Russia sanctions: European Commission suggests Moscow's gas payment workaround may work for EU companies
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The European Commission advised companies that Moscow's proposed workaround to complete gas payments may not violate sanctions enacted due to the invasion of Ukraine.
"EU companies can ask their Russian counterparts to fulfill 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," said a document distributed by the European Commission on Thursday.
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Moscow threatened to pull the plug on Europe’s gas supply unless the companies fulfilled their payments in rubles. The Kremlin worked with Russian gas company Gazprombank to establish a system that would allow companies to deposit foreign currency in one account while Gazprom would complete the transactions in rubles.
Russian President Vladimir Putin attends a meeting with young award-winning culture professionals via videoconference in Moscow, Russia, Friday, March 25, 2022. Russia is demanding payment in rubles for its natural gas exports to Europe. And that is rattling markets already in turmoil because of the war in Ukraine. Already high gas prices have gyrated after the announcement by President Vladimir Putin last week. | AP Images
"If these payments are not made, we will consider it a failure of the buyer to fulfill its obligations, with all the ensuing consequences," Putin said last month when the issue first arose.
The Commission initially said the program could breach sanctions, but this week advised that the proposal does not necessarily violate the sanctions, Reuters reported.
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"It would be advisable to seek confirmation from the Russian side that this procedure is possible under the rules of the decree," the document said, noting that companies should make clear statements that they consider contractual obligations completed when they make their deposits.
All payments should continue in the originally agreed-upon currency, almost all of which would be in dollars or euros. Brussels said in the document that there were options that could allow companies to continue lawfully paying for gas, but the procedure for securing exemptions is not yet clear.
The advice is not legally binding but does illustrate the complications presented by sanctions against Russia over its invasion of Ukraine.
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Russia’s economy is still experiencing pains from the sanctions that will likely intensify over the coming months. The U.S. and Britain have cut all Russian energy imports, and Poland is working to undo its own commitments.
Other European countries, such as Germany, are trying to follow but face difficulties cutting reliance on their chief source of energy. European companies signed contracts to pay for oil and gas in dollars or euros – both currencies that hold not value to Russia while western sanctions remain in effect.
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"What his ideas are for how this can happen is what we will now look at closely," Scholz told reporters in Berlin following the original proposal for Moscow’s workaround. "But in any case, what goes for companies is that they want to and will be able to pay in euros."
Companies still have the ability to open accounts and discuss options with Gazprombank, according to the Commission.