Russian Gas Deliveries: The Big Ruble Poker Has Begun

Status: 04/28/2022 4:03 p.m

Russian gas only for rubles: The gas supply stop for Poland and Bulgaria is putting German gas importers under pressure to adapt their payment methods. Time is running out.

By Angela Göpfert, tagesschau.de

Moscow has with the Stop of gas supplies to Poland and Bulgaria sets an example. The message is clear: countries that refuse to open an account with Gazprombank to pay their gas bills will no longer get Russian gas. Experts like the military economist Marcus Matthias Keupp from the Military Academy of ETH Zurich see it as a “threatening gesture” – an attempt to intimidate countries like Germany.

The German gas importer Uniper, Russia’s largest foreign customer, has to transfer the next invoice to Gazprom as early as May. On the one hand, it is important to adjust the procedure according to Russian demands and, on the other hand, not to violate the EU sanctions against Russia.

Uniper coordinates with the federal government

But how exactly the future payment modalities should look like still does not seem entirely clear. According to media reports, Uniper will in future make its Gazprom payments in euros to a Gazprombank account in Russia, thereby fulfilling a key Russian requirement.

“We believe that a payment conversion that is compliant with sanctions law and the Russian decree is possible,” said Uniper spokesman Oliver Roeder at the request of tagesschau.de. “Uniper will continue to pay in euros.” Uniper is in talks with its contractual partner about the specific payment modalities and is also in close consultation with the German federal government.

OMV is also working on a “sanctions-compliant solution”

However, Uniper is not alone with this problem of having to find a solution that complies with both the Russian decree and the EU sanctions. According to the “Financial Times”, the Viennese oil, gas and chemical group OMV wants to open a ruble account at Gazprombank in Switzerland to pay for Russian gas supplies.

On request from tagesschau.de OMV explained that this report was “definitely wrong” and instead emphasized: “We have analyzed the information from Gazprom about the payment modalities with regard to the EU sanctions and are now working on a sanctions-compliant solution.”

In other words: Apparently neither Uniper nor OMV have yet found a really official solution to the gas payment problem. How exactly the transfers to Gazprom will take place in the future remains unclear.

Transfer to “Account K” in accordance with sanctions?

According to the latest statements from the Federal Ministry of Economics, the whole thing doesn’t seem to be a particularly complicated process: Gas payments by German companies could be made in euros or dollars to a so-called “K account” at Gazprombank in accordance with the sanctions, it said yesterday the home of Minister Robert Habeck (Greens).

“The technical payment process can take place entirely at Gazprom,” explains Jens Südekum, Professor of International Economics at Heinrich Heine University in Düsseldorf and a member of the Scientific Advisory Board of the Ministry of Economics, when asked by tagesschau.de. Uniper pays in euros as usual and instructs Gazprombank to exchange them for rubles at the current rate and to credit a new ruble account, which is also with Gazprombank. “This means that all sides get what they want. Uniper will continue to pay in euros, but Gazprom – that is, Putin – can claim to receive rubles.”

Legal quibble?

At first glance, this looks like a viable solution that will allow both sides to save face. But the EU remains a major source of uncertainty: Commission President Ursula von der Leyen has repeatedly threatened that European gas companies that implement the new payment modalities too carelessly are taking a legal risk: “Paying in rubles is a breach of our sanctions.”

This is where things get legally complicated. When exactly will EU gas importers meet their payment obligations: when they transfer their bills to Gazprombank in euros? Or only after Gazprombank has exchanged the euros for rubles and transferred them to Gazprom’s account?

Russian central bank involved?

“This legal question will be decisive,” emphasizes economist Südekum tagesschau.de. “As I understand it, our contractual obligations have been fulfilled with the payment in euros; the subsequent exchange for rubles is virtually irrelevant.”

Another big unknown in this game is the Russian central bank: If the central bank is involved in the exchange of euros for rubles, payment transactions could possibly be interpreted as “credits from companies to them,” according to an EU guideline. That would be a breach of EU sanctions.

Germany is the most important customer for Russia

The bottom line is that it currently looks as if the large German and Austrian energy companies are quite willing to meet the Russian demands. Against this background, a Russian gas supply stop seems rather unlikely – not least because Germany is by far the most important energy customer for Russia. According to a study by the Finnish Center for Research on Energy and Clean Air, Germany has paid Russia around 9.1 billion euros for fossil fuels since the beginning of the war.

But the EU Commission is possibly another factor of uncertainty alongside Russia when it comes to the future of Russian gas deliveries to Germany and other EU countries: Will Brussels approve the new payment procedures for European gas suppliers, or will the Commission classify them as not complying with the sanctions ?

Not a few observers suspect a kind of proxy debate behind the complicated ruble discussion: “The discussion about the payment modalities is obscuring the actually important discussion and decision about whether Europe should continue to get gas from Russia,” says Commerzbank foreign exchange expert Ulrich Leuchtmann convinced.