Europe accepts Putin’s ruble payment system to avoid gas cutoffs

Putin’s insistence on rubles may be more about forcing European countries to scramble at his behest than about shoring up his country’s currency, some economists and energy experts suspect. European Union countries have been touchy about the notion they might violate their sanctions on Russia, and questions about the arrangement tested European unity, leading to weeks of chaos and contradictory guidance from Brussels. It also got countries talking about how much they still need Russian gas, even as they debate a Russian oil embargo.

In the short term, they are willing to jump through some hoops to avoid an energy crisis.

But that also means sending money to Russia even as they condemn the Kremlin-launched war, sanction oligarchs and supply weapons to Ukraine.

Russia had already used strict capital controls and a massive interest rate hike to stabilize the ruble. With Europe now signaling that it will use the payment system as bills come due this week, the currency is strengthening all the more.

Under the new billing system, gas payments will continue to be invoiced and sent in euros. The noteworthy change is that Russia will then take the money from the European energy company’s euro account, convert the euros into rubles, transfer the money into a special ruble account also belonging to the energy company, and then take the money once and for all.

“This is a transaction where everybody saves face,” said Alessandro Lanza, a professor at Rome’s LUISS University and a former economist at Eni, Italy’s major energy company.

A broad European refusal to adjust its payment terms to Gazprom, the Russian state-owned energy giant, would have pushed prices even higher for consumers and potentially led to rationing measures across the bloc. Two European Union members — Poland and Bulgaria — had their supplies cut in late April by Gazprom after refusing to go along with the new system, in what Poland’s prime minister called a “direct attack.” Finland this week was subject to a similar cutoff, as retaliation for its NATO application.

But most European countries have appeared to go a different route, moving away from rhetoric about refusing to be blackmailed and making peace with an arrangement based on the technicalities.

“Timely payment for the received gas deliveries from Russia is ensured,” said a statement from OMV, the Austrian oil-and-gas company.

Along the way, many European policymakers have been confused about the arrangement — both the fine points and whether Russia might stand to gain anything meaningful. As such, the European Union’s own guidance on how countries should proceed has been vague.

As recently as last week, Eric Mamer, the European Commission’s chief spokesman, said opening an account for rubles would constitute a breach of sanctions.

A day later, Paolo Gentiloni, Europe’s economic minister, seemed to give the new payment scheme an all-clear. Paying in rubles would constitute a sanctions violation. “But this is not what is happening,” he said.

In recent interviews, Italian officials familiar with the deal say they believe there are clear reasons the new arrangement does not breach European sanctions. While Europe has prohibited all transactions with Russia’s central bank, the conversion process does not involve the central bank — something Eni has received assurances of in writing, according to one person familiar with the deal who spoke on the condition of anonymity because they were not authorized to speak about it publicly. That person said that even if a European company were to pay directly in rubles, it would not violate sanctions.

“The ruble itself is not sanctioned,” the person said.

In theory, a strengthening currency gives Russians more buying power abroad — a big advantage in normal times. But that advantage is diminished because Russians have become so isolated amid the war from the global financial system.