In Russia-Europe gas standoff, both sides lose

Europe and Russia will both lose heavily if President Vladimir Putin follows through on his threat to cut gas supplies to countries he judges "unfriendly" unless they pay in roubles.

Even at the height of the Cold War, Moscow never cut gas to Europe, but on Thursday, Putin signed a decree ordering foreign buyers to pay in roubles instead of euros from April 1 or face going without Russian supplies.

European capitals rejected the ultimatum and on Friday Kremlin spokesman Dmitry Peskov said it would not affect settlements until later this month.

Although the threat of shortages comes after the peak demand European winter season, Europe still has much to lose when its businesses and households are already reeling from record energy prices, while Moscow could be cutting off one of its main sources of revenue.

Russia exported around 155 billion cubic metres (bcm) of gas to Europe last year, providing more than a third of its gas supply.

Without it, Europe would have to buy more gas on the spot market where prices are already around 500 per cent higher than last year.

Germany and Austria, both heavily reliant on Russian gas, have activated emergency plans, which include rationing if necessary, and other European countries have plans in place.

"Buyers' unwillingness to abide by (Putin's) order risks suspending supplies. Both buyers and Gazprom will face losses as a result," said Dmitry Polevoy, analyst at Moscow-based brokerage Locko-Invest.