Economist on ruble payment: Gazprombank as an “extended arm”

Western gas customers will have to pay their bills through Gazprombank in the future. There the money is exchanged for rubles. Jens Südekum explains what purpose this serves and whether a gas stop has now become more likely tagesschau.de.

tagesschau.de: The ruble decree and statements made by Russia in recent days have caused some confusion. However, one thing is now clear: Western buyers of Russian gas can continue to pay in euros and dollars, but they have to open special accounts with Gazprombank to do so. How exactly is this supposed to work?

Jens Südekum: Basically, everyone is still poking around a bit in the fog, because the official documents are only just being drawn up. So far, a German customer such as Uniper has paid the money for the gas directly in euros to a Gazprom account specified in the contracts. Now it could be that Uniper still transfers to an account at Gazprombank in our currency, but at the same time has to sign a second form.

As a result, the bank could be instructed on behalf of the customer to convert this foreign currency into rubles and to credit the corresponding amount in Russian currency to a newly created Uniper ruble account. This ruble amount is then forwarded to Gazprom. This is how it could work and both sides have what they want: We pay in euros, but Putin receives rubles.

tagesschau.de: And what is still unclear?

Südekum: The decisive question now is when exactly the gas customer has fulfilled his contractual obligations. At the time when the euros were transferred – and thus as before? Or only when the conversion has taken place and the ruble amount ends up with Gazprom?

There could be a legal tug of war over this. The Russian side will argue that the contract is fulfilled only after the exchange. The lawyers on the European side will probably see things differently, however, because the two additional steps would worsen the current contractual situation and thus pose an additional risk. That is the most important point, which in my view is still open. The basic decision seems to have been made to me for the time being: gas will continue to flow.

“Extended arm of the Russian central bank”

tagesschau.de: What are the concrete consequences for Western companies? How about the exchange rate? Is there a change in the payment amount?

Südekum: In essence, not much will change for European companies – apart from the opening of the new account. Some even claim that they don’t have to because Gazprombank can automatically arrange it for the buyer.

Customers like Uniper continue to have no exchange rate risk because the amount due is paid in euros. The conversion then proceeds according to the current ruble exchange rate. Payment will therefore continue to be made in euros and dollars. The exchange rate risk remains with Gazprom.

tagesschau.de: What is the purpose of the measure then?

Südekum: In doing so, Putin is making Gazprombank an extension of the Russian central bank. The previous status quo was: we pay for our gas in euros or dollars to some Russian bank, which has to convert 80 percent of the foreign currency at the Russian central bank into rubles by decree. So the foreign exchange is there. Due to the Western sanctions, however, the central bank is only able to act to a limited extent in order to use it to stabilize the currency.

The markets are showing that, despite sanctions, it manages to support the ruble rate. There are speculations that the central bank has euro-dollar accounts with a Chinese bank, for example, and is moving the money there. It passes this on to its subsidiary institutes in the USA, where the foreign exchange is used to buy rubles. Via the intermediate stations, it is no longer apparent that the Russian central bank is behind it. This path is of course a bit tricky. All financial institutions involved are taking a high risk.

The change moves the Russian central bank a bit out of the line of fire. She no longer has to worry directly about supporting the ruble. Gazprombank is now doing this job, which is legally safer as it is not subject to sanctions. However, this is not an issue that concerns Putin directly. This is the work of Central Bank President Elvira Nabiullina.

Is the central bank indirectly bypassing the sanctions?

tagesschau.de: From this, the conclusion can be drawn that the Central Bank of Russia is circumventing Western sanctions. Is that so?

Südekum: I think it’s ultimately a smart move by the central bank. The Russian financial system thus indirectly undermines the spirit of the sanctions. The West actually wants to prevent the central bank from becoming active on the markets to support the ruble.

Now she’s just looking for a way to get back into the game or use others for her. From their perspective, this is not reprehensible, but of course it dilutes the very purpose of the sanctions. But to be fair, we have to say that we basically created this mess ourselves because we didn’t impose penalties on Gazrpombank because of the energy supplies.

tagesschau.de: You said that supporting the currency did not bother Putin. What are the Kremlin boss’s personal goals? SWP expert Janis Kluge recently emphasized in an interview with tagesschau.de that he primarily wants to demonstrate the power of Russian gas. Do you agree?

Südekum: From Putin’s perspective, it’s all muscle flexing. It started when Olaf Scholz declared that there would be no embargo because we still need Russian gas. A few hours later, Putin said that the gas was only available on his terms. One might also have expected him to play it rough, accepting only direct ruble payments and otherwise turning off the tap. That didn’t happen that way, but instead it actually became clear that gas will continue to flow.

It is now important for Putin to still be able to sell the number as a victory. He also wants to send out the clear message that he has the power to stop gas supplies at any time. What we are currently experiencing at the core is the search for a technocratic solution with which both sides can get out of the matter face-saving and the conflict is over for the time being. We continue to pay for our gas in euros or dollars, and Putin can say that he receives rubles.

However, the whole thing can escalate again at any time – for example through European import duties on Russian gas. Then Putin would have another reason for the next threat of a delivery stop.

“Russian gas is a political issue”

tagesschau.de: Has a possible gas stop become more likely or less likely as a result of the new payment modalities?

Südekum: I think the likelihood of a scenario where this can happen has increased. Before the government declared that there would be no embargo, one had the impression that there would be a tacit agreement that nothing would happen to the gas. We need the gas and Putin the foreign exchange earnings.

But now it has become clear: Russian gas is a political issue and is used for muscle flexing. That can happen again at any time. Therefore, the occurrence of a delivery stop – even if it has now been acutely averted – has become more likely in a new scenario.

The conversation was led by Till Bücker, tagesschau.de.