(Bloomberg) — Europe’s response to Russia’s threat to turn off the gas if companies don’t pay in rubles is starting to splinter.
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Poland and Bulgaria have already been cut off for failing to abide by Vladimir Putin’s new terms. But Austria is confident it can keep the gas flowing and Hungary says it has no choice but to agree to Moscow’s demands. Germany appears to be pursuing a compromise and says the ball is now firmly in Putin’s court.
As payment deadlines come due governments and companies are wrestling with the dilemma of bending to Russia’s demands and strengthening Putin in his war against Ukraine or risk plunging their citizens into energy rationing. At stake is the European Union’s credibility.
Companies, some of which are still at least partly state-owned, are asking the European Commission for clarity.
So far, the EU has issued vaguely worded guidelines telling companies to pay in euros and seek confirmation from Moscow that the transaction will be considered settled at that point. Russia has said the payment has to be converted into rubles and deposited in an account in Gazprombank before it’s considered made. EU officials have said — though not yet explicitly on paper — that opening a ruble account would breach the sanctions the bloc has imposed on Russia’s central bank.
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EU President Ursula von der Leyen has made clear statements that companies mustn’t pay in rubles. But so far, the bloc’s written guidelines appear to allow more wiggle room.
Gas prices have eased off earlier highs this week as traders are betting on a fudge. Hungary said on Friday that it’s not the only country ready to comply with Putin’s new terms. Bloomberg reported this week that four European buyers have already paid in rubles, while Italy’s Eni SpA is taking preparatory steps so that it can keep buying Russian gas.
“We’re going to do just like others — I repeat, like others, because it’s not true that others reject” the new payment terms, said Hungarian Foreign Minister Peter Szijjarto. “The others just aren’t being this honest.”
A piecemeal approach in Europe would have the advantage of keeping the markets working: Germany is now sending gas to Poland, a situation that can only hold as long as Germany doesn’t get cut off.
Germany’s response is up in the air. Uniper SE, a massive buyer of Russian gas, has long believed it can find a fix, a view its spokesman reiterated on Friday. Economy Minister Robert Habeck said earlier this week that companies will pay in euros, and leave it up to Russia to make the conversion. He said it remains to be seen “if this helps, and this is enough for Putin’s face-saving, so that he can say, look these are rubles.”
“Now it is up to the Kremlin and Gazprom whether they say this is enough or not,” he said.
Bulgaria’s experience suggests it might not be. Bulgarian Energy Minister Alexander Nikolov explained on Thursday why his government decided not to accept Russia’s terms, which resulted in flows being cut.
“The request was to authorize Gazprombank to execute the transaction on an external entity, that is the Moscow exchange,” he said. “Therefore you do not have any control on your own funds and at the end of the day, the payment is considered executed when it is in Russian rubles,” he told reporters.
“So there is a significant amount of time when you don’t have any control over your funds and you don’t have control over the delivery of natural gas,” he said. “If you look at it from a corporate perspective, there is not a sensitive person that would sign it.”
For its part, Slovakia is seeking guidance from the bloc as it tries to avoid breaching sanctions. Deputy Economy Minister Karol Galek said in an interview that huge questions remain over the payment system.
Austria, which has one of Europe’s oldest and deepest connections to Russian energy, seems less concerned. EU Minister Karoline Edtstadler said Thursday that the European Commission had approved its oil major OMV’s payments for Russian fuel, though she didn’t detail what discussions had taken place and there was no confirmation from Brussels.
Four European Gas Buyers Made Ruble Payments to Russia
Enforcement of sanctions mostly comes down to national governments. Before the matter ends up in court, it will be for governments to decide how to deal with any companies that do bend the rules.
In the end, some countries will be forced to make their decisions based on economic realities. Hungary has made its priorities clear.
“Either we buy natural gas and crude oil or there’s no fuel, no heating and the economy grinds to a halt,” said Cabinet Minister Gergely Gulyas.
(adds more from Hungary)
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