The ruble war for Russian gas - Economic Policy

The ruble war for Russian gas – Economic Policy

Germany, Austria and possibly Italy are considering paying for their gas in rubles. A crucial requirement of the Kremlin. Here’s why.

Imagine: you receive a salary, we pay your bills, but you can’t do anything about it, because you have no means of payment. All you can do is watch your account grow, and you can’t touch it. This frustrating situation is for the moment that of Russia. Russia receives from Europe, according to some estimates, 800 million euros per day in exchange for its gas deliveries. Soaring prices are the stuff of Gazprom, a group in which the Russian state holds the majority. Last year, its sales reached 10,200 thousand…

Imagine: you receive a salary, we pay your bills, but you can’t do anything about it, because you have no means of payment. All you can do is watch your account grow, and you can’t touch it. This frustrating situation is for the moment that of Russia. Russia receives from Europe, according to some estimates, 800 million euros per day in exchange for its gas deliveries. Soaring prices are the stuff of Gazprom, a group in which the Russian state holds the majority. Last year, its sales reached 10.2 trillion rubles (about 140 billion euros), an increase of 62% and its net profit exploded from 135 billion rubles in 2020 to 2.1 trillion rubles (28 Billions of Euro’s). “The price situation, combined with our carefully crafted supply policy, has made this year one of the most successful in Gazprom’s history,” said Famil Sadygov, deputy general manager. The Target 2 trap So where is the problem? Response from Maria Demertzis, deputy director of the think tank Bruegel on Twitter: “Any payment in euros must be settled via Target 2″. Target 2 is the real-time settlement system which is managed by the central banks of the euro zone. Almost all large euro transactions go through this system. It is via Target 2 that Western gas importers therefore pay Gazprombank, the financial subsidiary of Gazprom, which is not targeted by the sanctions. This money is paid into the account opened by the Russian State at Gazprombank, but ” the Russian state cannot access it, continues Maria Demertzis.Any transaction involving the euro that the Russian state might attempt to carry out, via the markets or the Bank of Russia, would have to be settled with Target 2 and would be covered by the sanctions”. If Russia wants to benefit from its gas revenues, it must therefore be paid in rubles (or in a currency exempt from sanctions, such as the Chinese renminbi). This explains the March 31 decree signed by Vladimir Putin which requires that all Gazprom customers henceforth pay their gas bills in Russian currency. And faced with the refusal of Poland and Bulgaria to comply with these requirements, Gazprom stopped its deliveries to these two countries on April 27. But this Monday, during an exceptional meeting of European energy ministers, the European Union reaffirmed its refusal to pay in rubles. Payments are expected in May and Energy Commissioner Kadri Simson says requiring payment in rubles is “a unilateral and unjustified change to contracts and it is legitimate to reject it”. “We must prepare for a suspension of supplies, she adds. We can manage the replacement of two thirds of Russian gas supplies.”

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