Russian gas payment demands in ‘breach’ of sanctions, EU warns

The EU has warned European buyers of Russian gas that they will be in breach of blocking against Moscow if they accept Kremlin demands for payment to be completed in roubles.

The warning, which is clearer than previous guidance by Brussels, comes after several European companies indicated that they would comply with a March 31 decree by President Vladimir Putin to introduce a two-tiered system for gas payments.

This involves opening rouble and euro accounts at Gazprombank in Russia. Under existing payment arrangements, most European companies were paying in euros into Gazprombank’s Luxembourg-based accounts.

Gas distributors in Germany, Austria, Hungary and Slovakia had been planning to comply, according to people with knowledge of the preparations.

“Complying with the decree is a breach of sanctions,” European Commission chief spokesperson Eric Mamer told its daily media briefing on Thursday.

“If companies pay in euros, they are not in breach of the sanctions,” said an EU official. “What we cannot accept is that companies are obliged to open a second account in roubles and that the payment is complete only when payment is converted into roubles.”

Companies and national energy regulators are now in the invidious position of breaching EU sanctions, or defying Moscow and having gas supplies possibly cut off. The EU gets about 40 per cent of its gas from Russia and some countries are almost completely reliant.

The EU believes that accepting completion of gas deals in roubles, as Putin has demanded, would mean involving Russia’s central bank in the transactions, which would violate the sanctions imposed on the Russian financial system in a bid to hamper Putin’s capacity to finance the war.

By having the gas payments cleared only when they are converted into roubles, Moscow is seeking to have European companies circumvent the sanctions on the central bank, the EU official said.

Dmitry Peskov, president Vladimir Putin’s spokesman, said: “We do not recognise the legality of these sanctions and are not guided by them.”

Gazprombank, as the main financial arm of Russia’s monopoly gas provider, was deliberately excluded from EU sanctions — underlining how reluctant Europe is to cut off access to vital Russian gas supplies.

Gas importers in Poland and Bulgaria, which have refused to sign up to the Kremlin scheme, had gas supplies from Russia halted on Wednesday, a decision European Commission president Ursula von der Leyen described as “blackmail”.

Two of the largest importers of Russian gas, Düsseldorf-based Uniper and Vienna-based OMV, had said they would be open to paying via the Russian system.

Italian state-backed Eni, another of Gazprom’s largest customers, is evaluating its options, according to two people familiar with the discussions.

Several governments said guidance issued by the European Commission on Friday, which said companies could open a Gazprombank account, appeared to approve the new method.

Mamer said that member states were responsible for the enforcement of sanctions and the commission was in consultation with national authorities and gas providers to ensure compliance.

“If [a state] is not fulfilling its obligations in terms of implementing sanctions, the commission can carry out an infringement procedure against that member state,” he said. “We are not at that stage yet.”

Around 97 per cent of Russian gas contracts were denominated in euros or dollars and companies should continue paying by their usual means, he added.

Futures contracts tracking European wholesale gas prices eased on Thursday, falling about 7 per cent to about €101 per megawatt hour.

Thomas Rodgers, European gas analyst at ICIS, a commodity data firm, said that the market was yet to be convinced that the EU would go through with stopping gas companies from setting up rouble accounts with Gazprombank in some form.

“There isn’t a market consensus on what the EU is or isn’t allowing regarding these accounts,” he said. “The market needs something firmer from the EU saying this is a no-go before we get a more aggressive upswing.”

Additional reporting by Harry Dempsey in London

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