Germany’s largest producer of power, the giant RWE utility, has opened an account to pay for Russian gas in euros, Reuters reports, which will then be converted to rubles, following European Union clarifications that essentially allow companies to follow the Kremlin’s gas-for-rubles scheme without violating sanctions.
By the end of this month, contracts for Russian natural gas will come due for many European companies who have been struggling to determine how to pay for gas in Russian currency without falling afoul of EU sanctions.
RWE joins a growing list of an estimated 20 European buyers of Russian natural gas that have so far opened accounts to enable the Kremlin’s conversion-to-rubles scheme.
In late April, Germany’s Uniper energy firm said it was preparing to purchase Russian gas in line with the Kremlin’s demand, saying at the time that it considered a payment conversion “compliant with sanctions law”.
“For our company and for Germany as a whole, it is not possible to do without Russian gas in the short term; this would have dramatic consequences for our economy,” a Uniper official told the BBC.
On Friday, the EU released new guidance to buyers on payments for purchases of Russian natural gas in a document seen by Reuters.
The EU’s updated guidance makes it clear that companies will not be penalized for following the Kremlin’s ruble payment demands, as long as the initial payment is rendered in the currency stated in existing contracts, and then those transactions are “closed” once the initial payment is made and before the payment is transferred to a ruble account. In other words, simply by declaring that a contract transaction has been completed upon payment in euros or dollars, companies avoid violating sanctions.
“Such payments in that currency discharge definitively the economic operator from the payment obligations under those contracts, without any further actions from their side as regards the payment,” Reuters cited the updated EU guidance as stating.
Ruble payments are being viewed as a clear victory for Putin at home in Russia, with Russian media headlining what appears to be soaring oil revenues, the stabilization of the Russian economy, a ruble that is now doing quite well and an EU embargo that has been stymied by Hungary’s refusal to join, while the European Union grapples with soaring energy prices, inflation and economic growth decline.
The government in Berlin is already negotiating with alternative oil suppliers, Bloomberg reported, citing officials who declined to be named, and it is confident that the next six to seven months will be enough to solve the logistical problems surrounding such a complete switch of suppliers.
The European Union has been discussing an oil embargo on Russia as part of its sixth sanction package, but it has been unable to convince all member states to vote for an embargo. Hungary and Slovakia got extensions until 2024 to replace their suppliers of oil, but Hungary is still against an embargo. Bulgaria has threatened to veto the embargo unless it receives an exemption, too.
The rest of the European countries will have a grace period of six months to wind down their oil purchases from Russia and replace them with imports from elsewhere. For oil products, the proposed grace period is eight months.
If an embargo is agreed upon by the EU members, Russia’s oil production could drop to 9.6 million barrels daily, according to estimates made by the International Energy Agency. This would be the lowest since 2004 and would happen at a time when the global oil supply continues to be tight amid rising demand, despite lockdowns in China.
Germany had signaled before that it was ready to ditch Russian oil as well as Russian gas. Last month, Economy Minister Robert Habeck said that Germany could stop importing Russian oil by the end of the summer. Later, he reported that the share of Russian oil in Germany’s total imports had declined from 35 percent before the start of the war in Ukraine to just 12 percent. The new oil suppliers have not been named.