural gas requirement. Minister Habeck has already activated the early warning level of the gas emergency plan.”

Separate sources estimate that at Ludwigshafen alone this scenario would immediately lead to some 40,000 employees being possibly laid off, or at least put on short-time working hours. 

He warned further in the interview that many Germans are currently greatly underestimating the consequences of what Russia shutting off the taps would mean… nothing less than a historic crisis:

“Many have misconceptions. I notice that in many of the conversations I have. People often make no connection at all between a boycott and their own job. As if our economy and our prosperity were set in stone.”

He explained that higher prices are already having a huge impact on the food supply given at this point BASF has been forced to reduce the production of ammonia for fertilizer production.

Brudermuller called this “a catastrophe and we will feel it even more clearly next year than this one. Because most of the fertilizers that the farmers need this year have already been bought. In 2023 there will be a shortage, and then the poor countries in particular, for example in Africa, will no longer be able to afford to buy basic foodstuffs.” In a very alarming statement and forewarning, he added: “There is a risk of famine.”

One thought on “German Chemical Giant Warns Of “Total Collapse” If Russian Gas Supply Cut

  1. This situation is ludicrous in the extreme. But also unavoidably karmic. To unravel the action back into history would take volumes. So maybe the gas should be paid in rubles !?!?

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