Russian gas deliveries can still be paid for in compliance with sanctions
Background
On Thursday, 31 March 2022, one week after the public announcement which drew considerable attention, Russian President Vladimir Putin signed a decree changing the regulations on payment for gas deliveries to other countries. The new regulations came into force on Friday, 1 April 2022.
Specifically, the decree requires countries described as “unfriendly states”, i.e., EU Member States, USA, UK and all other states that have imposed financial and economic sanctions on Russia as a result of the Russian invasion of Ukraine, to open a rouble account with Gazprombank, which has been specially authorised for this purpose, and to settle their payments for gas deliveries via the bank.
The states concerned must therefore ensure payment in roubles via these special Gazprom bank accounts, which have one division for foreign currency, i.e., US dollars or euros, and one for roubles. It is still expressly permissible to pay euros or US dollars into the Russian account as the first step. Then, as the second step is an exchange, the plan is for Gazprombank to convert the funds into roubles, followed by a transfer to Gazprom as the gas supplier. Gazprom will bear the exchange rate risk.
Assessment under sanctions law
The new mechanism announced by Russia does not breach the current legal requirements at the level of EU sanctions. Although Gazprombank is on sanctions lists in both the USA and the EU, it is only listed for capital market restrictions.
Payments via Gazprombank, on the other hand, are currently not restricted in general, as long as the payments are not made to people or companies subject to a direct or indirect provision ban, i.e. a ban on providing funds or economic resources directly or indirectly to or for the benefit of the listed persons or entities. There is currently no such prohibition for Gazprom.
In this respect, it should be noted that although the new payment mechanism reduces the effectiveness of the existing sanctions, participation in the new payment mechanism would appear not to amount to a breach of the general circumvention prohibitions in the relevant Article 9 of Regulation (EU) No 269/2014 and Article 12 of Regulation (EU) No 833/2014.
The new payment mechanism put into perspective
On the one hand, the Russian decree on the new regulations for international gas payments can be seen as a face-saving climb-down by Russia. It is still expressly permitted to pay euros or US dollars into the Russian account, and thus for the buyer to pay for Russian gas deliveries in the currency specified in the respective supply contract. In the second step, the Gazprombank will then convert the money into roubles and transfer the amount to Gazprom as the gas supplier and final recipient of the payment, thus ensuring that Russia receives the final payment in roubles. On the other hand, with the new mechanism, Russia has also anticipated possibly stricter sanctions and ensured that payments for its gas deliveries cannot be blocked as easily as would currently be possible with a transfer in euros or US dollars via a European bank.
Therefore, from a purely legal perspective, it seems highly unlikely that Russian gas deliveries could be stopped in the short term (due to lack of payment). Payment via Gazprombank is currently not restricted. However, it cannot be ruled out that individual banks will refuse to make payments to Gazprombank in order to preserve their good reputation. Finally, a formal rejection of the new payment mechanism, at least by individual states, is also quite likely, which could require a reassessment of the situation.
For more information please visit our Ukraine-Russia Crisis Center
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