Some economists and energy experts suspect that Putin’s insistence on the ruble may be more to force European countries to shake his head than to devalue his country’s currency. EU countries were sensitive to the idea that they might violate their sanctions on Russia, and questions about the measure examined European unity, leading to weeks of chaos and conflicting guidelines from Brussels. Despite the debate over Russia’s oil embargo, it has talked to countries about the need for Russian gas.
In the short term, they are willing to jump with some hoop to avoid an energy crisis.
But that means sending money to Russia, even as they condemn the Kremlin-initiated war, the approval of the Oligarchs and the supply of weapons to Ukraine.
Russia has already used tight capital controls and massive interest rate hikes to stabilize the ruble. Europe is now hinting that it will use the payment system as soon as the bill arrives this week, with the currency getting stronger.
Under the new billing system, gas payments will continue to be invoiced and shipped in euros. Significant change is that Russia will then take money from the European energy company’s euro account, convert the euro into rubles, transfer the money to a special ruble account that belongs to the energy company, and then take money once and for all.
“It’s a transaction where everyone saves face,” said Alessandro Lanza, a professor at the University of Louis in Rome and a former economist at Italy’s leading energy agency Annie.
A broad European refusal to reconcile its payment terms with Russian state-owned energy giant Gazprom will push prices even higher for consumers and potentially lead to a rationing system across the block. Gazprom cut off supplies in late April after two members of the European Union – Poland and Bulgaria – refused to go along with the new system, in what Poland’s prime minister called a “direct attack”. Finland had similar cutoff issues this week in retaliation for its NATO appeal.
Russia cuts off gas to Poland, Bulgaria, sparks tensions with EU
But most European countries have been seen to be moving in a different direction, refusing to be blackmailed and moving away from talking about making peace with a system based on technology.
“Timely payment for gas supplies from Russia has been ensured,” said a statement from the Austrian oil and gas company OMV.
By the way, many European policymakers are confused about this measure – both the subtle points and whether Russia can achieve something meaningful. For example, the EU’s own guidelines on how countries should proceed were unclear.
Last week, European Commission chief spokesman Eric Mama said opening an account for the ruble would violate sanctions.
A day later, Paolo Gentiloni, Europe’s economic minister, appeared to be clearing the way for the new payment scheme. Payment of rubles will constitute a violation of the ban. “But that’s not what’s happening,” he said.
In a series of recent interviews, Italian officials familiar with the agreement said they believed there were clear reasons why the new arrangement did not violate European sanctions. Although Europe has banned all transactions with Russia’s central bank, the conversion process does not involve the central bank – according to a person familiar with the agreement, Annie received a written assurance. The man said that even if a European company pays directly in rubles, it would not violate the ban.
“The ruble itself is not approved,” the person said.
Theoretically, a stronger currency would give Russians more purchasing power abroad – a big advantage in normal times. But that advantage has diminished because the Russians have become so isolated from the global financial system during the war.
Russia’s Western allies are divided over how to reduce oil profits
Although Annie directly stated that it was opening an account for the ruble conversion, OMV further stated that it was opening a “conversion account”. The company will not comment if asked if the account is for rubles.
Uniper, a German-based energy firm, said in a statement: “We have opened the necessary accounts at Russia’s Gazprom Bank. However, we will continue to pay in euros in line with the new payment system.”
Alexander Novak, Russia’s deputy prime minister, said last week that “almost half” of Gazprom’s 54 foreign clients had opened ruble accounts. A toss account of Novak’s remarks did not say how many of the 54 were from countries considered adversaries.
Roberto Perotti, an economist at Bokoni University in Milan, said that forcing European companies to open ruble accounts seemed to have only “political value”, and that Putin had proved that he could set conditions with EU countries. He said Russia could have ended up with a uniform bottom line by accepting the euro and converting it into an exchange market. But such a transaction would gain little public attention.
With immediate and sharp cuts in its power supply, Europe has bought some time to augment its storage for the most demanding seasons next winter.
There is still a chance that the Kremlin could take revenge. The draft conclusions compiled for the forthcoming European Council suggest that countries agree to be prepared for the possibility of a “major supply disruption”. This means consolidating purchases from other non-EU countries and creating agreements to supply supplies to the EU.
Europe is the first country to try to eliminate its dependence on Russian fossil fuels through a coal embargo. More ambitious plans to cut oil imports, though supported by most EU countries, are still stuck with Russian oil-dependent countries, particularly Hungary.
Gas is the most important question for the continent, as 40 percent of the gas burned in Europe comes from Russia. The EU has said it is committed to a two-thirds reduction in Russian gas by the end of the year, but has not followed suit with the United States in imposing direct sanctions on imports.
At least in the short term, says Alessandro Pozi, an equity analyst at Mediobank who follows the energy industry, “Europe will probably have to continue to pay Putin for his gas.”
Emily Rauhala and Quentin Aris in Brussels, Loveday Morris in Berlin and Rick Noak in Paris contributed to this report.