President Vladimir Putin said on Thursday that Russia will start accepting ruble payments from Western countries for its gas from Friday, a maneuver European capitals rejected and said amounted to "blackmail."

Putin signed a decree mandating gas payments in rubles and said contracts will be stopped if foreign buyers don’t sign up to the new conditions, including opening ruble accounts in Russian banks.

Energy exports are Putin’s most powerful lever as he tries to hit back against sweeping Western sanctions imposed on Russian banks, companies, businesspeople and associates of the Kremlin in response to Russia’s invasion of Ukraine.

"In order to purchase Russian natural gas, they must open ruble accounts in Russian banks. It is from these accounts that payments will be made for gas delivered starting from tomorrow," Putin said in televised remarks.

"If such payments are not made, we will consider this a default on the part of buyers, with all the ensuing consequences. Nobody sells us anything for free, and we are not going to do charity either – that is, existing contracts will be stopped."

The move leaves Europe facing the prospect of losing more than a third of its gas supply.

It was not immediately clear whether in practice there might still be a way for foreign firms to continue payment without using rubles, which the European Union and G-7 group of states have ruled out.

Putin’s decision to enforce ruble payments has boosted the Russian currency, which fell to historic lows after the Feb. 24 invasion but has since recovered.

‘Blackmail’

Western companies and governments have rejected the move as a breach of existing contracts, which are set in euros or dollars.

France’s economy minister said France and Germany were preparing for a possible scenario that Russian gas flows could be halted – something that would plunge Europe into a full-blown energy crisis.

They both rejected the maneuver by Moscow.

Britain also does not plan to pay for Russian gas in rubles, Prime Minister Boris Johnson’s spokesperson said on Thursday, adding that the government was monitoring the implications for the European market of Putin’s demand.

German Economy Minister Robert Habeck on Thursday rejected Russia’s demands as an unacceptable breach of contract, adding that the move amounted to "blackmail."

Speaking during a joint news conference with his French counterpart, Habeck said he had not yet seen the decree signed by Putin, adding that Germany was prepared for all scenarios, including a stoppage of Russian gas flows to Europe.

"With regard to the threat, demand or consideration – one doesn’t know what to call it anymore – to be made to pay in rubles, it is crucial for us that the contracts are respected," said Habeck. "It is important for us not to give a signal that we will be blackmailed by Putin."

French Finance and Economy Minister Bruno Le Maire also affirmed that Paris and Berlin rejected Moscow’s demand.

"Contracts are contracts," Le Maire said, without elaborating.

Asked if there were any circumstances in which Britain would pay in rubles for Russian gas, Johnson’s spokesperson told reporters: "That is not something we will be looking to do."

Separately, Chancellor Olaf Scholz said German companies would continue to pay for Russian gas using euros as stipulated in contracts.

"By all means, it remains the case that companies want, can and will pay in euros," he told a joint news conference with his Austrian counterpart Karl Nehammer.

Gazprombank to handle payments

According to the decree, all payments will be handled by Russia’s Gazprombank, a subsidiary of state energy giant Gazprom, where foreign buyers will have to use special accounts to pay for the imports.

Buyers will be obliged to transfer foreign currency to one special, so-called "K," account. Gazprombank would then buy rubles on behalf of the gas buyer to transfer rubles to another special "K" account, the order said.

Gazprombank would then transfer rouble funds from a "K" type account of the foreign gas buyer to Gazprom’s ruble accounts, the order said. Gazprombank can open such accounts without the presence of a foreign buyer’s representative.

Putin said the switch would strengthen Russia's sovereignty, saying the Western countries were using the financial system as a weapon, and it made no sense for Russia to trade in dollars and euros when assets in those currencies were being frozen.

"What is actually happening, what has already happened? We have supplied European consumers with our resources, in this case gas. They received it, paid us in euros, which they then froze themselves. In this regard, there is every reason to believe that we delivered part of the gas provided to Europe practically free of charge," he said.

"That, of course, cannot continue."

Putin said Russia still valued its business reputation.

"We comply and will continue to comply with obligations under all contracts, including gas contracts, we will continue to supply gas in the prescribed volumes – I want to emphasize this – and at prices specified in existing, long-term contracts," he said.

European gas prices have rocketed higher in recent months on mounting tension with Russia raising the risk of recession. Soaring energy prices have already forced companies, including makers of steel and chemicals, to curtail production.

Potentially, the Kremlin is "acting from a fear that Gazprombank will soon be sanctioned too, amid a wider bid by the European Union to cut energy ties with Russia completely," said analysts at Fitch Solutions.

"The long-term contracts for natural gas purchases from Russia are denominated in EUR (euros) and therefore, without contract renegotiation, there is no legal basis for Russia to enforce this demand," the analysts said, according to Reuters.

They suggested that Russia would have to physically halt gas flows to European Union member states to force the issue, marking a major escalation not even performed at the height of the Cold War.

"It would mark another major financial blow to Russia’s coffers."

Emergency procedure

Germany on Wednesday triggered an emergency procedure to monitor gas imports and storage capacity and urged consumers and manufacturers to reduce consumption in preparation for any Russian delivery stoppage.

The network regulator said on Thursday the situation was stable and that storage had risen slightly.

Habeck said he and Le Maire discussed possible new punitive measures on Russia, declining to go into details.

"The last sanctions package must not and should not be the last. We spoke about what additional sanctions can prevent Putin from continuing the war in Ukraine," Habeck said.

Scholz also raised the possibility of new sanctions on Russia over its invasion of Ukraine, adding that Germany was prepared for all scenarios, including a stoppage of Russian gas flows to Europe.

Scholz reiterated that Germany hoped to become independent of Russian oil and coal imports this year, but it would take longer to reduce its dependence on Russian gas.