For the Kremlin this is designed to suggest a dramatic escalation in the economic battle between the West and Russia over the invasion of Ukraine.
Vladimir Putin has outlined a pathway for the cutting off gas supplies to Europe, if Western customers refuse to pay for supplies in the Russian currency the rouble.
However, the market reaction suggests the details of the mechanism, means that, in practice, European customers will just have to change their currency dealers to Gazprombank. That bank has already been left unsanctioned, for the purpose of continuity of energy trade.
As a result, gas prices remain very high, but did not today shoot into the stratosphere. There should be a work-around. As one leading analyst told me, this solution has “saved face” for Putin, who can sound tough on domestic TV. Ultimately, as Russian officials have repeatedly said for decades, Russian supply of energy to the West continued uninterrupted even during the height of the Cold War.
Ultimately, Russia still needs the money for the gas and still wants to leave the possibility of a market for its main export, once a peace deal is signed. However, it is also true to say that the threat of a cut-off has escalated. EU nations have prepared emergency measures to manage demand, and would be more willing to face that now during spring and summer than winter.
The net effect of the mechanism announced is to limit the ability of the West to freeze the revenues they pay to Gazprom, which Putin described as receiving the gas for free.
Some Ukrainian officials have suggested such an approach. Oil and gas dollars and euros continue to help the Kremlin resist an otherwise tough set of financial sanctions.