- Germany says risk of supply halt must be taken seriously
- Eni is taking steps to open ruble accounts as a precaution
European Commission President Ursula von der Leyen warned companies not to bend to Russia’s demands to pay for gas in rubles, as the continent scrambles for a united response to Moscow’s weaponization of its energy resources.
Gazprom PJSC turned off the taps to Poland and Bulgaria on Wednesday in a dramatic escalation, making good on a threat to cut supplies if payments aren’t made in rubles. Attention now turns to how big consumers Germany and Italy respond, with German Economy Minister Robert Habeck warning that the risk of more cutoffs must be taken seriously.
Europe is trying to maintain a united front, but it’s already being tested.
According to a person close to Gazprom, some European companies have now met Vladimir Putin’s demands. Italian energy giant Eni SpA is preparing steps that would potentially allow it to comply, while Germany’s Uniper SE believes it can keep buying gas without breaching sanctions.
“Companies with such contracts should not accede to the Russian demands,” von der Leyen said. “This would be a breach of the sanctions so a high risk for the companies.”
As payment deadlines start falling due over the next month, governments and companies across Europe have to decide whether to meet the new rules or face the prospect of gas rationing.
Share of natural gas imports coming from Russia, 2020
Benchmark prices surged on Wednesday more than 20% but then eased as traders reassessed the chances of a wider cutoff.
Germany also reiterated that companies should keep paying in euros, following EU guidelines, and Habeck said the continent had to be ready for a wider cutoff.
“Russia is showing that it’s ready to get serious, that if one doesn’t comply with supply contracts or payments, they’re ready to put a stop to gas deliveries,” he said. “We have to take that seriously, and that also goes for other European countries. I take that seriously.”
But companies continue to seek workarounds — and guidelines from the EU last week may be encouraging them. The bloc published a document saying that companies should carry on paying in euros, but that the Russian decree setting out the new rules didn’t preclude exemptions. It suggested companies should seek confirmation from Moscow that a transaction could be considered closed once payment was made in euros, even if it was to be converted later to rubles. Uniper has said it’s talking to Gazprom.
Habeck said it’s still not clear how Russia will react if companies pay in euros.
Payment schedules are staggered and Poland appears to have been among the first whose bill came due in rubles. Others have more time: Uniper, for example, isn’t due to pay until late May.
Warsaw has also been particularly vociferous in its criticism of Russia throughout the war and has been among those long lobbying for energy sanctions. While the EU has so far protected most energy supplies from restrictions, the bloc is now moving closer to a gradual ban on oil.
Key European Buyers of Russian Gas
Last month, Russian President Vladimir Putin shocked European governments and markets by demanding gas should be paid for in rubles — via a complicated mechanism involving setting up two linked bank accounts to handle the foreign exchange transaction.
When he first announced the demand, Putin said shifting to rubles would help protect Russia’s huge gas revenues from sanctions or seizure by the EU. The move also appeared aimed at ensuring Gazprombank, one of few big state banks not hit with the severest sanctions, would remain largely untouched.
Putin has also repeatedly highlighted the economic and political costs of higher energy prices in Europe, suggesting the Kremlin may believe that Western governments won’t be able to withstand the pressure domestically of a cutoff as long as Moscow can.
— With assistance by Iain Rogers, Anna Shiryaevskaya, Ewa Krukowska, and Carolynn Look
(Adds details about Eni starting in fourth paragraph)