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European governments face a major dilemma after the European Commission said Moscow’s demand to convert payments for gas supplies into rubles could violate EU sanctions.
A decree signed by President Vladimir Putin on March 31 creates a procedure whereby foreign buyers of gas from so-called “unfriendly countries” – a list that includes EU members – must pay in rubles. In practice, buyers can pay in the original hard currency specified in the contract, but these euros or dollars are then converted into rubles before the payment is completed.
The warning from Brussels is that this currency exchange system could violate sanctions imposed after Putin’s invasion of Ukraine. This forces EU countries to make a difficult choice: they can either tell their gas-buying companies to refuse to sign Putin’s terms and face a possible sudden halt to their gas supplies, or they can risk losing theirs to oppose their own sanctions.
The Netherlands and Germany say companies should not comply with Kremlin demands. Italy, another leading EU buyer of Russian gas, is still weighing the Commission’s assessment. Hungarian Prime Minister Viktor Orbán said last week he was ready to pay in rubles.
According to the Oxford Institute for Energy Studies According to the analysis of Putin’s scheme, gas buyers would have to set up two accounts – one in hard currency and one in rubles – with Gazprombank. They then transfer funds to an account denominated in the contract currency. Gazprombank would sell this foreign currency on the domestic foreign exchange market and transfer rubles to the gas buyer’s other account. Gazprombank would then transfer these rubles to Gazprom.
Such a payment system risks violating sanctions by giving Russia control over the timing and exchange rate of foreign currency conversion, according to a preliminary legal assessment shared by the European Commission with EU ambassadors on Wednesday and the readout of which was seen by POLITICO. It also said Gazprombank may be violating sanctions related to “owning and managing currencies and financial instruments.”
It looks similar in Berlin.
“There is an opinion that says that this second bank account to be set up would be a way to circumvent the sanctions,” Germany’s Climate and Economics Minister Robert Habeck told POLITICO, adding: “We cannot allow any circumvention of the.” Sanctions through back doors.”
EU sanctions were intended to weaken Russia’s central bank and make it more difficult for Putin to finance the war. Moscow’s demand for gas payments in local currency is one of many moves to strengthen the ruble, such as capital controls and ultra-high interest rates.
A Commission spokesman said that 97 percent of EU gas contracts with Russia provide for payments in euros or dollars and that “companies with such contracts should not give in to Russian demands. We are analyzing the new decree and are in contact with the EU energy companies concerned and the member states.” The ad said that 150 contracts could be affected.
Putin on Thursday called that some companies were already missing payments for gas. “We observe a suspension of payments for export deliveries of Russian energy resources. Banks from unfriendly countries delay transferring payments. I remind you that the task already set is to switch payments for energy resources to the national currency and gradually phase out dollars and euros.”
The issue is likely to come to a head soon.
“If the Russians insist, May 22nd will be an exciting day,” said Habeck.
The Netherlands advised its companies on Thursday not to sign the new contracts with Gazprom.
“We have informed [Dutch companies] that the assessment of the Commission and the Council concluded that the ruble payment system is illegal and therefore companies cannot conclude contracts with Gazprom,” said a spokesman for the Ministry of Economy and Climate.
But by doing so, The Hague risks Putin cutting off the gas supply. The Netherlands plans to double its liquefied natural gas import capacity and launched a campaign encouraging businesses, government buildings and homes to reduce energy use. If there is a physical shortage, the country’s contingency plan includes possible rationing.
A spokesman for Italian Prime Minister Mario Draghi declined to comment on the commission’s analysis, calling it “preliminary”. Poland is also waiting for the final assessment.
Italy has signaled that while it opposes Putin’s ruble gambit and sees it as a breach of contract, it believes Putin’s scheme will not affect European customers.
“The switch from payments in euros or dollars to rubles is an internal matter of the Russian Federation. I understood that,” Draghi said last month.
Leonie Kijewski, Hans Joachim von der Burchard and America Hernandez contributed to the reporting.
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https://www.politico.eu/article/brussels-warns-eu-countries-that-ruble-gas-payments-may-breach-sanctions/?utm_source=RSS_Feed&utm_medium=RSS&utm_campaign=RSS_Syndication Brussels warns EU countries ruble gas payments could violate sanctions - POLITICO