European gas buyers avoid immediate switch to rubles

European buyers can continue paying for Russian in foreign currencies rather than the ruble, but from April 1 they will have to make their payments into accounts at Gazprombank, according to a presidential decree published by the Kremlin on March 31.

Russian president Vladimir Putin announced on March 23 that "unfriendly" countries, referring to those that have supported the sanctions regime against Russia, including EU states, would have to pay for their gas in rubles. Initially the requirement was expected to come into force on April 1.

“Under the executive order, a foreign buyer transfers the foreign currency specified in a contract on natural gas supplies to a special K type currency account,” the decree stated, however. “Based on the foreign buyer’s instruction, the authorised bank sells the foreign currency transferred by the foreign buyer to this account at a trade session organised by the Moscow Interbank Currency Exchange (MICEX) - RTS and credits the proceeds in rubles to the K type ruble account for the foreign buyer; it then transfers the proceeds, in rubles, to the ruble account opened by the Russian supplier in the authorised bank.”

There was initially some confusion over Russia's instructions, as Putin, when announcing the decree, only referred to European buyers having to set up ruble accounts in Russian banks.

"In order to purchase Russian natural gas, they must open ruble accounts in Russian banks. It is these accounts that will be used to pay for gas supplies starting tomorrow, April 1 this year," the Russian leader said in a televised government meeting. "If these payments are not made, we will consider it a failure of the buyer to fulfil its obligations, with all the ensuing consequences."

"Nobody sells us anything for free. And we are not going to do charity either," he warned.

A number of European buyers spoke out against having to pay for Russian gas in rubles, arguing that the requirement was a violation of contracts, which stipulate which currencies should be used for payment.

Markets were encouraged when the Germany government reported on March 30 that chancellor Olaf Scholz had received assurances from Putin in a phone call that Germany and other European buyers would be able to continue paying in euros and dollars for their supplies. Kremlin spokesman Dmitry Peskov confirmed later that day that the switch to rubles would be a "gradual process" rather than immediate.