Russian gas customers in Europe may accept Putin’s payment terms

Some of Russia’s biggest natural gas customers in Europe’s are preparing to accept the Kremlin’s new payment termsrather than risk being cut off by Moscow, a fate suffered by Poland and Bulgaria this week.

Gas distributors in Germany and Austria told CNN Business that they were working on ways to accept a Russian ultimatum that final payments for its gas must be made in rubles, while complying with EU sanctions.

President Vladimir Putin said last month that “unfriendly” nations would have to pay rubles, rather than the euros or dollars stated in contracts. Buyers could make euro or dollar payments into an account at Russia’s Gazprombank, which would then convert the funds into rubles and transfer them to a second account from which the payment to Russia would be made.

Germany’s Uniper said on Thursday it would continue to pay for Russian gas in euros but added that it believes a “payment conversion compliant with sanctions law” is possible.

“Uniper is in talks with its contractual partner about the concrete payment modalities and is also in close coordination with the German government,” the company said in a statement.

A Uniper spokesperson told newspaper Rheinische Post on Thursday that the company would make payments into a Russian bank in euros, instead of a bank based in Europe.

Germany has reduced its consumption of Russian gas to 35% of imports from 55% before the war in Ukraine, but says it needs to keep buying from Moscow at least until next year to avoid a deep recession.

Uniper said that it cannot cope without Russian gas in the short term.

“This would have dramatic consequences for our economy,” it said in its statement.

Austrian energy firm OMVsaid on Thursday that it had considered the new payment request from Russian gas giant Gazprom and was “now working on a sanctions-compliant solution.”

Putin on Wednesday made good on his threat to cut off countries that refuse the new payment terms. Gazprom announced it had suspended gas supplies to Bulgaria and Poland because they had refused to pay in rubles, stoking fears that other EU countries — including major gas importers Germany and Italy — could be next.

Sanctions loophole?

There could be a workaround. The European Commission issued guidance to EU member states last week saying that is “appears possible” that buyers could comply with the new Russian rules without getting into conflict with EU law.

EU governments are likely to allow the payment mechanism to go ahead, Eurasia Group said in a note on Thursday.

Other analysts aren’t so sure, and say the process won’t be simple. European customers could inadvertently fall foul of sanctions if they use the Gazprombank mechanism.

“The conversion process to rubles may potentially involve sanctioned entities, and that may not be evident to the buyer,” Kaushal Ramesh, senior analyst at Rystad Energy, told CNN Business.

The new payment mechanism will likely take some time to implement, but Gazprom is expected to show flexibility with upcoming payment deadlines, Eurasia Group said.

— Robert North contributed to this report.