Revealed: EU's dependence on Putin's Russia for its energy

EU denies allowing Russian gas to be bought using roubles to finance Putin’s war

Montage © Facts4EU.Org 2022

EU clarifies guidance: Russian gas can be bought by paying GazpromBank - Poles up in arms

European Union sanctions against Russian energy companies and banks was in disarray last night as the EU was forced to deny reports of a diplomatic fallout with Poland - and an EU Commission climbdown over allowing payments for gas to become possible in roubles.

The re-issued EU guidance clarified the arrangements it would allow but in doing so only highlighted the fact that huge gas purchases are still going ahead - helping to finance Putin’s brutal war on Ukraine.

Facts4EU.Org has looked at the EU’s own reports and also well-briefed reporting from Reuters, the Polish Press Agency, and others, to understand the nuances of the row.

Brexit Facts4EU.Org Summary

1. Has the EU put its foot down on the (Russian) gas?

  • In 2021 EU countries bought circa 155 billion cubic metres of gas from Russia
  • Russian imports accounted for 40% of its total gas consumption, 27% of oil imports and 46% of coal imports
  • Energy represented 62% of EU total imports from Russia in 2021, and cost €99 billion
  • EU gas purchases from Russia are still possible and there is as yet no agreement how to phase out such purchases across the EU despite promises to do so
  • The US and the UK repeatedly warned the EU over many years about its dependency on Russia for energy

2. This is how much the EU has propped up Putin's Russia with its energy reliance
- gas, oil, and coal

© Brexit Facts4EU.Org 2022 - click to enlarge

© Brexit Facts4EU.Org 2022 - click to enlarge

© Brexit Facts4EU.Org 2022 - click to enlarge

Sources: All the above charts use official EU Commission information released in its detailed report last month (April) and relate to 2021.

Propping up Putin's rouble

Russia had insisted that payment for its gas must now be in roubles, when contracts are traditionally (and almost exclusively) in Euros or US Dollars. When introducing banking sanctions on 31 March the EU chose not to sanction GazpromBank (of which the largest shareholder is Russia’s state-owned Gazprom) so that routes to pay for Russian gas without involving the Russian Central Bank would remain open.

The EU said that purchasers of Russian gas “should make a clear statement that they intend to fulfil their obligations under existing contracts and consider their contractual obligations regarding the payment already fulfilled by paying in euros or dollars, in line with the existing contracts.”

Mateusz Morawiecki, Polish Prime Minister

“With some disappointment, I noticed that there was a consent to pay for gas in roubles, something Putin was trying to achieve.

"Unfortunately, [negotiations] often boil down to the fact that solutions are worked out on the lowest common mathematical denominator."

“These are not one or two member states, but several or maybe more EU countries that want to yield and pay in rubles. We firmly say "no". Let us move away from Russian hydrocarbons as soon as possible. But we also want to maintain unity, which is why we operate on these two different instruments: the unity of the EU and the most far-reaching sanctions against Russia.”

“Poland will stick to the rules and will not yield to Putin’s blackmail.”

- Mateusz Morawiecki, Polish PM, reported by Polish Press Agency, Sun 15 May 2022

The EU’s ‘fudge’

New EU guidance issued yesterday (Tues 17 May 2022) clarified that purchasers of Russian gas could still open new accounts with GazpromBank and pay in Euros or US Dollars so long as the purchase contracts had been established before 31 March when the EU sanction decree was made and the contracts specified Euros or US Dollars.

This time limited caveat was the same sleight of hand that allowed Russia to continue to buy EU military weapons and ammunition (mostly French) right up until months before the invasion of Ukraine – despite the weapons purchase ban introduced following the annexation of the Crimea.

What does it actually mean?

It means that EU members states can still buy Russian gas and can technically still pay in Euros – but the Russians insist on GazpromBank being used as it will do the conversion to roubles.

Earlier in April, Poland’s and Bulgaria’s gas was cut off when they refused to pay in roubles. Poland’s foreign ministry is outraged at what it sees as a slackening of the EU’s position on sanctions and only paying in Euros. Netherland’s diplomats were also reported to be angry.

Finland has said it will not be directed by Russia to use GazpromBank and will take the matter to contract arbitration. Hungary has said it will pay for Russian gas in roubles. The Italian energy company Eni SpA was reported by Bloomberg as having agreed to pay for its gas directly in roubles by opening a Gazprombank rouble account.

What happens in the UK?

Unlike in the EU, GazpromBank is sanctioned by the UK and has had its assets frozen. However last week it had its licence extended to the end of May after which it is said no more purchases will be allowed using it. Russian gas purchases are relatively low in the UK – only 4% – and the UK Government has said it will ban all gas purchases by the end of the year.

Bloomberg UK first reported on 31 March (when the EU’s sanctions were introduced) that GazpromBank had specifically been left off the EU list so that purchases of Russian gas could still go ahead. The report appears now to have been entirely accurate.

Beyond the sanctions, Ukraine cuts off 8% of Russian gas supply to the EU

Due to nearby Russian military activity Ukraine has shuttered a gas pipeline that runs from Russia across Ukraine to the West, carrying about 8% of the EU’s Russian gas supplies.


Sleight of hand makes a mockery of EU sanctions

As if the EU’s support for Ukraine is not poor enough already – and as if the EU’s attempts at sanctions have not been half-hearted enough already - now the EU has to ‘clarify’ (relax) its payments rules for Russian gas. Strictly speaking it is insisting that payment in Euros should still be the only method, but it has allowed a two-account system through GazpromBank whereby a payment is made into one account (even a new one) and Gazprom will then transfer it on the client’s behalf to a second account which inevitably will be a Rouble account.

This, and the ability to have time delays that allow purchases to continue to be made, are the ways in which the EU gets round its own rules.

The EU constantly says it is a rules-based organisation. The only rule it seems to be interested in is the one allowing them to make up the rules as they go along.

The extension of the GazpromBank licence by the UK Gov is disappointing. We can only hope it is not the start of a new trend – converging with the EU’s desire to appease Putin.

EU is the real bad guy

It is harder to get British sausages into Northern Ireland or land British fish in our Ulster harbours than it is to buy Russian gas and find a means to pay for it.

The UK has been portrayed as un-European, as the bad guy since 2016 (if not before). Then a ruthless dictator invades one of its neighbours for the second time in eight years. Suddenly Europe cuts a deal with Putin to buy his gas and finance his war while the UK arms and trains the defenders. Who are the bad guys now?

Whatever the EU says about the payments system for purchasing Russian gas we know for sure there has been an almighty row requiring the Commission to issue clarification. But the damage will have been done. The faith, if any, that was held by Central and East European states will have been further eroded. The UK must not follow in the EU’s footsteps and instead stand four-square with Ukraine.

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[ Sources: EU Commission | Polish News Agency | Bloomberg ] Politicians and journalists can contact us for details, as ever.

Brexit Facts4EU.Org, Wed 18 May 2022

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