Andrei Rudakov Bloomberg via Getty Images Russia seems to have withdrawn its claims on European companies to pay for gas supplies in rubles since Thursday, temporarily easing the risk of supply disruptions. It comes after Russian President Vladimir Putin repeatedly demanded that so-called “unfriendly” countries pay for gas in rubles, instead of euros or dollars, targeting those behind heavy economic sanctions aimed at isolating Russia for unprovoked its attack on Ukraine. Putin had instructed state-controlled gas giant Gazprom, the central bank and the government to submit proposals on how the policy would be implemented by Thursday. Currency change for gas supplies was rejected by the G-7 major economies. However, in a conversation with German Chancellor Olaf Solz on Wednesday, Putin said European companies could continue to pay for gas supplies in euros or dollars. The money will be paid to Gazprom Bank and transferred in rubles to Russia, the German television network Deutsche Well reported. Scholz did not agree with this procedure in the talks, but asked for written information to better understand the proposal, according to the report. German Chancellor Olaf Solz (SPD, r) and Russian President Vladimir Putin look up after several hours of private talks at a joint news conference. Scholz met with the Russian president to discuss the situation on the Ukrainian-Russian border. Kay Knitfeld alliance image Getty Images The Kremlin said the currency change was necessary because the Bank of Russia’s foreign exchange reserves had been frozen by EU member states. It was agreed that experts from Russia and Germany would continue to negotiate on the issue, the Kremlin said. statement. Separately, Kremlin spokesman Dmitry Peshkov confirmed on Wednesday that Russia would not immediately seek gas payments in rubles, saying the change was likely to be a “gradual process.” Germany, along with the G-7, has stated that gas supply agreements cannot be changed unilaterally, and European buyers of Russian gas say the Kremlin is not entitled to re-enter into long-term contracts. Most countries currently pay for Russian gas in euros or dollars.
Now what?
The threat of gas for rubles had raised the prospect of supply disruption in European countries, with Germany and Austria taking precautionary measures against the gas coup to avoid possible disruptions in the midst of the dispute. However, analysts at political risk advisory firm Eurasia Group say Gazprom is unlikely to violate its existing contracts by refusing to supply gas to customers who refuse to pay in rubles in the short term. “Most likely, Gazprom will instead seek to renegotiate existing contracts – a time-consuming process at best – as part of periodic reviews allowed by most long-term contracts. In the long run, Gazprom is likely to stick to this new contract instead. new policy as soon as they come for renewal “, analysts of the Eurasia Group said in a research note. “There is a risk that Russia will move more aggressively, which would mean a greater chance of cutting off gas supplies in the short term,” they added. “But a protracted negotiation process is more likely.” Europe’s dependence on Russian energy exports has come to the fore since the Kremlin launched its invasion of Ukraine on February 24, especially as energy importers continue to fill Putin’s daily coffers with oil and natural gas revenues. gas. Indeed, revenues from Russian oil and gas were blamed for about 43% of the Kremlin’s federal budget between 2011 and 2020, highlighting how fossil fuels play a central role for the Russian government. The European Union receives about 40% of its natural gas through Russian pipelines, many of which pass through Ukraine.
Risk of “long arbitration”.
Anne-Sophie Corbeau, a researcher at Columbia University’s Center for Global Energy Policy, told CNBC that a failure to resolve the ruble payment delay could lead to a lengthy arbitration process. The companies have long-term contracts with Gazprom. If there is a clause in these contracts that allows companies to change currencies to pay in rubles, Corbeau said that could be a possible outcome. If there is no clause, however, the terms of the contract prevail, most likely in either euros or dollars – and that cannot be changed. In this latest scenario, Corbeau said that Gazprom “will need to ask for a formal renegotiation of the terms of the contract, but I would not expect buyers to agree and you will end up with a long arbitration.” The price of the first month of gas at the Dutch node TTF, a European benchmark for gas trading, traded down more than 7% at 111 euros ($ 123.9) per megawatt hour on Thursday, according to the Intercontinental Exchange. New York. The TTF for next month has been trading high in recent weeks, in part due to persistent geopolitical concerns. “If the renegotiation starts at Russia’s insistence, importers are likely to offer value elsewhere in their agreements with Russia in exchange for a change in ruble payments,” Vinicius Romano, a senior analyst at Rystad Energy, said in a research note. . “The challenge of putting this into practice is that each buyer may have different terms, and some may not even be willing to modify the terms. This suggests that negotiations may take some time, which means that there is no still short deadline for payment to switch to rubles “.
