Europe fights for clarity on demand for Russian rubles for gas | European Union News

European Union countries are scrambling to make sense of Russia’s decision to cut gas flows to Poland and Bulgaria, and keen to maintain their own supplies from Russia while avoiding violating the trade sanctions imposed on Moscow.

On Tuesday, Russian energy giant Gazprom said it would cut off gas supplies to the two countries after failing to receive payment in Russian rubles from the two EU member states.

Gazprom said the countries violated an order by Russian President Vladimir Putin that payments for Russian gas should be made only in Russian currency and not in US dollars or euros.

The demand for rubles is widely interpreted as a Kremlin ploy to militarize its gas supply and create loopholes in EU sanctions imposed on Russia for its invasion of Ukraine.

Russia has ordered energy companies from ‘hostile countries’ to make ruble payments to Gazprombank, a request that some EU members including Germany – which relies heavily on Russian gas – say did not violate penalty rules.

“Payments will be made in euros and then transferred by Gazprombank to a so-called K account,” German Climate and Economics Minister Robert Habeck said.

“This is the path we are taking, this is the path that Europe has shown us, this is the path compatible with sanctions,” he said.

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The payment process basically requires buyers to open a ruble account at Gazprombank where their Euro or Dollar payments would be deposited after conversion into Russian currency via buyer’s authorization.

But others, including the European Commission, which drafts the Russia sanctions for the EU, have warned the transfer could constitute a breach, putting gas importers at legal risk.

The commission said the process would breach EU sanctions against Russia because the currency conversion would involve a transaction through Russia’s central bank, which is subject to EU sanctions.

“A circumvention of sanctions”

EU spokesman Eric Mamer echoed the committee’s concern.

“If the contract stipulates that payments must be made in euros or dollars, the company’s obligation ends once it has made this payment in euros or dollars,” Mamer said.

“If the payment takes place in rubles, then we are no longer talking about the agreed contract and we are talking about circumvention of sanctions.”

“What we cannot accept is that companies are forced to open a second account and that between the first and the second account, the amount in euros is in the hands of the Russian authorities and the Central Bank Russian, and the payment is not complete when converted into rubles,” a senior EU official said.

“This is an absolutely clear circumvention of the sanctions.”

Opening a ruble account at Gazprombank itself may breach EU sanctions, the official added, without providing a conclusive assessment on the matter.

To clear up the confusion, EU energy ministers are holding an emergency meeting next week and will ask the commission, the EU’s executive, for clearer legal advice on how to deal with requests for gas from Russia.

Member countries expressed “some frustration with the guidance of the commission which has been interpreted in different ways by member states”, said an EU diplomat, speaking on condition of anonymity.

But senior EU officials have said the 27 EU member states agree they will not pay Russia directly in rubles for their gas imports, and that the deadline for their next payments should be 20 may.

Poland and Bulgaria both used their existing method of paying for Russian gas, which involved making payments to existing accounts, rather than opening new Gazprombank accounts, before Moscow cut gas supplies on Wednesday , said another senior official.

“According to our information, the two have retained the original method of payment,” the senior EU official said.

Poland and Bulgaria are relatively minor customers for Russian gas and were close to ending their contracts at the end of the year anyway. Poland’s total gas import was 10 billion cubic meters per year, out of a total European import of 155 billion cubic meters from Russia. Gas of around this amount is already flowing to Poland from other European countries which are helping.

Simone Tagliapietra, an energy expert and senior fellow at the Bruegel think tank in Brussels, said Putin was trying to “fragment European countries and their stance towards energy diversification and the overall stance against Russia”.

“What he’s creating is a system where he can basically divide countries, as we see, because those who don’t want to conform to this new pattern will be cut off, while others will try to comply and are essentially against the European Union,” he said.

Last year, Russia supplied 32% of total gas demand for the European Union and the United Kingdom, up from 25% in 2009, according to the International Energy Agency.