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By Arathy Somasekhar
HOUSTON, March 23 (Reuters) - Russian President Vladimir Putin on Wednesday said the world's largest natural gas producer would soon require "unfriendly" countries to pay for their fuel in Russia's currency, the rouble.
The requirement raised new hurdles for the mostly European gas purchasers that buy Russian gas. Europe gets about 40% of its gas from Russia, paying largely the 200 million to 800 million euro ($880 million) per day bill in euros and dollars.
Putin gave the Russian central bank and government officials one week to come up with a way to shift payment to the Russian currency. State gas company Gazprom also was ordered to revise its contracts to accommodate the move.
WHAT IS BEHIND THE CHANGE?
The European Union is considering sanctions and the United States, Britain and Canada slapped sanctions on Russia's central bank and energy imports, dealing a blow to the country's economy to punish Moscow for its invasion of Ukraine.
If Russia gets paid for gas in roubles, it could avoid some of those financial sanctions. Nearly all Russian gas purchase contracts are denominated in euros or U.S. dollars, according to consultancy Rystad Energy.
Since Russia's invasion of Ukraine, which the country has called a "special operation", the rouble has plummeted as much as 85% against the U.S. dollar. It has since rebounded against the dollar and briefly spiked on Wednesday's announcement.
WHY DOES IT MATTER?
Europe depends heavily on Russian gas for heating and power generation and European Union members are split on whether they can sanction Russia's energy sector.
The European wholesale gas futures benchmark, TTF, briefly topped $44 per million British thermal units on Wednesday in response to Putin's call for payments in roubles.
Eastbound gas flows via the Yamal-Europe pipeline from Germany to Poland declined sharply, data from the Gascade pipeline operator showed on Wednesday.
HOW POSSIBLE IS THE TRANSITION?
It is unlikely Russia has the power to unilaterally change the terms of contracts already in existence, said legal experts.
"Contracts are made between two parties, and it is usually in U.S. dollars or euros. So if one party unilaterally says 'no, you're going to pay in this' Well, there's no contract," said Tim Harcourt, chief economist at the Institute for Public Policy and Governance at the University of Technology Sydney.
"It is not clear how serious a demand this is," said Susan Sakmar, a visiting law professor at the University Houston and a liquefied natural gas business consultant.