Germany says European buyers to continue payments in euros under new Russian rules

European buyers will be able to continue to pay for Russian gas in euros despite Moscow's plans to enforce a new law requiring payment in rubles, the office of German Chancellor Olaf Scholz said late March 30.

Following talks with Russian President Vladimir Putin, Scholz's office said payments in euros would be converted into rubles by the state-run Gazprombank under the proposed new rules.

It also stressed that the German leader had not agreed to the new procedure, and had asked for additional written information "in order to understand the procedure more precisely."

"Putin said he would enact a law according to which gas deliveries would have to be paid for in rubles from April 1," Scholz's office said.

"At the same time, he emphasized in the conversation that nothing would change for the European contractual partners," it said.

"Payments will continue to be made exclusively in euros and will be transferred as usual to Gazprombank, which is not affected by sanctions. The bank then converts the money into rubles."

Some Russian banks have been excluded from the SWIFT payment system under western sanctions, but Gazprombank was not on the list given its importance in making energy-related payments.

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"Chancellor Scholz did not agree to this procedure in the conversation, but only asked for written information in order to understand the procedure more precisely," his office said.

"It remains the case that the G7 agreement applies: Energy deliveries are paid exclusively in euros or dollars. As stipulated in contracts."

Further discussion

The Kremlin's take on the issue was less emphatic. In a statement following the conversation with Scholz, it said experts from both countries would discuss the issue of ruble payments further after Putin explained the "substance" of the plan.

"The change in the procedure for settlements is introduced due to the fact that, in violation of international law, the foreign exchange reserves of the Bank of Russia were frozen by the EU member states," the Kremlin said.

"It was noted that the decision taken should not lead to a deterioration in contractual conditions for European companies importing Russian gas. It was agreed that the experts of the two countries would additionally discuss this issue."

Putin ordered Gazprom and the central bank to draft proposals for the switch to ruble-based pricing in EU gas supply contracts by March 31.

Earlier March 30, Kremlin spokesman Dmitry Peskov said the switch by Moscow to ruble-based pricing for European gas buyers would not take effect immediately on March 31.

Quoted by Russian news agency Tass, Peskov said arrangements on payments and supplies required a "lengthy process."

"This does not mean that all [gas] that will be supplied tomorrow should be paid for [in rubles] by that evening," Peskov said.

G7 reaction

Scholz last week dismissed the move by Moscow, saying Russian gas supply was carried out under fixed contracts that include the currency type for payments, which are mostly in euros or dollars. "That's what counts," he said.

Germany was also a signatory to a joint statement on March 28 by the countries of the G7 -- which also include Italy, France, Japan, Canada, the US and the UK -- rejecting the move by Moscow.

In the statement, the G7 countries reaffirmed that agreed contracts for gas deliveries "must be respected since most of the gas supply contracts explicitly stipulate payment in euros or dollars."

"The G7 partners therefore agreed to call on the companies based in their countries not to accede to such demands."

Putin's order was for a shift to payment in rubles for gas supply to the EU "and other countries that have introduced restrictive measures against citizens of the Russian Federation and Russian legal entities."

The European gas market is keeping a close eye on the issue, with fears that Russia could envisage retaliatory action if European buyers refused to transact in rubles.

The TTF month-ahead contract was priced at Eur117.50/MWh March 30, according to S&P Global Commodity Insights assessments, up 10% on the day.

In early trading March 31, the contract was lower at Eur108/MWh, according to ICE data, but had moved higher to Eur117/MWh by 0700 GMT.