Gazprom Starts Telling Clients How to Pay for Gas in Rubles

(Bloomberg) — Russia’s Gazprom PJSC has started telling clients how to pay for their gas after President Vladimir Putin said purchases from “unfriendly” nations would need to be settled in rubles.

Most Read from Bloomberg

Notifications about the new payment order are being sent to customers on Friday, the Russian gas giant said in a statement on its official Telegram channel. The Kremlin said on Thursday that European buyers would need to have two accounts, one in euros and one in rubles, and that Gazprombank would be responsible for making the foreign exchange conversion. Austria’s OMV AG and Italy’s Eni confirmed they have received the information.

European nations are still getting to grips with what the Kremlin is proposing. French Ecology Minister Barbara Pompili said she didn’t see the request as a breach of contract as companies would still to be able to pay in euros, according to information received from Moscow. The German government said it is still poring over the details before coming to a decision, while Denmark condemned the request.

“Gazprom as a Russian company is unconditionally and fully compliant with Russian law,” which from April 1 stipulates only ruble payments for gas exported to the “unfriendly” states, the company said. “Gazprom is a responsible partner and continues to export gas to clients in a safe manner.”

Russian gas shipments to Europe continued to flow normally on Friday, with Gazprom saying it was meeting all the requests from clients. Supplies won’t be cut off immediately, not even for customers that don’t make the switch to the new payment rules, said Kremlin spokesman Dmitry Peskov. That’s because payments for fuel being delivered now aren’t due until late April or early May.

Europe relies on Russia for about 40% of its gas needs, and the war in Ukraine has prompted the region to rethink its energy security strategy. The European Union wants to cut reliance on Russian gas by two thirds before the end of the year, with countries already announcing plans to build a series of liquefied natural gas terminals and measures to speed up the build out of renewables.

“Gas supply from Russia looks set to continue, reducing recession risk in Europe,” Citigroup Inc. analysts said in a report. “But the episode will only reinforce the push to wean the EU off Russian energy imports and strengthen EU strategic sovereignty more generally.”

OMV and Eni said they are still analyzing Gazprom’s communication, while Germany’s Uniper said it’s reviewing the new payment terms. European gas prices fell almost 10% as Russian shipments continued to flow.

Putin on Thursday signed an order instructing foreign buyers to open special accounts at Gazprombank to allow foreign currency to be converted to rubles for settlements. That means companies can still pay in euros, and the state-controlled lender will make the conversion.

France’s Pompili said the order doesn’t change anything for French companies as long as they continue to pay in euros and that there was no risk of contracts being breached. Germany insists that companies will continue to pay for Russian gas deliveries in euros as stated in the contracts despite the decree.

“The federal government is currently examining this decree for its concrete effects,” spokesman Wolfgang Buechner told reporters in Berlin.

Beate Baron, a spokeswoman for the German economy ministry, said Gazprombank has 10 days to explain details of the procedure, and that the Russian central bank — currently under Western sanctions — would not be involved in the transaction. Still, the question of whether the Russian decree undermines sanctions must be agreed at an EU level, according to a German official.

Peskov said Russia might still swap the payment currency in the future if conditions change.

“There’s nothing set in concrete here, but in the current situation, rubles are the most preferable and reliable option,” he said.

(Updates with OMV, Eni and Uniper comment throughout.)