I know there's an older question here, but Russia has recently clarified (after some pushback from the EU capitals) what it means by gas payments in rubles. As RT explained:

“Everything will be fast, clear, understandable... These are new rules, they need to be followed. Although, I repeat once again, de facto nothing will change for European companies… They will pay, as they used to, in euros, the same currency that is indicated in the contracts. But at the same time, the final payment will go to the seller – Gazprom – in rubles,” Peskov explained. To break it down, Russia’s new gas payment mechanism demands that buyers from ‘unfriendly’ countries that have placed sanctions on Moscow open ruble accounts in an authorized Russian bank, Gazprombank. Buyers will then transfer gas payments to the bank, which it would sell on the exchange for rubles, credit to the buyers’ ruble account, and transfer the funds to the gas provider.

Peskov called the new mechanism a “prototype system” of payments in rubles, adding that gas may soon not be the only Russian export that offers such settlements.

I'm guessing that one benefit of this scheme might be that since Western companies will be forced to exchange euros to rubles on the Moscow market (seemingly at one particular bank), perhaps an arbitrary exchange rate can be imposed on them, making the price vary as Russia sees fit (though I'm not sure if the long-term contracts really allow that.)

But besides that putative advantage, it seems that instead of the euros going to Gazprom, they'll be left with Gazprombank. I know that the latter hasn't been sanctioned (unlike the central bank) precisely because so such payments can be made, but has Gazprom itself been sanctioned and can't spend/transfer euros? If not that, what advantage is there with the euros being kept by Gazprombank instead of Gazprom?

  • 1
    $\begingroup$ If companies pay in Euro, at prices set out in the contracts, it doesn't matter at all what the Rubel exchange rate is. If you pay for a trip to Moscow in Euros, you don't care if some Russian bank converts that at an exchange rate of 0.1 or 10000 to Rubels to pay a hotel or whatever. Also, Rubel (unlike most other currencies) is primarily exchange traded (onshore) which makes manipulation very difficult. You cannot pay to Gazprom directly (there is always a bank in between) but now it goes to a non sanctioned bank (at least so far). Otherwise, it is a lot harder to buy/stabilize the Rubel. $\endgroup$
    – Alex
    Apr 3, 2022 at 20:09
  • 3
    $\begingroup$ Russian banks usually need to convert foreign exchange to Rubel at the central bank. Problem now ist that once that money is at the central bank, sanctions make it very hard for the CB to use it. With Gazprombank, there is no such problem at the moment. This effectively makes it a vehicle to avoid sanctions and helps to stabilize the Rubel. $\endgroup$
    – Alex
    Apr 3, 2022 at 20:14

2 Answers 2

  1. It is a way how to further evade sanctions. The trade is not done in cash and western countries froze Russian central bank assets denominated in USD and EUR (see NBC News). Gazprombank is not sanctioned (see Bloomberg).
  2. It is also political posturing. Government is likely trying to signal to its people it is 'fighting' the sanctions. Gas for rubles headlines inside Russia are useful propaganda even if in reality current contracts hold.

I found an explanation that seems to make most sense to me. It's basically not an issue of how the sanctions have been implemented so far, but how they could be further pushed.

In the future, the West/EU could (in theory) freeze the EUR payments in Gazprombank, after making them. Because to transfer any EUR between banking-sized entities, they basically have to go through TARGET2, and the EU controls this. By forcing an immediate exchange of the payment to Rubles, the West is deprived of this possibility to freezing the payment(s) in Gazprombank. (Although it hasn't actually tried to do something like this, insofar.) The crucial part seem to be this:

the decree specifying ruble payments means that, for the Russian exporter, the payment is not finalised until ruble payments are made. While there is no exchange risk as the importer pays euros, during the period between the transfer of euros to Gazprombank and their exchange into rubles, the European importer bears a counterparty risk.

In other words, if the EU were to freeze the EUR payment in Gazprombank (after making it), the importer would be considered not payed, according to the new Russian decree.

Also, Russia might to be able to directly change the core price in the contract, but they might try to extract an exorbitant exchange fee:

There is an implicit foreign exchange transaction in the exchange of deposits between the Bank of Russia and Gazprombank. As the price of gas is fixed in euros, the exchange rate at which euros are exchanged into rubles should be irrelevant. However, Gazprombank can charge a fee to the gas importer as commission for the foreign exchange operation. Normally foreign exchange commissions are extremely low but, as the market for rubles is probably very illiquid, Gazprombank might ask for a hefty commission, de facto increasing the gas price. This ends up operating as a price instrument in the hands of the Russian state (an indirect indication that this could occur is that the fee applied by Russia’s VTB Bank for ruble/dollar transactions with private customers, which before the war was about 4%, is now three times higher).


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.