The decision by Russia to stop supplying natural gas to Poland and Bulgaria has put the issue of European Union purchases of Russian gas back in the spotlight. Moscow cut off supplies to the two countries because they failed to comply with an edict that payments must be made in roubles.
However, it appears that other EU countries may be prepared to use a payments mechanism which meets Russia’s demands, while at the same time not apparently breaching the sanctions put in place by the EU.
The issue goes to the heart of the debate about how far sanctions against Russia should go, even if they also damage Europe. Some of the countries most reliant on Russian gas, including Germany, have so far argued that an immediate cut-off of Russian gas would impose significant economic harm on the European economy. The counter-argument is that the revenues which Russia is getting are vital to supporting its exchequer, which is paying for the war.
To try to deal with this, Europe has been acting on a few fronts. One is to find ways to reduce reliance on Russian energy – this is vital, though comments from Europe’s politicians often gloss over the fact that it will take time. The second is to examine how to reduce revenues to the Russian exchequer while minimising economic harm to Europe. Some kind of embargo on Russian oil – a key earner of foreign revenue for Moscow – may be finalised shortly, though how it might operate remains uncertain.
However, the issue of payments for gas is now entering murky territory. The European Commission seemed to have given clearance for a mechanism through which payments are made in euro or dollars to Gazprombank, associated with the giant Russian Gazprom energy company, which then translates them into roubles.
Some big EU energy companies appear to be ready to go down this route. But now the latest soundings from the Commission warn that it could, in fact, breach sanctions. Gazprombank itself was specifically excluded from the sanctions on the Russian financial sector – but the Commission appears to feel that the involvement of the Russian central bank in the rouble exchange could still breach the sanctions rules.
Ireland, which is not directly reliant on Russian gas, has supported tough energy sanctions on Russia. However so far big countries reliant on Russian gas want to keep the pipelines open. It does not seem a viable political strategy as the war goes on, and evidence grows by the day of Russian atrocities in Ukraine.
Russia’s move against Poland and Bulgaria appears to be a tactic to try to divide Europe in its response. A way needs to be found to keep a united response to Moscow. A quick move on a meaningful oil embargo is now, at a minimum, vital.