What did Russia demand?
Putin said buyers from “unfriendly” countries should start paying for their gas in rubles. Typically, the vast majority of buyers would pay in euros or dollars. Their account by Russia’s state-owned energy group Gazprom will be deemed cleared as soon as the payment is completed. According to Decree 172, issued by Putin in March, buyers must participate in a new payment system that requires the opening of two Gazprombank accounts. The money will be paid into an account in euros and dollars before being converted by the bank into rubles and paid to Gazprom from the second account. Only at this point will it be considered that the buyer has fulfilled his legal obligation to pay for gas.
Who has agreed and who has not?
Hungary has said it is happy with the plan, and three of Europe’s largest gas companies – Germany’s Uniper, Italy’s Eni and Austria’s OMV – are reportedly considering ways to comply with Putin’s decree. Until this week, it was unclear whether Putin would fulfill his threat to cut off buyers who refused his request. However, on Wednesday Gazprom cut off gas supplies to Bulgaria’s Bulgargaz and Poland’s PGNiG after refusing to pay in rubles.
What about everyone else?
This is where it gets thorny. European leaders, including European Commission President Ursula von der Leyen, have said they will not make any offer to Putin. A preliminary analysis by the EU earlier this month found that such a move would violate sanctions imposed by the Kremlin. This is due to the fact that the currency conversion process at its heart involves the Russian central bank, which is under sanctions. “As the conversion process can take an indefinite period of time, during which the foreign currency is entirely in the hands of the Russian authorities, including the central bank, it can even be considered as a loan granted by EU companies,” he said. The committee. . On Thursday, EU officials confirmed that any company agreeing to open a ruble account in Russia and pay for gas in this way would violate the sanctions.
But is there a gap?
Probably. According to further instructions issued by the EU last week, the Kremlin decree does not prevent gas importers from asking Gazprom to agree that the purchase will be legally completed once the first payment, in euros or dollars, is made to Gazprombank. Any conversion into rubles would then take place, which means that the buyer would not have technically violated the sanctions. Another option, the guide says, is for buyers to make a public statement that they consider the purchase complete as soon as they are paid in dollars or euros. The only obstacle to this, according to the guidance, is the need for “confirmation from the Russian side” that all this complies with Decree 172. In other words, Gazprom – or the Kremlin in essence – must be on board. Gazprom and Gazprombank are not subject to EU sanctions, so buyers are allowed to negotiate such labyrinthine proposals without violating the sanctions. Such tactics seem to be what they are considering like OMV and Uniper. Uniper said it was considering “specific payment methods” that would allow it to pay while complying with sanctions. This apparent legal gap significantly blurs the picture of the true nature of complying with Putin’s request. For example, responding to reports that OMV was preparing to make ruble payments, Austrian Chancellor Carl Nehammer insisted that this was not the case.
Why does Russia want payments in rubles?
Putin’s “arming” of Russian gas exports is part of a strategy designed to support the economy announced shortly after the start of the war. The West’s decision to impose sanctions caused the ruble to plummet and increase the risk of hyperinflation. In response, Russia imposed strict capital controls that forced export companies to convert their profits into foreign currency into rubles. Subscribe to the daily Business Today email or follow the Guardian Business on Twitter at @BusinessDesk Liam Peach, an emerging market economist at Capital Economics, said capital controls made the ruble a one-way bet for currency traders, helping to explain why it had recovered to pre-invasion levels against the dollar. Peach said this week’s action against Poland and Bulgaria would have no significant economic impact on Russia. “European importers will continue to pay Gazprombank in euros, which it will then convert into rubles. “It does not make much difference,” he said. “Politically, Putin is trying to show that Russia is resisting sanctions and that it is able to put some pressure.”
Why does Russia not want euros and dollars?
There are two possible explanations for this. The first is that payments in euros or dollars would add to Russia’s foreign exchange reserves, which have been frozen since the start of the war. The ruble payment for Russian gas is supporting the economy at a time of deep recession. The second reason is that Russia has been gradually moving away from the dollar and euro settlement since annexing Crimea in 2014. Russia is seeking to increase its ruble and yuan payments for its energy, and the war in Ukraine has accelerated this. trend.
