Germany warned its citizens that gas rationing could be implemented if Russian gas supplies were interrupted.
Europe is preparing for the worst. Earlier, Russian President Vladimir Putin threatened to cut off gas supplies to the region unless future Russian gas exports were paid for in Russian currency.
Putin signed a decree requiring "unfriendly countries" — those that impose sanctions on Russia, including Ireland — to pay for gas in rubles from April.
In response to this threat, Austria and Germany — the EU's largest economy, which sources 40 percent of its gas supply from Russia — have warned their citizens that gas rationing could be implemented if gas supply is interrupted.
German Economy Minister Robert Habeck said this week: "I must be clear that we are in a position where every kilowatt-hour of energy saved helps." ”
"That's why I want to trigger the level of warnings while calling on businesses and private consumers to help Germany and Ukraine save gas or energy overall."
Although Ireland never imports gas from Russia, economists say gas rationing in Germany or Europe could have far-reaching implications.
So, what's going on here?
Why did Putin suddenly ask for payment in rubles?
Honestly, that's not entirely clear. Reuters reported today that European officials were more likely to see this as "bluffing to avoid further sanctions".
Another motivation (assuming Europe agreed to this request at the outset) was to help the Russian currency appreciate further after weeks of volatility.
In the initial stages after the start of the war at the end of February, the ruble's exchange rate against the euro and the dollar was hit the international market.
Despite a later strong recovery, the ruble's exchange rate against the euro and the dollar immediately fell to an all-time low after the Russo-Ukrainian war and the first wave of Western sanctions.
Now, in the event that a wave of speculative sell-offs has led to a plummeting decline in a currency, Russia's central bank can help stabilize its value by using its foreign exchange reserves and other financial assets to buy back its own currency.
But in late February and early March, Russia found itself largely constrained.
Why? Because among the first wave of retaliatory measures announced by the United States and its allies, they included a series of harsh sanctions directly against Russia's central bank.
In short, the United States, Europe and the United Kingdom effectively prevented Russia from using a large portion of its more than $600 billion in foreign exchange reserves, hampering the central bank's response.
At the time of writing, the ruble's exchange rate against the euro and the dollar has actually returned to pre-war levels. Simply put, more rubles means a more stable Russian currency and economy. A more stable currency could help insulate the economy from more sanctions.
However, a fall or depreciation of the currency could also lead to a reduction in the amount of money the Russian economy receives from exports. Similarly, the higher the value of the ruble, the more cash flows in from Russian exports.
How did the ruble recover quickly?
There is still some debate about this. But while the Central Bank of Russia has been cut off from a large portion of its reserves, it has intervened in other ways.
First, it introduced a series of capital controls aimed at keeping the ruble in the country by temporarily prohibiting citizens from withdrawing large amounts of foreign currency. It also raised interest rates to 20 percent and encouraged Russian citizens to deposit their money in banks.
The Russian economy also continues to absorb large amounts of foreign exchange capital from energy exports, especially crude oil and natural gas.
Despite pledges by governments around the world to stop relying on Russian energy, and effectively "self-sanctioning" by Western companies by refusing to buy Russian oil, Russia's natural gas delivery to its largest trading partner, the European Union, has remained relatively stable since the war broke out.
This could change quickly in the event of an energy embargo on Russia. But that hasn't happened yet, and Putin's threat to cut off gas supplies could be a way to test Europe's resolve.
How will Europe respond to Putin's ultimatum?
It was pretty much what was expected. Germany, which relies on Russia for 40 to 55 percent of its gas imports, has rejected that request.
The ruling coalition government said on Wednesday it would be prepared to ration gas rather than pay for energy imports in rubles, issuing an official alert on the level of gas supply.
Today, berlin said it had received the written "decree" and was evaluating it to "determine its specific impact".
A spokeswoman for the Ministry of Economy told reporters it was too early to assess the impact of Russia's new policy, but noted that the policy gave Gazprom, which was responsible for implementing it, "10 days to explain the details of the payment process."
In fact, all G7 member states rejected this ultimatum.
Will this impasse have an impact on gas and electricity prices in Ireland?
The likelihood of being rejected by Europe is high, and the Kremlin's reaction to it remains to be seen.
But if Russia honors its threat to Germany and slows or cuts off energy supplies to Germany, it could have far-reaching implications for the Irish economy.
Ireland has never imported gas from Russia. But if the supply of gas to Europe decreases, it may not matter – gas prices could soar further and real problems with supply security will surface.
Why? Because, as Muireann Lynch, an energy economist at the Institute of Economics and Social Research, recently said, "the EU treaty has entered into force, and there is a basic requirement for equal sharing of natural gas in the matter of 'physical security' of supply".
In other words, if the EU's largest economy were to implement gas rationing, Ireland "couldn't say: 'Well, we get gas from England through Norway, so we're all fine, and the Germans will have to suffer.'' ’”
Lynch explains: "We've actually reached an agreement to make sure we do share equally. ”
So, if Russia does cut off energy supplies altogether, we could face a real shock to energy supplies in addition to price increases.
But the results are far from certain. Given the potential for Russia to lose valuable revenue as a result, it is unclear how seriously Russia attaches to this threat.
A Russian government spokesman told reporters today that gas will not be cut off overnight. He added that the demand for ruble payments will only affect the liquidation due later this month.
In any case, for Ireland and the rest of Europe, more anxiety lay ahead.