President Vladimir Putin said Wednesday that Russia will only accept payments in rubles for gas deliveries to "unfriendly countries," which include all EU members, after Moscow was hit by unprecedented sanctions over Ukraine.
Immediately after his announcement, the ruble, which has plummeted since the start of the Ukraine conflict, strengthened against the dollar and euro, while gas prices rose.
"I have decided to implement a set of measures to transfer payment for our gas supplies to unfriendly countries into Russian rubles," Putin said during a televised government meeting.
He added, however, that Russia will continue supplying the volume of gas outlined in its contracts.
Putin ordered Russia's central bank to implement the new payment system within a week, saying it must be transparent and will involve the purchase of rubles on Russia's domestic market.
Putin also hinted that other Russian exports may be affected.
Later Wednesday the Russian space agency Roscosmos announced it too will insist its international partners pay it in rubles.
"We will also conclude all our external agreements in rubles," Roscosmos head Dmitry Rogozin was quoted as saying by the official Tass news agency.
"It is clear that delivering our goods to the European Union, the United States and receiving dollars, euros, other currencies no longer makes sense to us," Putin said.
Ukraine was quick to denounce Russia's "economic war" on the EU and its efforts to "strengthen the ruble."
"But the West could hit Russia with an oil embargo that would cause the Russian economy to plunge," Ukrainian presidential advisor Andriy Yermak said on Telegram.
"This is now a key economic battle, and the West must collectively win it," he added.
German Economy Minister Robert Habeck, whose country imported 55% of its natural gas from Russia before the conflict, said Putin's demand was a breach of contract and that Berlin will discuss with European partners "how we would react to that."
Austria's OMV energy company said Wednesday that it would keep paying for Russian gas in euros despite the announcement.
"We don't have any other basis for the contract. I wouldn't be able to do otherwise," OMV CEO Alfred Stern told Austrian television.
Western countries have piled crippling sanctions on Moscow since it invaded Ukraine.
The West froze about $300 billion of Russia's foreign currency reserves abroad, a move that Foreign Minister Sergei Lavrov on Wednesday described as theft.
But while the United States banned the import of Russian oil and gas, the EU, which received around 40% of its gas supplies from Russia in 2021, has retained deliveries from Moscow.
Brussels, however, has set a target of slashing Russian gas imports by two-thirds by the end of the year and is eyeing an oil embargo.
"Russia is now trying to pressure the West with counter sanctions — and reduce its dependence on foreign currencies," Swissquote senior analyst Ipek Ozkardeskaya told AFP.
Analyst Timothy Ash of BlueBay Asset Management said, however, that it was "hard to see Putin's move as ruble positive."
Ash said Putin is essentially trying to force Western countries to trade with Russia's central bank, which they have sanctioned.
"It will just accelerate diversification away from Russian energy," he added.
According to investment group Locko Invest, the countries declared "unfriendly" by Russia account for more than 70% of Russia's energy exports in terms of earnings.
The group also highlighted the danger for Gazprom of running out of foreign currency to honor its debts in the future.
But Andrew Weiss of the Carnegie Foundation said: "Putin definitely knows how to build and exploit leverage."
"Putin has routinely used escalation in such situations to upend his opponents' best-laid plans. No reason to doubt that that's changed," Weiss said on Twitter.