Putin’s insistence on rubles may be more about forcing European countries to scramble at his best than about shoring up his country’s currency, some economists and energy experts suspect. European Union countries have been touchy about the notion they might violate their sanctions on Russia, and questions about the arrangement tested European unity, leading to weeks of chaos and contradictory guidance from Brussels. It also got countries talking about how much they still need Russian gas, even as they debate a Russian oil embargo.
In the short term, they are willing to jump through some hoops to avoid an energy crisis.
But that also means sending money to Russia even as they condemn the Kremlin-launched war, sanction oligarchs and supply weapons to Ukraine.
Russia had already used strict capital controls and a massive interest rate hike to stabilize the ruble. With Europe now signaling that it will use the payment system as bills come due this week, the currency is strengthening all the more.
Under the new billing system, gas payments will continue to be invoiced and sent in euros. The notable change is that Russia will then take the money from the European energy company’s euro account, convert the euros into rubles, transfer the money into a special ruble account also belonging to the energy company, and then take the money once and for all.
“This is a transaction where everybody saves face,” said Alessandro Lanza, a professor at Rome’s LUISS University and a former economist at Eni, Italy’s major energy company.
A broad European refusal to adjust its payment terms to Gazprom, the Russian state-owned energy giant, would have pushed prices even higher for consumers and potentially led to rationing measures across the bloc. Two European Union members – Poland and Bulgaria – had their supplies cut in late April by Gazprom after refusing to go along with the new system, in what Poland’s prime minister called a “direct attack.” Finland this week was subject to a similar cutoff, as retaliation for its NATO application.
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But most European countries have appeared to go a different route, moving away from rhetoric about refusing to be blackmailed and making peace with an arrangement based on the technicalities.
“Timely payment for the received gas deliveries from Russia is guaranteed,” said a statement from OMV, the Austrian oil-and-gas company.
Along the way, many European policymakers have been confused about the arrangement – both the fine points and whether Russia might stand to gain anything meaningful. As such, the European Union’s own guidance on how countries should proceed has been vague.
As recently as last week, Eric Mamer, the European Commission’s chief spokesman, said opening an account for rubles would constitute a breach of sanctions.
A day later, Paolo Gentiloni, Europe’s economic minister, seemed to give the new payment scheme an all-clear. Paying in rubles would constitute a sanctions violation. “But this is not what is happening,” he said.
In recent interviews, Italian officials familiar with the deal say they believe there are clear reasons the new arrangement does not breach European sanctions. While Europe has prohibited all transactions with Russia’s central bank, the conversion process does not involve the central bank – something Eni has received assurances of in writing, according to one person familiar with the deal who spoke on the condition of anonymity because they were not authorized. to speak about it publicly. That person said that even if a European company were to pay directly in rubles, it would not violate sanctions.
The ruble itself is not sanctioned, the person said.
In theory, a strengthening currency gives Russians more buying power abroad – a big advantage in normal times. But that advantage is diminished because Russians have become so isolated amid the war from the global financial system.
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While Eni said directly that it was opening an account for the ruble conversion, OMV said more vaguely that it was opening a “conversion account.” The company wouldn’t comment when asked if the account was for rubles.
Uniper, a Germany-based energy company, said in a statement: “We have opened the necessary account at Gazprom bank in Russia… but will continue to pay in euros in line 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 adversarial.
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 that he can set the terms with EU nations. Russia, he said, could have ended up with an identical bottom line by accepting the euros and converting them on the exchange market. But such a transaction would have gotten scant public attention.
Without immediate and sharp cuts to its energy supply, Europe has bought itself some time to ramp up its storage for peak demand periods next winter.
There is still a chance that the Kremlin could retaliate. The draft conclusions compiled for an upcoming European Council summit suggest countries will agree to prepare for the possibility of “major supply disruptions.” That would mean bolstering procurement from other non-EU countries and also creating deals to share supplies within the bloc.
Europe has tried to wean its dependence on Russian fossil fuels, first with an embargo of coal. A more ambitious plan to phase out oil imports, while supported by most EU nations, has so far been held up by countries that remain dependent on Russian oil, most notably Hungary.
Gas is the most significant question looming for the continent because 40 percent of the gas burned in Europe comes from Russia. The European Union has said it is committed to reducing Russian gas by two-thirds by the end of the year, but it has not followed the United States in creating an outright ban on imports.
At least in the short term, said Alessandro Pozzi, an equities analyst at Mediobanca who follows the energy industry, “Europe will likely have to continue paying Putin for his gas.”
Emily Rauhala and Quentin Aries in Brussels, Loveday Morris in Berlin and Rick Noack in Paris contributed to this report.