Kremlin warns that anyone who does not pay in rubles also faces a gas cut – POLITICO


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Any country that refuses to comply with Kremlin demands to pay for natural gas in rubles will suffer the same fate as Poland and Bulgaria, Moscow warned after those two countries saw their deliveries fall to zero on Wednesday.

“Due payment will be the basis for continued supply,” Kremlin spokesman Dmitry Peskov said, referring to a March 31 decree signed by Russian President Vladimir Putin requiring all gas payments are made in rubles.

The European Commission insisted on Wednesday that paying Russia in rubles is prohibited because it undermines sanctions imposed after the invasion of Ukraine.

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

She added a warning for companies with contracts denominated in euros or dollars – accounting for 97% of EU gas deals with Russia. They “should not accede to Russian demands, it would be a sanctions violation, so a high risk for business.”

This is creating a major clash between the EU, which gets 40% of its natural gas from Russia, and Moscow, which depends on those sales and cannot easily transfer gas supplies from European markets to Asian markets.

But six EU diplomats have countered that the instructions from Brussels were anything but clear – and potentially undermine EU unity on the issue.

In guidance issued earlier this month, the Commission said companies could open an account with Gazprombank (as requested by Moscow) to make gas payments in euros or dollars (as specified in their contracts), then issue a statement that their payment obligation ends with the deposit of funds. This leaves any further conversion into rubles in the hands of the Russians.

But the Russian decree considers payment obligations to be satisfied only after the currency conversion is complete.

For the Commission’s payment rigging to work, Russia must agree to play along. Putin’s executive order allows exemptions at Russia’s discretion, but does not detail the process for applying for or granting such privileges – giving Putin the chance to play favorites in issuing waivers, or announcing that companies engaging in the workaround are really paying in rubles in defiance of EU sanctions.

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

“We expected the Commission to deliver a clear message” that Russia’s instructions violated sanctions, a second diplomat said. “Instead, we received instructions on how companies are supposed to deal with Gazprom on their own.”

“This is the key question: will all European countries follow the EU’s indication to only pay in euros/dollars as indicated in the contracts? Or will some decide to go their own way, complying with the Russian request? mentioned Simone Tagliapietra, energy expert at Bruegel, a Brussels think tank.

In a meeting on Wednesday, “several ambassadors made critical comments about this ambiguity and asked for more clarity,” said a third EU diplomat. “The goal was to have everyone have the same understanding of what is possible and what is not, but there were differences in interpretation.

Four diplomats said the Commission promised at Wednesday’s meeting to provide more clarity.

Asked by POLITICO whether the Commission still tolerated European companies opening Russian payment accounts following the shutdown of gas to Poland and Bulgaria, a Commission spokesperson said on Wednesday: “There is no has been no change in direction”.

Smoking Kremlin

So far, an angry Moscow shows no signs of letting up.

Peskov said the ruble measure was a retaliation for Western sanctions, which froze more than $300 billion in Russian central bank foreign exchange reserves. “This need was dictated by the fact that, as you know, they blocked us – or, to put it plainly, stole – quite a significant amount of our reserves.”

Poland and Bulgaria said they had paid for their gas on time – but not in Russian currency – but were still cut off.

However, both countries are holding up quite well to an immediate Russian gas shutdown, especially now that demand for home heating has plummeted with the end of winter. Neither uses much Russian gas to generate electricity, and both said they have enough storage and supplies from other sources to deal with an immediate crisis.

Countries further downstream, such as Germany, Italy and Austria, could be more vulnerable.

A halt due to non-payment in rubles “would have disastrous consequences for the German and European economies”, said Jonathan Hackenbroich of the European Council on Foreign Relations. “Factories would have to curtail production, or even shut down. Some key industries could be lost forever, and it’s actually hard to gauge the full consequences.”

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

Germany’s economy and climate ministry said it would follow the Commission’s guidelines, asking its companies to make payments in euros or dollars to a Gazprombank account, and report their payment made.

A spokesman for the Dutch Ministry of Economy and Climate said the Netherlands also complied with the EU’s recommendation that payments can still take place in certain cases.

German company Uniper also said that “we continue to believe that future compliant 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 problem is set to get worse as new bills come due: Payments for gas deliveries in April are typically due in May under industry standard billing, according to a report from the Oxford Institute for Energy Studies.

Ruined relationship

Moscow insists that ending gas supplies to Poland and Bulgaria and threatening other customers will not ruin its business reputation.

“This is not blackmail. Russia has been and remains a reliable supplier, committed to its obligations,” Peskov said. “The conditions that were set in the presidential decree, their necessity was caused by unprecedented hostile measures 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 permanently undermining Russia’s relationship with its biggest gas buyers, officials said. the EU.

“Russia’s suspension of gas flow is a gross breach of contract and blackmails the implementation of a ruble payment plan through third parties, which has not been agreed” , Bulgarian Prime Minister Kiril Petkov said on Wednesday. “We will not succumb to such racketeering.”

Gazprom’s contracts with Poland and Bulgaria expire at the end of this year, and neither country has plans to renew. Gazprom’s decision ends these ties even earlier.

“Today Poland has become independent of gas from Russia. We are not threatened by any blackmail,” Polish Prime Minister Mateusz Morawiecki said on Wednesday.

Petkov added that Sofia was reviewing all of its contracts with Gazprom, including transit agreements to pump gas through Bulgaria to other countries. Polish utility PGNiG said it would take legal action to force Gazprom to resume supplies and seek damages.

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

“The era of Russian fossil fuels in Europe will come to an end,” von der Leyen said. “We are determined to make this happen as soon as possible…for good and forever.”

Barbara Moen, Leonie Kijewski, Jacopo Barigazzi, Antonia Zimmerman and Victor Jack contributed reporting.

This article is part of POLITICO Pro

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