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Kremlin warns that anyone who doesn’t pay in rubles also faces gas cut – POLITICO

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Any country that refuses to bow to the Kremlin’s demands to pay for natural gas in rubles will suffer the same fate as Poland and Bulgaria, Moscow warned after those two countries’ supplies plummeted to zero on Wednesday.

“Proper payment is the basis for continued delivery”, called Kremlin spokesman Dmitry Peskov, citing a March 31 decree signed by Russian President Vladimir Putin requiring all gas payments to be made in rubles.

The European Commission on Wednesday insisted payments to Russia in rubles should be banned as it undermines sanctions imposed after invading Ukraine.

“Our guidelines are very clear here,” said Commission President Ursula von der Leyen. “If this is not provided for in the contract, payment in rubles is a violation of our sanctions.”

She added a warning to companies with contracts in euros or dollars, which account for 97 percent of EU gas deals with Russia. They “should not give in to the Russian demands, that would be a violation of the sanctions, so a high risk for the companies.”

This creates a major conflict between the EU, which gets 40 percent of its natural gas from Russia, and Moscow, which depends on these sales and cannot easily shift gas supplies from European to Asian markets.

However, six EU diplomats countered that the Brussels instructions were far from clear – and instead may have undermined EU unity on the issue.

In a guide issued earlier this month, the commission said companies could open an account with Gazprombank (as required by Moscow) to make payments for gas in euros or dollars (as specified in their contracts) and then issue a statement that their payment obligation ends with the deposit of funds. This means that the later conversion into rubles remains in Russian hands.

But the Russian decree only considers payment obligations to be fulfilled once the currency conversion has been completed.

For the Commission’s payments fudge to work, Russia must agree to play along. Putin’s decree allows for exceptions at Russian discretion but does not detail the process for requesting or being granted such privileges – giving Putin an opportunity to play favorites when issuing waivers or announce that companies participating in the workaround will really pay in rubles, despite EU sanctions.

An EU diplomat described the Commission’s guidelines as a “trap”.

“We expected the commission to send a clear message” that Russia’s instructions violate sanctions, a second diplomat said. “Instead, we received instructions on how companies should deal with Gazprom alone.”

“This is the key question: will all European countries follow the EU indication to only pay in euros/dollars as stated in the contracts? Or will some decide to go their own way and comply with the Russian demand.” called Simone Tagliapietra, energy expert at Bruegel, a Brussels think tank.

At a meeting on Wednesday, “several ambassadors were critical of this ambiguity and asked for more clarification,” a third EU diplomat said of differences in interpretation.”

Four diplomats said the commission pledged to provide more clarity at Wednesday’s meeting.

Asked by POLITICO whether the Commission would still allow EU companies to open Russian payment accounts after the gas lockdown for Poland and Bulgaria, a Commission spokesman said on Wednesday: “Nothing has changed in the guidelines.”

Smoking Kremlin

At the moment, an enraged Moscow shows no signs of stirring.

Peskov said the ruble measure was in retaliation for Western sanctions that froze more than $300 billion in the Russian central bank’s foreign reserves. “That necessity was dictated by the fact that, as you know, they blocked – or, to put it bluntly, stole – a fairly sizable portion of our reserves in front of us.”

Both Poland and Bulgaria said they made their payments for their gas on time – but not in Russian currency – but still cut it.

However, both countries are fairly resilient to an immediate shutdown of Russian gas, especially now that household heating needs have fallen as winter has ended. Neither uses much Russian gas to generate electricity, and both said they have enough storage and supplies from other sources to weather an immediate crisis.

Countries further down, like Germany, Italy and Austria, might be more vulnerable.

A shutdown due to non-payment in rubles “would have serious consequences for the German and European economy,” said Jonathan Hackenbroich from the European Council on Foreign Relations. “Factories would have to cut production or even close down. Some key industries could be lost forever and it is indeed difficult to assess the full range of consequences.”

Austrian Chancellor Karl Nehammer repeated On Wednesday, the gas company OMV will “continue to pay for gas deliveries from Russia in euros. Austria is sticking to the jointly agreed EU sanctions.”

The German Ministry of Economy and Climate called it will follow the Commission’s guidelines and will ask its companies to make payments in euros or dollars to a Gazprombank account and declare their payment complete.

A spokesman for the Dutch Ministry of Economy and Climate said that the Netherlands is also adhering to the EU recommendation that payments can still be made in some cases.

German company Uniper also said that “we continue to believe that compliant future payment processing is feasible.”

Italy’s Eni declined to comment on the matter and France’s Engie did not respond to a request for comment.

The more bills are due, the bigger the problem becomes: According to a report from the Oxford Institute for Energy Studies.

destroyed relationship

Moscow insists that cutting off gas supplies to Poland and Bulgaria and threatening other customers will not ruin its commercial reputation.

“It’s not blackmail. Russia was and is a reliable supplier that fulfills its obligations,” said Peskov. “The conditions laid down in the Presidential Decree were caused by unprecedented unfriendly steps taken against us.”

But even at the height of the Cold War, Moscow kept energy sales separate from politics.

Russia briefly cut off gas to Ukraine in 2006 and 2009 over payment disputes, but what is happening now is undermining Russia’s relationship with its biggest gas consumers, EU leaders have said.

Russia’s “disruption of gas flow is a gross breach of contract and blackmail to implement a plan for third-party payment in rubles that has not been agreed,” said Bulgarian Prime Minister Kiril Petkov called Wednesday. “We will not succumb to such a racket.”

Gazprom’s contracts with Poland and Bulgaria expire at the end of this year, and neither country plans to extend them. Gazprom’s move will end these connections even earlier.

“Poland has become gas independent from Russia today. We are not threatened by blackmail,” said Polish Prime Minister Mateusz Morawiecki called On Wednesday.

Petkov added that Sofia is reviewing all of its contracts with Gazprom, including transit agreements that allow gas to be pumped through Bulgaria to other countries. Polish energy utility PGNiG announced it would force Gazprom to resume supplies and seek damages.

For the European Commission, these threats and counter-threats reinforce the view that the bloc can no longer rely on Russia.

“The era of Russian fossil fuels in Europe is coming to an end,” von der Leyen said. “We are committed to making this a reality as soon as possible… forever and ever.”

Barbara Moens, Leonie Kijewski, Jacopo Barigazzi, Antonia Zimmerman and Victor Jack contributed to the coverage.

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