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ROME – European energy companies appear to have bowed to Russian President Vladimir Putin’s demand to buy natural gas using a sophisticated new payment system, a concession that avoids more gas outages and also gives Putin victory in public relations. while continuing to fund his war efforts in Ukraine.
The system, which includes the creation of two Gazprombank accounts, allows Europe to say it is technically paying for natural gas in euros, while Russia can say it is paying in rubles, a requirement Putin has imposed on “unfriendly” nations.
Some economists and energy experts suspect that Putin’s insistence on the ruble may be to force European nations to fight on his orders rather than to strengthen his country’s currency. European Union countries have been moved by the idea that they could violate sanctions against Russia, and questions about the agreement have tested European unity, leading to weeks of chaos and conflicting directions from Brussels. It has also made countries talk about how much they still need Russian gas, even when discussing Russia’s oil embargo.
NATO Secretary-General Jens Stoltenberg has called on Western countries not to trade for security for economic gain, targeting a debate on the use of Russian gas. (Video: Reuters)
In the short term, they are ready to skip some hoops to avoid an energy crisis.
But it also means sending money to Russia, even as they condemn the Kremlin’s war, sanction the oligarchs and supply arms to Ukraine.
Russia is already using tight capital controls and massive interest rate hikes to stabilize the ruble. With Europe already signaling that it will use the payment system when bills arrive this week, the currency is stepping up even more.
Under the new invoicing system, gas payments will continue to be invoiced and sent in euros. The remarkable change is that Russia will then take the money from the European energy company’s European account, convert the euro into rubles, transfer the money to a special ruble account that also belongs to the energy company, and then take the money once and for all.
“This is a deal where everyone keeps their face,” said Alessandro Lanza, a professor at Rome’s LUISS University and a former economist at Eni, Italy’s largest energy company.
A broad European refusal to adjust its payment terms to Gazprom, Russia’s state energy giant, would push consumer prices even higher and potentially lead to rationing measures across the bloc. Two members of the European Union, Poland and Bulgaria, were cut off by Gazprom in late April after refusing to comply with the new system, which the Polish prime minister called a “direct attack”. Finland was the subject of a similar interruption this week in retaliation for its NATO implementation.
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But most European countries seem to be moving in a different direction, moving away from the rhetoric of refusing to be blackmailed and making peace with an agreement based on technical details.
“Timely payment has been made for gas supplies received from Russia,” said a statement from OMV, the Austrian oil and gas company.
Along the way, many European politicians were confused about the agreement – both the thin points and whether Russia could gain something meaningful. As such, the European Union’s own guidelines on how states should act are unclear.
As early as last week, Eric Mamer, the European Commission’s chief spokesman, said opening a ruble account would be a violation of sanctions.
A day later, Paolo Gentiloni, the European economy minister, seemed to clarify the new payment scheme. Paying in rubles would be a violation of sanctions. “But it’s not happening,” he said.
In recent interviews, Italian officials familiar with the deal say they believe there are clear reasons why the new agreement does not violate European sanctions. While Europe has banned all transactions with Russia’s central bank, the conversion process does not involve the central bank – something Eni has received written assurances about, according to a person familiar with the deal, who spoke on condition of anonymity because they were not authorized. to talk about it publicly. This person said that even if a European company pays directly in rubles, it will not violate the sanctions.
“The ruble itself is not sanctioned,” the man said.
In theory, the strengthening currency gives Russians more purchasing power abroad – a big advantage in normal times. But that advantage is diminished because the Russians have become so isolated during the war from the global financial system.
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While Eni said directly that it was opening a ruble conversion account, OMV said it was less clear that it was opening a “conversion account”. The company declined to comment on whether the bill was in rubles.
Uniper, a German-based energy company, said in a statement: “We have opened the necessary account with Gazprom Bank in Russia… but we will continue to pay in euros in accordance with the new payment mechanism.”
Alexander Novak, Russia’s deputy prime minister, said last week that “about half” of Gazprom’s 54 foreign customers had opened ruble accounts. A report on Novak’s comments from TASS did not say how many of those 54 were from countries considered hostile.
Roberto Perotti, an economist at Bocconi University in Milan, said there seemed to be only “political value” in forcing European companies to open a ruble account, with Putin proving he could set conditions with EU countries. Russia, he said, could end up with an identical end result by adopting the euro and converting them on the stock market. But such a deal would not receive scarce public attention.
Without immediate and sharp cuts in its energy supply, Europe has taken some time to increase its storage for periods of peak demand next winter.
There is still a chance the Kremlin will retaliate. The draft conclusions drawn up for the forthcoming European Council summit suggest that the parties will agree to prepare for the possibility of “major supply disruptions”. This would mean stepping up procurement from other non-EU countries, as well as setting up supply-sharing deals within the bloc.
Europe has tried to weed out its dependence on Russian fossil fuels, first with a coal embargo. A more ambitious plan to phase out oil imports, although backed by most EU countries, has so far been delayed by countries that remain dependent on Russian oil, most notably Hungary.
Gas is the most important question for the continent, because 40 percent of the gas burned in Europe comes from Russia. The European Union has said it is committed to cutting Russian gas by two-thirds by the end of the year, but has not followed the United States in imposing a total import ban.
At least in the short term, said Alessandro Pozzi, a stock analyst at Mediobanca who monitors the energy industry, “Europe will probably have to keep paying Putin for its gas.”
Emily Rauhala and Quentin Aries in Brussels, Loveday Morris in Berlin and Rick Noak in Paris contributed to this report.
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