EU alerts companies not to purchase Russian gas in rubles

Apr 27, 2022: According to a report by Bloomberg, European Commission President Ursula von der Leyen warned companies not to bend to Russia’s demands to pay for gas in rubles, as the continent scrambles for a united response to Moscow’s weaponization of its energy resources.

Gazprom urned off the taps to Poland and Bulgaria on Wednesday in a dramatic escalation, making good on a threat to cut supplies if payments aren’t made in rubles. Attention now turns to how big consumers Germany and Italy respond, with German Economy Minister Robert Habeck warning that the risk of more cutoffs must be taken seriously.

Europe is trying to maintain a united front, but it’s already being tested.

According to a person close to Gazprom, some European companies have complied to Vladimir Putin’s demands. Italian energy giant ENi Spa  is preparing steps that would potentially allow it to comply, while Germany’s Uniper SE believes it can keep buying gas without breaching sanctions.

As payment deadlines start falling due over the next month, governments and companies across Europe have to decide whether to meet the new rules or face the prospect of gas rationing.

“Companies with such contracts should not accede to the Russian demands,” von der Leyen said. “This would be a breach of the sanctions so a high risk for the companies.”

Last month President Vladimir Putin shocked European governments and markets by demanding gas should be paid for in rubles — via a complicated mechanism involving setting up two linked bank accounts to handle the foreign exchange transaction.

When he first announced the demand, Putin said shifting to rubles would help protect Russia’s huge gas revenues from sanctions or seizure by the EU. The move also appeared aimed at ensuring Gazprombank, one of few big state banks not hit with the severest sanctions, would remain largely untouched.

Putin has also repeatedly highlighted the economic and political costs of higher energy prices in Europe, suggesting the Kremlin may believe that western governments won’t be able to withstand the pressure domestically of a cutoff as long as Moscow can.

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Russia halts gas supplies to Poland and Bulgaria