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Putin is Winning the Energy War as Europe's Paradoxical Drama on Russian Gas Imports Rages on

The EU has hinted that companies can go ahead with Russia’s scheme to dodge the sanctions in place without them being violated. (Image: Reuters)

The EU has hinted that companies can go ahead with Russia’s scheme to dodge the sanctions in place without them being violated. (Image: Reuters)

Gas prices are hitting record highs and with that the European import bill is swelling, helping Putin sell lesser gas for more European cash than he did before the war.

Amid the Russia-Ukraine war and all the ruckus about Russian energy imports, the West is emerging as a champion in doublespeak. Even as it wished for India to not buy Russian oil at a discount, the West has vacillated on the issue of buying Russian energy itself, leading to an increase in imports. The European Union is in a particularly hypocritical position, divided by Russia’s ‘blackmailing’ tactics. Not only is it far from weaning off Russian energy imports, but the EU is also on its way to complying with Russia’s ruble payment condition.

If media headlines are anything to go by, if at one moment the EU is imposing sanctions on Russian gas imports so as to not bankroll Russia’s invasion of Ukraine, in the next moment, it is scrambling to circumvent the same sanctions and bankroll Russia’s invasion of Ukraine. Indeed, the bloc is divided over how far its boycott of Russian gas can go and Putin’s “pay in ruble” curveball did the rest of the damage. But after hoodwinking EU countries like Bulgaria and Poland on ruble payments, the EU has hinted that companies can go ahead with Russia’s scheme to dodge the sanctions in place without them being violated.

Also Read: As India Buys Russian Oil, Can The US Really Lecture India on its Place in History?

Putin’s curveball

Putin’s decree to pay in rubles, thereby helping Russia dodge sanctions, has been followed by a mind-boggling array of mixed messaging from the European side. While most European nations rejected the demand at first and the head of the European Commission Ursula von der Leyen even warned that companies trying to fulfil Russia’s new gas payment demands would amount to a breach of sanctions, the EU is now finding a wider consensus about allowing companies to go ahead with the new system of payment prescribed by Russia.

Russia demands that if European nations want Russian gas, they must pay for it in Russian currency. A closer look at the new mechanism in place reveals that European energy buyers must open a foreign currency account and a second special ‘K’ account at the Russian Gazprombank in Switzerland, which is conveniently exempted from EU sanctions and therefore can be used to make payments as long as they are in euros/dollars. The buyers would then transfer their payments in euros/dollars as per their contracts to the first account. The money from here would then be converted into rubles by the Central Bank of Russia and transferred to the second K account by Gazprombank on behalf of the European buyer. These euro/dollars turned rubles would then reach the Russian gas seller, hence meeting Putin’s demands.

The European Paradox

The European Commission now says that European buyers should make a statement that their contractual obligations are fulfilled once they pay in euros or dollars. But EU nations do not seem to agree upon whether the second account and the conversion of payments to rubles would breach sanctions and the EC has largely left that matter open-ended by not once explicitly stating that any such ruble payment contravenes sanctions. While the EU continues with conflicting messaging, several German, French and Italian countries have already opened payment accounts in Gazprombank and are ready to meet Russia’s demands.

This comes at a time when Bulgaria and Poland have already been cut out by Russia for standing their ground against payments in rubles.

Russia, European Union, Europe, Russian Gas, EU sanctions, Germany, France, Italy, Poland Bulgaria, Russian oil, India, Russian energy imports,
European Commission President Ursula von der Leyen. REUTERS/Albert Gea – RC2M1U9CJ4VF

The German economy ministry has been in favour of this mechanism all along. German Economy Minister Robert Habeck said on Monday that companies would be paying their bills in euros and that European sanctions would still allow Russian banks to transfer internally to “so-called K accounts.” “That is, in my view, in conformity with the sanctions, also according to the EU commission.”

Also Read: Modi’s Euro Tour Reaffirms Success of India’s Meticulous Manoeuvring Between Russia and the West

It appears that this period of orchestrated ambiguity may be a window opened for European buyers as they rush to open their accounts in the Gazprombank to quickly pay their dues as per Russia’s guidelines before a tougher decision is laid out by the EU.

Naturally, Poland, which took a more transparent stand against Russia’s ruble payment decree and got cut off by Moscow along with Bulgaria three weeks ago, is incensed by this development. Polish Prime Minister Mateusz Morawiecki minced no words when he said, “I am disappointed to see that in the European Union there is consent to pay for gas in rubles.” Standing his ground, he says that Poland would stick to the rules and will not yield before Putin’s blackmail. 45% of Poland’s gas imports come from Russia, whereas Bulgaria gets 80%.

To narrow it down, Russia wants payments in rubles and has presented a mechanism through which European buyers can fulfil that demand. The European Union seems to accept this mechanism without accepting the demand itself— a paradoxical drama that is slated to rage on in the coming months. Meanwhile, gas prices are hitting record highs and with that the European import bill is swelling, helping Putin sell lesser gas for more European cash than he did before the war.

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first published:May 18, 2022, 15:48 IST