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Russian gas in the fog of war

As the war in Ukraine continues to rage, the flow of Russian gas to the EU fell by 25% yesterday.

According to media reports, the disruption came after Ukraine’s pipeline operator refused to take gas from Russian-controlled areas.

Despite the devastation caused to Ukraine since February, when Russia invased, yesterday was the first time that the flow of Russian gas faced disruption.

Ukraine is urging the EU to stop buying Russian gas but the deadline for weaning the bloc off Russian gas is 2030. Europe’s gas deals with Russia are worth billions of euros to Moscow. Ukraine also earns about €2 billion annually from Russia’s State-owned energy firm, Gazprom, in gas transit fees.

Yesterday’s disruption is just part of wider energy uncertainty across Europe because of the war. At the end of March, Russian president Vladimir Putin signed a decree introducing a mechanism where “unfriendly countries”, such as Member States, would have to pay for their gas in roubles from 1 April.

While European companies can pay in the original currency designated in their contract, they must pay into a Gazprombank account. This converts the funds into roubles before the payment is finalised.


european sanctions

It also allows Russia to manipulate foreign currency rates, giving Moscow control over the timing and rate of conversion.

In its preliminary assessment of the decree, the Commission highlighted that the rules breach existing contracts payment method clauses. The assessment also pointed out that the decree could bypass European sanctions on Russia.

EU countries and companies now face difficult decisions. Complying with Putin’s request defies their own sanctions, while refusing to might lead to a halt of their gas supplies.

Various media have reported that the Netherlands and Germany have asked companies not to accede to the Kremlin’s demands. However, Hungary’s Prime Minister Viktor Orbán has reportedly expressed willingness to pay in roubles.

Russia has already stopped supplying gas to Poland and Bulgaria, after both countries refused to comply with its request. More gas payments are due in the second half of May, raising the prospect of further gas stoppages.

Elsewhere, legal expert Ana Stanič of London-based law firm E&A told Politico this week that complying with Russia’s decree on gas payments was not the same as an EU company’s paying in roubles. Politico outlined how the decree allows firms to seek exemptions, or even give a third party the obligation to convert euro and dollar payments into roubles.

In addition, Stanič said the document might not have any legal authority over international gas contracts.

“I know of no contract with Gazprom where the governing law is Russian law,” she said. “Under the terms of the contracts with Gazprom, payment is not in roubles and the decree does not change this.”

The gas crisis and acceleration of the energy transition will be major talking points at Power Summit 2022. See our full programme.