EU May Allow Gas Payments Under New Russian Ruble Exchange Decree Without Breaching Sanctions

EU May Allow Gas Payments Under New Russian Ruble Exchange Decree Without Breaching Sanctions
A natural gas storage facility as seen in a file photo. Stringer/Getty Images
Bryan Jung
Updated:

The European Commission sent new guidance to its member states on April 21, admitting that it “appears possible” for European buyers of Russian gas to pay according to the terms of Moscow’s decree on ruble conversion without violating international sanctions.

Many European countries in the Euro bloc are heavily dependent on 40 percent of their energy needs from Russia, especially important economies like Germany.

There is widespread concern in European capitals, that the cut-off of supply of Russian gas will cause a major economic or even a serious political crisis.

On March 31, President Vladimir Putin signed a decree requiring countries sanctioning Russia over the war in Ukraine to purchase its gas in rubles instead of through dollars or Euros, through its new currency conversion system or risk having supplies suspended.

The guidance sent to member states provides a loophole for them to pay for Russian gas without being in conflict with EU law.

Brussels admitted that the new rules from Moscow acceptably amends the legal framework enough for supply contracts to be lawfully executed between Russian gas suppliers and Western importers, but with certain legal obligations for each EU-based company that does not specifically conflict with sanctions.

“EU companies can ask their Russian counterparts to fulfil their contractual obligations in the same manner as before the adoption of the decree, i.e. by depositing the due amount in euros or dollars,” according to the EC in the document.

“The decree does not preclude a payment process which is in line with the EU restrictive measures. However, the procedure for derogations from the requirements of the decree is not clear yet.”

“The decree introduces a new payment procedure, whereby the deposition of euros or dollars on the supplier’s account is no longer considered as fulfilment of the contractual obligations,” said the memo.

“Instead, euros or dollars received by EU companies need to be converted into rubles under the decree, and EU companies are only deemed to have fulfilled their contractual obligations once the conversion process has been successfully completed, and the payment has been made in rubles,” it concluded.

Gazprom logo is seen on a gas processing column under construction at the Amur gas processing plant, part of Power Of Siberia project outside the far eastern town of Svobodny, in the Amur region, Russia on Nov. 29, 2019. (Maxim Shemetov/Reuters)
Gazprom logo is seen on a gas processing column under construction at the Amur gas processing plant, part of Power Of Siberia project outside the far eastern town of Svobodny, in the Amur region, Russia on Nov. 29, 2019. Maxim Shemetov/Reuters

According to the new Russian regulations, the Kremlin will allow the Russian Central Bank to carry out the currency exchange transactions linked to the bank’s assets and reserves, which is technically on paper prohibited under EU sanctions.

“As the conversion process may take an undefined amount of time, during which time the foreign currency is entirely in the hands of the Russian authorities including the Central Bank, it may even be considered as a loan granted by EU companies,” said Brussels.

Additionally, the EC also said current sanctions against Russia do not prohibit transactions with Gazprom or Gazprombank other than refinancing.

“Likewise, they do not prohibit opening an account with Gazprombank. Such engagement or account, however, should not lead to the violation of other prohibitions,” that the EC.

Meanwhile, the British government issued a temporary license on April 21, to allow the winding down of existing financial transactions with Gazprombank from the issuing of the contract until the end of May for natural gas imported into the EU.

The license issued by the U.K. Treasury is issued solely “for the purpose of making gas available for use in the European Union.”

In Washington, the White House said on April 22, that it is fully confident that America’s European allies are still determined to further maintain joint efforts to tighten oil and gas sanctions against Moscow.

Bryan Jung
Bryan Jung
Author
Bryan S. Jung is a native and resident of New York City with a background in politics and the legal industry. He graduated from Binghamton University.
Related Topics