(Bloomberg) – Europe’s reaction to Russia’s threat to cut off gas is starting if companies don’t pay in rubles for the split.
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Poland and Bulgaria have already been isolated for failing to abide by Vladimir Putin’s new terms. But Austria is confident of its ability to keep the gas flowing, and Hungary says it has no choice but to accede to Moscow’s demands. Germany appears to be seeking a compromise and says the ball is now firmly in Putin’s court.
With payment deadlines looming, governments and companies are grappling with the dilemma of bowing to Russia’s demands, bolstering Putin in his war against Ukraine or risking drowning their citizens in energy rationing. The credibility of the European Union is at stake.
The companies, some of which are still at least partially state-owned, are asking the European Commission for clarification.
So far, the European Union has issued vaguely worded guidelines asking companies to pay in euros and asking for confirmation from Moscow that the deal will be considered paid off at that point. Russia said the payment must be converted into rubles and deposited into an account at Gazprombank before it can be considered paid. EU officials have said – albeit not explicitly on paper – that opening an account in rubles would breach EU sanctions against the Russian Central Bank.
Why Putin’s demand for the ruble is driving Europe into a scramble: QuickTake
European Union President Ursula von der Leyen made clear statements that companies should not pay in rubles. But so far, the block’s written guidelines appear to allow more room for maneuver.
Gas prices have retreated from their highs earlier this week as traders are betting nonsense. Hungary said on Friday that it was not the only country willing to comply with Putin’s new terms. Bloomberg reported this week that four European buyers have already paid in rubles, while Italy’s Eni is taking preparatory steps so it can continue to buy Russian gas.
“We will do like the others – I repeat, like the others, because it is not true that others refuse” the new payment terms, Hungarian Foreign Minister Peter Szyjjarto said. “Others aren’t that honest.”
A gradual approach in Europe would have the advantage of keeping markets working: Germany now sends gas to Poland, a situation that can only continue as long as Germany does not break.
Germany’s response is in the air. Uniper SE, a huge buyer of Russian gas, has long believed it could find a solution, an opinion reiterated by its spokesperson on Friday. Economy Minister Robert Habeck said earlier this week that companies would pay in euros, leaving it up to Russia to make the transfer. It remains to be seen, he said, “whether this helps, and this is enough to save Putin’s face, so that he can say, look it’s a ruble.”
“It is now up to the Kremlin and Gazprom whether they say this is enough or not,” he said.
Bulgaria’s experience suggests that it may not be. Bulgarian Energy Minister Alexander Nikolov on Thursday explained the reason for his government’s decision not to accept the Russian terms, which reduced flows.
“The request was to authorize Gazprombank to carry out the transaction on an external entity, the Moscow Stock Exchange,” he said. “So you have no control over your own money and at the end of the day, payments are considered to be made when they are in Russian rubles,” he told reporters.
“So there is a significant amount of time when you don’t have any control over your money and you can’t control the delivery of natural gas,” he said. “If you look at it from the perspective of a company, no sane person would sign it.”
For its part, Slovakia is seeking guidance from the bloc as it tries to avoid violating sanctions. Deputy Economy Minister Karol Gallick said in an interview that huge questions remain about the payment system.
Austria, which has one of Europe’s oldest and deepest ties to Russian power, is less concerned. EU Minister Caroline Adstadler said Thursday that the European Commission had approved payments to oil giant OMV for Russian fuel, although she did not elaborate on the discussions that took place and there was no confirmation from Brussels.
Four European gas buyers paid rubles to Russia
Implementation of sanctions is mostly up to national governments. Before it ends in court, governments will have to decide how to deal with any company that doesn’t go against the rules.
Ultimately, some countries will have to make their decisions based on economic realities. Hungary has made clear its priorities.
“Either we buy natural gas and crude oil, or there is no fuel, no heating and the economy stops,” Cabinet Minister Gergeli Golias said.
(adds more Hungary)
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