Russia has taken steps to accommodate European gas buyers by proposing a new payment scheme. This will allow Europeans to circumvent US sanctions, which since December 20 could, in effect, stop Gazprom's fuel supplies to the EU both through Ukraine and the "Turkish Stream." What kind of scheme is Russia offering?

President Vladimir Putin signed amendments to the decree on gas payments in rubles from March 31, 2022, for "unfriendly" countries.

“Russia is making a significant gesture to Europeans to prevent a halt in gas supplies from December 20. Unlike the US, which is cornering the Europeans economically, the US is well aware that payments for pipeline gas are routed through Gazprombank, and at present, there is no alternative method for payment. Meanwhile, the US is deliberately cutting off Russian gas supplies not from March 1 or April 1, 2025, when the heating season ends, but from December 20, during the peak of the heating season,” said Igor Yushkov, an expert from the National Energy Security Fund and Financial University under the Government of Russia.

Another note: December 20 is the due date for Hungary's next gas payment. The US knew the exact date and symbolically chose it to impose sanctions on Gazprombank. This was a targeted attack.

On November 21, the US imposed sanctions on Gazprombank, which came into effect on December 20, 2024. This would make it impossible for European companies to pay Gazprom for gas supplies. As a result, gas deliveries from Russia to the EU would have to stop completely, both via Ukraine and the "Turkish Stream." This would amount to 30-32 billion cubic meters of gas by the end of 2024.

Hungary and Turkey attempted to negotiate with the US for an exemption from sanctions for payments through Gazprombank. Both sides claimed they were in talks with the US, but no decision had been made, and the chances for an exemption were slim. Russia has made the first move to help Europeans, who have less than two weeks to find a way to pay for gas despite the sanctions.

What was the previous setup? According to the decree from 2022, companies from unfriendly countries had to transfer their currency to Gazprombank for gas payments, which then exchanged it for rubles on the Moscow Exchange and sent the rubles to Gazprom. After sanctions against the Moscow Exchange, the currency exchange had to be moved to the interbank market, but the system continued to work.

In 2022, European companies didn’t experience much change. Previously, they sent their currency to European subsidiaries of Gazprom, but in 2022, they started sending it to Gazprombank in Russia. European companies didn’t have to exchange currency for rubles themselves – Gazprombank took care of that.

“European Gazprom subsidiaries were seized in 2022, and the president's decree allowed Gazprom to legally sever ties with these subsidiaries so that Europeans couldn’t continue profiting from our assets that they seized,” explains Igor Yushkov.

What has changed now? “First, a third party can be involved. European companies no longer have to send currency solely to Gazprombank. Clearly, they couldn’t do that due to the fear of falling under secondary US sanctions. Now, Europeans can find any other entity willing to accept their currency, convert it into rubles, and transfer these rubles to Gazprombank. Gazprombank will then send the rubles to Gazprom to pay for gas deliveries. Now, the task of finding a currency converter has shifted to the European companies,” says Yushkov.

A second option for payment is also being proposed. “European companies can bypass sending currency to Russia entirely. They can transfer it to a third country, like a Chinese bank, and simultaneously find a company in Russia willing to exchange it. The Europeans will transfer ownership of their currency in the Chinese bank to the Russian company, which will then pay Gazprombank in rubles for the gas deliveries on behalf of the European buyer. In this way, these currency transactions will be completed without the currency entering Russia,” Yushkov explains.

In a sense, this becomes a form of “currency barter” or a mutual settlement. Why would a Russian company engage in this? It could even be advantageous. Russian importers typically exchange rubles for foreign currency in Russia to buy imported goods, like Chinese products. However, due to the flood of US sanctions, financial transactions have become complicated, and currency often remains abroad. “Now, Russian companies can avoid buying foreign currency in Russia as it will already be overseas. This could be more convenient, especially considering the deteriorating trade with China and other countries. Chinese companies are sometimes reluctant to receive payments from Russia, but they would be receiving payments from European energy companies, which is not prohibited. At the same time, the demand for foreign currency from Russian importers is satisfied,” the expert adds.

The downside of this scheme is that the US might identify the intermediaries cooperating with Gazprombank and add them to the sanctions list. These intermediaries would then become toxic for European companies, forcing them to find new ones.

And, of course, involving intermediaries always means additional costs, and it’s unclear who will bear these expenses – Russia or the Europeans.

In 2022, not all European countries agreed to the new payment scheme. This time, the change might happen without losses for gas buyers, but challenges will remain.

“In 2022, political pressure on the European companies that agreed to buy Russian gas was much stronger than it is now. Back then, they could be vilified and accused of supporting Russia. Now, adopting the new scheme politically will be easier. However, from a practical standpoint, it will be more difficult for European companies because there are fewer banks in Russia that can accept foreign currency without violating US sanctions,” says Yushkov.

“The decree effectively cancels Gazprombank’s monopoly on export payments. This sector is now deregulated, but the problem is that other Russian state banks remain under sanctions. Therefore, unfortunately, there could still be issues with making payments, as well as the risk of gas supplies to Europe being interrupted,” says Sergey Tereshkin, CEO of the OPEN OIL MARKET marketplace.


Translated usin ChatGPT

Sourse: vz.ru/economy/2024/12/9/1302044.html