An EU oil embargo against Russia is approaching, while at the same time there is uncertainty about how gas supplies will continue and how importers will be able to pay their bills. Oil restrictions are said to be part of the sixth package of sanctions. The EU Commission is expected to present proposals to the member states as early as next week. Germany has so far been one of the brakes on oil sanctions, but now the federal government in Brussels is in favor of a gradual embargo, say EU diplomats.
An import ban could provide for transition periods of different lengths depending on the type of oil and differentiate between deliveries by pipeline and ship, it is said. According to Economics Minister Robert Habeck, Germany can become independent of Russian oil imports within days, but other member states will have a harder time. The toughest opponent of such penalties is Hungary’s authoritarian Prime Minister Viktor Orbán, while their biggest supporter is Poland’s government. Since sanctions require unanimity, difficult negotiations are likely – the result could be quite long transition periods, at least for some types of oil.
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The Commission is therefore also considering alternatives to an embargo that could reduce Russian President Vladimir Putin’s oil revenues: for example, a special tariff. Or the EU and other Western buyers join forces to form a buyer cartel and dictate lower prices to Russia. However, according to diplomats, the federal government is warning against such models and instead is promoting the import ban, which is easier to enforce.
In addition to oil, the sixth package will target Russian fuels for nuclear power plants. They are delivered to France or Eastern Europe. In addition, the largest Russian bank, Sberbank, is to be subject to sanctions.
Germany is threatened with trouble at the end of May
The dependency on gas is significantly greater than the dependency on Russian oil. But the Gazprom group has now halted gas deliveries to Poland and Bulgaria on the grounds that the importers have disregarded new Russian regulations on how to pay the bills. However, there is uncertainty in the EU as to whether and how gas buyers can implement these rules at all without violating EU sanctions. Germany’s largest gas importer Uniper, a former Eon subsidiary, has to pay its next Gazprom bill at the end of May. If the Russians are dissatisfied with Uniper’s actions, this could serve as an excuse to turn off the tap on Germany as well. At the same time, Uniper boss Klaus-Dieter Maubach asserts that he will under no circumstances violate sanctions.
Behind the anger is a decree by Putin from the end of March. In it he stipulates that importers should now pay in rubles. And this despite the fact that 97 percent of supply contracts in the EU are denominated in dollars or euros, as the Commission estimates. The gas buyers are to open two accounts in Russia at Gazprombank – an institution against which no sanctions have been imposed – one in euros or dollars and one in rubles. The importers continue to transfer the amount owed in euros or dollars, but Gazprombank, with the help of the Central Bank of Russia, converts the money into rubles and sends the sum to the ruble account. From there, the payment goes to Gazprom. According to the decree, the bill should only be considered paid after the exchange.
The charm of this model for Putin: sanctions prohibit the Russian state, Gazprom or Gazprombank from exchanging euros and dollars for rubles in the western financial system. The Russian financial system is isolated; sanctions were imposed on the central bank. The decree now allows the country to bypass the western system to convert currencies into rubles: rubles backed by hard currencies that Putin can use to pay his soldiers.
Are gas buyers breaking the sanctions?
According to the EU Commission, it is okay for importers to keep a euro or dollar account with Gazprombank. However, the authority advises the companies to submit a declaration after the transfer in euros or dollars that they consider the invoice to be settled. After all, the contracts are also denominated in euros and dollars. “What the Russians do with the money afterwards is up to them,” said a Commission official on Thursday – meaning the buyers are no longer responsible for what happens to the foreign exchange.
At the same time, however, the official made it clear that the importers – as prescribed by Moscow – are not allowed to open a second account denominated in rubles with the money house: “It would be a violation of the sanctions if a company accepted to open a second account to meet the demands,” he said. The commission argues that this second account creates a system where importers de facto grant a loan to the sanctioned central bank: the corporations transfer euros and dollars to Russia, no longer have control over the money, but Gazprom sees the bill first then as settled, when at some point rubles arrive on the second account.
However, Maria Demertzis, the deputy head of the Brussels think tank Bruegel, says that the sophisticated exchange system would not work without the gas buyer’s ruble account. If Putin wants to bypass the western financial system for the exchange, the importer must have a euro and a ruble account with the Russian bank, she explains.
The big question is therefore how the Russian government and Gazprom will react if importers like Uniper only partially implement Putin’s decree. The Russians could accept it and be content with the fact that at least foreign currency continues to arrive. Or they could use this as an excuse to stop deliveries. Demertzis says that Russia may even be making money from the blockade of Poland and Bulgaria: “Only small quantities and sales are lost, and at the same time the price of gas has risen because of the campaign.” Putin, on the other hand, cannot afford to gradually turn off the gas supply to the entire EU: “He urgently needs the income.”