Russian President Vladimir Putin signed a decree on Thursday on a special procedure for buyers from countries that imposed sanctions on Russia to pay for gas in rubles, making the measure official. Here’s what this means.
- Which countries are affected?
The “unfriendly countries” Putin referred to are those that imposed sanctions meant to damage the Russian economy, and froze the nation’s foreign currency reserves. They include the US, UK, Canada, Australia, Japan, Taiwan, South Korea, Switzerland, most of the 27 nations of the European Union, and a number of smaller countries.
- Do foreign companies have to buy rubles?
Not necessarily. The decree offers the option of opening an account in an authorized Russian bank, such as Gazprombank, which is already one of the main financial institutions through which payments for Russian gas are made. The buyer will then transfer the gas payment to this account (in full accordance with the contractual terms and in its currency of choice), which the bank would then sell on the exchange for rubles, credit to the buyer’s ruble account, and transfer the funds to the gas provider.
- Do ruble payments violate the current contracts?
The decree does not imply a permanent change in the payment currency, but only introduces a new settlement procedure, so that the payment can reach the Russian supplier. This way it does not violate existing contracts, as buyers will continue to make payments in their currency of choice.
- Does the payment switch violate Western sanctions?
No. Russian gas exports are not subject to sanctions, neither is the ruble, nor a number of Russian banks, including Gazprombank (with the exception of the UK where the bank is sanctioned). Gazprom does not violate the essential terms of its existing contracts with the newly established procedure, but at the same time complies with Putin’s decision on the transfer of payments for gas in rubles.
- What happens if countries refuse to switch payment methods?
Their gas contracts can be nullified, according to the Russian president. “If unfriendly countries do not pay in rubles starting from April 1, we will consider this a default on gas contracts, in which case the existing contracts will be scrapped,” he announced on Thursday.