The gas revenues will become accessible again if his demand to pay in rubles from now on is met. This condition leads to confusion among EU Member States: what is now possible?
It is unclear whether it is an intended or unintended effect of the sanctions package that Russia does not receive the euros. After all, when those sanctions were announced, it was always said that payments for Russian gas had to continue. This is because Europe simply cannot do without Russian gas.
But a publication by the Brussels economic think tank Bruegel shows that although the gas is paid for, Russia cannot do anything with it. A source at the European Central Bank (ECB) confirms this. According to the authors of Bruegel (including a former senior official at the ECB), this is the main reason why Putin has been demanding that Russian gas be paid in rubles since the end of March. Russia can use the frozen euros as collateral for loans, but that is expensive and complicated.
The fact that the euros are now not flowing into the Russian treasury is because all foreign assets of the Russian state, including euros, have been frozen. Gazprom cannot exchange euros into rubles and then transfer them to Russia, because Russia’s central bank is also subject to sanctions. As soon as Gazprom tries to transfer euros to Russia or the central bank, that payment encounters a blockage of the euro payment system ‘Target2’.
According to the Amsterdam economics professor Sweder van Wijnbergen, this does not mean that Putin cannot do anything with the frozen euros. ‘He can give them as collateral to countries that do not participate in the sanctions, for example China; but that is complicated and then he must also accept a substantial discount. That blockade via Target2 really throws sand in the wheels.’
German energy companies
The gas euro freeze has been neglected in the heated debate among EU countries over whether they should agree to Putin’s decree that his gas will be billed in rubles. In mid-April, Russia turned off the gas to Poland and Bulgaria because they refused to comply with the demand. Hungary and several German energy companies stated last week that they do intend to meet Putin’s payment requirement.
Most commentators have interpreted Putin’s decree as a rather effective attempt to blackmail the EU apart. That could certainly also be a motive, acknowledges economist Maria Demertzis, one of the authors of the Bruegel article. “But Putin’s inability to transfer gas euros to Russia and convert them into rubles adds weight to his threat to cut off anyone who doesn’t meet his demand.”
The European Commission did not respond on Thursday to the question whether the gas euros were deliberately frozen. Ursula von der Leyen, president of the European Commission, said last week that Putin’s decree contradicts the sanctions and that payments should not be made in rubles. She promised to clarify the matter this week. Ultimately, the Member States monitor the correct implementation of the sanctions.