Putin’s insistence on rubles may be more aimed at forcing European countries to scramble at his behest than at bolstering his nation’s currency, some economists and energy experts suspect. European Union countries have been sensitive to the idea that they might violate their sanctions against Russia, and questions over the arrangement have tested European unity, leading to weeks of chaos and to conflicting directives from Brussels. It has also caused countries to talk about their need for Russian gas, even as they debate a Russian oil embargo.
In the short term, they are ready to take certain steps to avoid an energy crisis.
But it also means sending money to Russia even as it condemns the Kremlin-initiated war, sanctions the oligarchs and supplies arms to Ukraine.
Russia had already used strict capital controls and a massive hike in interest rates to stabilize the rouble. With Europe now signaling that it will use the payment system as bills come due this week, the currency is getting even stronger.
Under the new billing system, gas payments will continue to be billed and sent in euros. The notable change is that Russia will then take the money from the euro account of the European energy company, convert the euros into rubles, transfer the money to a special ruble account also belonging to the energy company, and then take the money once for all.
“This is a face-saving transaction,” said Alessandro Lanza, a professor at LUISS University in Rome and a former economist at Eni, Italy’s leading energy company.
A broad European refusal to adjust its payment terms to Russian energy giant Gazprom would have pushed prices even higher for consumers and potentially led to rationing measures across the bloc. Two members of the European Union – Poland and Bulgaria – had their supplies cut off at the end of April by Gazprom after they refused to accept the new system, in what the Polish prime minister called a “direct attack”. Finland was subjected to a similar cut this week in retaliation for its NATO bid.
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But most European countries seemed to take a different route, moving away from the rhetoric of no blackmail and making peace with an arrangement based on the technicalities.
“Timely payment for gas deliveries received from Russia is ensured,” said a statement from OMV, the Austrian oil and gas company.
Along the way, many European policymakers have been confused about the arrangement — both on the fine points and on whether Russia could win anything meaningful. As such, the European Union’s own guidelines on how countries should proceed have remained vague.
Just last week Eric Mamer, the European Commission’s chief spokesman, said opening a ruble account would be a sanctions violation.
A day later, Paolo Gentiloni, the European economy minister, appeared to give the green light to the new payment system. Paying in rubles would be a violation of the sanctions. “But that’s not what’s happening,” he said.
In recent talks, Italian officials familiar with the deal said they believed there were clear reasons why the new arrangement did not breach EU sanctions. While Europe has banned all dealings with Russia’s central bank, the conversion process does not involve the central bank – something Eni has received assurances of in writing, according to a person familiar with the deal who spoke on condition of anonymity because it was not authorized. talk about it publicly. This person said that even if a European company paid directly in rubles, it would not violate the sanctions.
“The ruble itself is not sanctioned,” the person said.
In theory, a strengthening currency gives Russians more purchasing power abroad, a big advantage in normal times. But this advantage is diminished because the Russians became so isolated from the global financial system in the midst of the war.
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While Eni said directly that it was opening an account for ruble conversion, OMV said more vaguely that it was opening a “conversion account”. The company wouldn’t comment when asked if the account was in rubles.
Uniper, a Germany-based energy company, said in a statement: “We have opened the necessary account at 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 clients have opened ruble accounts. An account of Novak’s comments from the Tass news agency did not say how many of those 54 were from countries considered conflicting.
Roberto Perotti, an economist at Bocconi University in Milan, said there appears to be only ‘political value’ in forcing European companies to open a ruble account, with Putin proving he can set the terms with EU countries. Russia, he said, could have ended up with an identical result by accepting euros and converting them on the foreign exchange market. But such a transaction would hardly have caught the public’s attention.
Without immediate and sudden cuts in its energy supply, Europe has given itself time to increase its storage for peak periods of demand next winter.
There is still a chance that the Kremlin could retaliate. Draft conclusions drawn up for an upcoming European Council summit suggest countries will agree to prepare for the possibility of “major supply disruptions”. This would mean stepping up purchases from other non-EU countries and also creating agreements to share supplies within the bloc.
Europe has tried to wean off 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 blocked by countries that remain dependent on Russian oil, including Hungary.
Gas is the most important issue facing the continent as 40% of flared gas in Europe comes from Russia. The European Union said it had pledged to cut Russian gas by two-thirds by the end of the year, but it did not follow the United States in creating an outright ban on imports.
At least in the short term, said Alessandro Pozzi, an equity analyst at Mediobanca who tracks 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 Noack in Paris contributed to this report.