TheNews: Russia will supply gas for rubles?

Russia will supply gas for rubles?

From April 1, Russian pipeline gas will be sold for rubles to "unfriendly countries" - buyers will have to open ruble accounts in Gazprombank. This is how Russia wants to secure gas receipts from being blocked.

President Vladimir Putin has signed a decree establishing new rules for trading Russian pipeline gas with "unfriendly" countries in rubles.

"We offer counterparties from such countries a clear and transparent scheme. To buy Russian natural gas, they must open ruble accounts in Russian banks," Putin said on Thursday, March 31.

According to him, these accounts will be used to pay for gas supplies starting from April 1. If consumers refuse to pay according to this scheme, Russia will consider it as "non-fulfillment of obligations <...> with all the ensuing consequences," Putin warned.

How will the new scheme work?

Until now, Europeans, the main buyers of Russian gas, have paid for it in foreign currencies - dollars or euros. But on March 23, Putin announced that payments for exports to "unfriendly" countries, which include all members of the European Union (which imposed sanctions against Russia in response to the military special operation in Ukraine), would now be converted into Russian rubles.

According to the decree, companies from Western countries must open accounts in a Russian authorized bank, which was chosen by Gazprombank (Gazprom is one of its shareholders). Two special "K" accounts are to be opened for payments for gas: a ruble account and a foreign currency account. Payment is made by transferring euros or dollars to the foreign currency account. The bank then sells this currency on the Moscow Exchange and credits the rubles received to the foreign buyer's ruble account. The payment is deemed to have taken place as soon as the funds received from the sale of the foreign currency are credited to the ruble account of the natural gas supplier (also opened at the authorized bank).

Gazprombank told RBC that the bank "has all necessary competences, technologies and experience for quick and high quality execution of today's decree. "After the decision of the Bank of Russia's Board of Directors to approve the regime of special accounts, we will create all conditions for a convenient and technological payment for Russian gas in the currency approved by the decree - rubles," said a representative of the bank.

RBC sent inquiries to a Gazprom representative.

The Government Commission on Control of Foreign Investment will be entitled to issue a permit for gas purchases by "unfriendly" countries in a different procedure, the Decree states. The government must approve the procedure for issuing such permits within ten days. The Board of Directors of the Bank of Russia, in turn, will be able to determine a different procedure for the sale of foreign currency.

The new rules do not apply to supplies of liquefied natural gas (LNG), the largest producer and exporter of which in Russia - NOVATEK.

The new mechanism of payments for natural gas will be effective for deliveries from April 1 for all contracts with persons from unfriendly countries. Under some contracts, payments for "April gas" begin in the second half of April, while under others - in May, explained a source familiar with the situation on the energy market. Thus, the requirement to pay in rubles does not mean that some of the customers will be left without gas overnight, he adds.

After Putin announced the new rules the gas prices in Europe went up to over $1500 per 1,000 cubic meters. This is almost 15% higher than the settlement price the day before ($1356) and four to five times the average price of gas before the crisis ($300-400).

Earlier RBC sources said that Russia had offered buyers of gas from "unfriendly" countries a new payment scheme which included opening ruble accounts in Russian banks. Reuters' interlocutors, in turn, said that a scheme under which payment could be made in euros in the ruble equivalent at the exchange rate of the Central Bank on a pre-agreed settlement date was being discussed. The currency of the contract does not change, it is only about the currency of payment, the source said.

Why Russia needs it

Putin explained the decision to switch to rubles in payments for gas by saying that it makes no sense for Russia to use currencies of "unfriendly" countries, while their financial system is "used as a weapon." Companies from these states "refuse to fulfill contracts with Russian banks, companies and individuals," and the Central Bank's assets in dollars and euros are frozen, he said.

"In fact - what happens, what has already happened: we supplied European consumers with our resources, in this case - gas. They received it, paid us in euros, which they then froze themselves. In this regard, there is every reason to believe that we have in fact delivered part of the gas to Europe for free," Putin said.

According to him, "it cannot go on like this. Moreover, in the case of further gas supplies and their payment according to the traditional scheme, new financial receipts in euros or dollars may also be blocked. "Such a development of the situation is quite expected, especially since some politicians in the West talk about it, speak publicly," he added.

Former U.S. Ambassador to Russia Michael McFaul made a similar suggestion. "Russia should continue to export oil to democratic countries, but the recipients should withhold payment until Putin ends the war. After that, the decision is up to Putin: to stop supplying or not," he wrote on his Twitter page.

The president said the transfer of payments for Russian gas supplies to Russian rubles is "an important step toward strengthening our financial and economic sovereignty." "We will continue moving consistently and systematically in this direction within the framework of the long-term plan to increase the share of payments in national currency and the currencies of the countries, which are reliable partners, in the foreign trade," he stressed.

What Gazprom's customers say

One of the biggest buyers of Russian gas in Europe is Germany. On March 30, on the eve of publication of the presidential decree on switching to roubles payments, Putin informed Chancellor Olaf Scholz of his decision in a telephone conversation. Russia agrees to accept gas payments from its European partners in euros through Gazprombank, which will convert them into rubles, said Steffen Hebeestraut, a representative of the German government, after the talks.

According to Hebeestrait, Scholz did not agree to this procedure during the conversation, but only requested written information to understand the procedure more precisely.

On March 31, Scholz said at a press conference with Austrian Chancellor Karl Nehammer that Germany would still pay for Russian pipeline gas in euros according to existing contracts. "We have looked at the contracts. They state that the payment is made in euros. In my conversation with the Russian president, I explained to him that this is how it should stay and this is how it will be," he said.

The German chancellor also said that it would take a long time to build the new infrastructure to diversify Germany's gas supplies and reduce dependence on Russia, but that this work will continue. Austria is also seeking to increase the number of gas suppliers so that it is not dependent on one supplier, Nehammer added. According to him, the sanctions imposed on Russia should weaken it, not the countries that resorted to restrictive measures.

Earlier, the G7 and the European Commission said they considered Russia's demand to pay for gas supplies in rubles a clear violation of contracts, and called on companies not to comply with it.

According to the International Energy Agency, in 2021 the European Union purchased 155 billion cubic meters of Russian gas (45% of the European gas import and about 40% of gas consumption).

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