The EU has given companies the green light to buy gas from Russia – meaning they will likely comply with Moscow’s payment demands – despite prior public statements that the Commission would impose tough sanctions.
It’s being seen as a climbdown in reaction to the price increases and supply disruption last week, after Russia responded to Western sanctions by cutting off supply to companies in countries which had agreed to EU guidelines rejecting Moscow’s demands regarding payments for oil and gas.
Russia has insisted that all payments be made in roubles and by opening accounts with Gazprombank, the financial arm of the Russian energy giant. The move by Moscow seeks to shore up the rouble and Russian finances in the face of sanctions from the West hitting multiple areas of the economy.
Last week, Europe faced turmoil in the market, and the price of gas shot up further, with Dutch gas prices at the TTF hub, the European benchmark, rising by about 20 percent, as Russia stopped supply of gas and oil to countries imposing sanctions.
Russia is the largest supplier of gas to Europe and last year the EU received some 40% of its gas needs from Russia. The country is also the world’s third biggest producer of crude oil, after the US and Saudi Arabia, and about half of Russia’s crude oil exports went to Europe, before sanctions were announced earlier this year in the wake of the invasion of Ukraine.
Hitting back at sanctions and a proposed tough stance against paying in roubles Gazprom said: “A ban on transactions and payments to entities under sanctions has been implemented”.
“For Gazprom, this means a ban on the use of a gas pipeline owned by EuRoPol GAZ to transport Russian gas through Poland,” the energy giant said in a statement. Kremlin spokesperson Dmitry Peskov said there would be no supply to the companies affected.
Gazprom cut off supplies to Poland and Bulgaria and said it would not restart these until payments are made in roubles. Manufacturers and energy suppliers faced increasing difficulties – and companies across EU member states privately said they would accede to Russia’s demands regarding payment for oil and gas.
Gas companies in some EU countries, including in Germany, Hungary and Slovakia, had already reacted by agreeing to pay for gas in euros through Gazprombank, which will then convert the payments into roubles.
The Financial Times also reported that gas companies in Austria and Italy were planning to follow suit.
Now, the European Commission has issued revised guidelines to member states saying that the European Union’s guidelines do not prevent companies from opening accounts at Gazprombank – once companies made a clear statement that they consider their obligations fulfilled once they pay in euros or dollars.
In effect, the climbdown means that the EU is saying that companies can keep buying gas without breaching sanctions, a move seen as a softening of its stance in a standoff with Moscow over energy supplies.
EU sanctions “do not prevent economic operators from opening a bank account in a designated bank for payments due under contracts for the supply of natural gas in a gaseous state, in the currency specified in those contracts,” the commission said.
“Operators should make a clear statement that they intend to fulfil their obligations under existing contracts and consider their contractual obligations regarding the payment already fulfilled by paying in euros or dollars, in line with the existing contracts.”
The guidance stops short of addressing the requirement by Moscow to open a second account in roubles.
Polish Prime Minister Mateusz Morawiecki criticized the EU for softening its stance on ruble payments. “I am disappointed to see that in the European Union there is consent to pay for gas in rubles,” he said on Sunday. “Poland will stick to the rules and will not yield to Putin’s blackmail.”
In full, the EU guidance says:
“Council Regulation (EU) 833/2014 and Council Regulation (EU) 269/2014 do not prevent economic operators from opening a bank account in a designated bank for payments due under contracts for the supply of natural gas in a gaseous state, in the currency specified in those contracts for the fulfilment of payments pursuant thereto, provided that payments are made in that currency, under normal commercial conditions, it being understood that such payments in that currency discharge definitively the economic operator from the payment obligations under those contracts, without any further action from their side as regards the payment. For that purpose, those operators should make a clear statement that they intend to fulfil their obligations under existing contracts and consider their contractual obligations regarding the payment already fulfilled by paying in euros or dollars, in line with the existing contracts.”