Dilemma with introduction of Russian payment system for gas

By Murat Temizer

ANKARA (AA) - The decree by Russian President Vladimir Putin stipulating the payment of rubles for Russian natural gas has put many gas buyers in a quandary.

Katja Yafimava, a senior research fellow at the Oxford Institute for Energy Studies Natural Gas Research Program, told Anadolu Agency she considers that the new payment system is not necessarily contradictory to the existing gas supply contracts.

She argues that under the new payment system, European buyers would still pay in euros, although the decree has mandated several additional steps to be made by Gazprombank for the payment to be considered completed, namely the conversion of euros into rubles and their subsequent transfer to Gazprom’s account.

"Some European buyers may consider it as being compatible with their contracts and agree to follow this new procedure in which case supplies would continue as normal," she said.

Although, she noted that some buyers may argue that their contracts need to be adjusted to reflect the change and refuse to follow the new procedure until and unless their contracts are adjusted.

"In this case, if an adjustment is not made by the next payment date, supplies could be cut as the decree prohibits Gazprom from supplying gas if the payment is not made in line with the new procedure - unless an exemption is granted," she said.

On the other hand, Richard Kauzlarich, the co-director of the Center for Energy Science and Policy at George Mason University and a former US Ambassador to Azerbaijan, said that many, if not most energy contracts, designate the currency, so a unilateral violation of the terms of the contract may make the contract invalid.

"I understand it is part of Putin’s retaliation for the US/Western sanctions applied to Russia for its unjustified and murderous invasion of Ukraine," he said.

Kauzlarich suggested an alternative for those who feel compromised in making payments through the new system, suggesting that payments are made to an escrow account outside Russia.

"Moscow would have access to such accounts only once sanctions are lifted and any claims by Ukraine for human or material losses caused by Putin’s invasion are paid," he said.

Russian energy company Gazprom informed its customers officially on April 1 of the new payment conditions for Russian gas requiring that payment for deliveries made from this date would need to be paid in rubles.

Speaking at a meeting with government officials in Moscow, Putin said on March 31 he signed a decree laying out the rules for trading Russian natural gas in rubles.