No agreement on energy embargo at EU summit

Exclusion from the Swift payment system is considered a particularly severe financial sanction. However, the partial blockade of its central bank appears to be causing the Russian government even more trouble. Russian Foreign Minister Sergei Lavrov admitted on Wednesday, according to the news portal Politicothat the Kremlin was taken by surprise by this Western measure.

Painful Sanctions

As a result, however, Moscow reacted immediately and obliged export companies to change 80 percent of their foreign currency into rubles within three days of receipt of payment. The companies should thus help to support the ruble exchange rate.

Apparently, however, Russian President Vladimir Putin is not entirely satisfied with this countermeasure. He announced at a cabinet meeting on Wednesday that the western countries imposing sanctions on him would soon have to pay for their gas and oil imports in rubles. Putin instructed the central bank and the government to set up a payment mechanism for this within a week.

But what does it exactly mean?

Instead of paying the cost of deliveries in dollars or euros as usual, the western importers now have to exchange their foreign currency for rubles first. Economists assume that the corresponding quantities cannot be procured so easily on the international markets. Germany, Italy and other gas purchasers would therefore have to hand over their dollars and euros to the Russian central bank, and they would also support the exchange rate.

However, observers agree that the EU states undermined the sanctions imposed on the Russian central bank. This leads to the conclusion that the EU in general and Germany in particular can now only go forwards or backwards. Either you soften the sanctions imposed on Russia because of the attack on Ukraine, or you risk cutting off Russian natural gas supplies.

Various EU heads of state and government rejected Putin’s demands on Thursday. Italian Prime Minister Mario Draghi spoke of a breach of contract on the sidelines of the Brussels summit. And the German Chancellor Olaf Scholz also blew the same trumpet. At a media conference after the meetings with NATO and G7 colleagues, he said that there are fixed contracts everywhere and the currency in which payments are made is part of them. “And that’s what also applies,” said Scholz. “When you change an element of a contract, you renegotiate everything, including the price,” said Belgian Prime Minister Alexander De Croo.

“It’s just money”

Ultimately, however, Germany and Italy in particular will have to ask themselves whether they insist on paying in dollars and euros and risk Putin turning off the gas tap. It cannot be completely ruled out that the Kremlin would shy away from doing so in order not to lose the corresponding income.

Another option would be to end imports yourself and embargo Russian oil and gas. But there is no consensus among the 27 heads of state and government in the EU.

The Baltic States are among those in favor of such a measure. “We must stop the flow of money into the war machine,” said Krisjanis Karins, Prime Minister of Latvia. His country is highly dependent on Russian oil and gas. Nevertheless, even business representatives told him that sanctions were necessary to stop Putin’s regime. “It’s just money,” Karins said. “If they’re alive, if their infrastructure is in order, then they can earn the money back.”

Kaja Kallas, Prime Minister of Estonia, also chose dramatic words. She recently described to the European Parliament how her mother was deported to Siberia when she was an infant. In a guest article in the New York Times, Kallas wrote that the EU states should transfer the money for their energy imports from Russia to a kind of blocked account. Thus, the proceeds would not be used to finance the war and could later be used to rebuild Ukraine.

Austria: not with us

On the other end of the spectrum, alongside Germany and Italy, there is also Austria. “With us there will be no natural gas or oil embargo against the Russian Federation,” Austrian Chancellor Karl Nehammer said before the summit. That is also not realistic for other countries such as Bulgaria, the Czech Republic, Slovakia and Hungary.

“There is no unanimity on the energy issue,” said Xavier Bettel, Prime Minister of Luxembourg. However, new sanctions require a consensus among the 27 EU countries. A voluntary, abrupt departure from Russian energy by the EU countries is currently not foreseeable.

That doesn’t mean, however, that Putin can still look forward to high income from the EU for much longer. Because the EU Commission recently presented a plan for how the confederation of states intends to reduce its purchases from Russia by two-thirds by the end of the year. And at the informal summit in Versailles, the heads of state and government agreed to “end dependence on imports of gas, oil and coal from Russia as soon as possible”.

The President of the European Commission, Ursula von der Leyen, also announced on Thursday that she plans to expand cooperation in the energy sector with US President Joe Biden. Specifically, additional imports from the USA are to replace the liquid gas previously imported from Russia. The “Financial Times» gave a figure of 15 billion cubic meters of additional American LNG. The Commission’s target is a total of 50 billion cubic meters of LPG from suppliers outside Russia.

Finally, there is another possibility that could lead to an abrupt end to energy purchases by Europeans. At least that’s how the words of the German Chancellor Scholz can be interpreted. He said after the G-7 meeting: “We agree that we will respond with further sanctions should this become necessary.” Bettel also pointed out that not all arrows should be fired yet. From this point of view, the EU may decide on a natural gas embargo if Putin uses chemical weapons in Ukraine.