EU provides companies with sanctions wriggle room

The European Union (EU) has provided companies with a get-out from sanctioning busting, with the bloc still highly dependent on Kremlin-backed fossil fuels to meet its energy needs.

Its executive arm, The European Commission, has told EU countries that companies can open accounts at designated banks and pay for Russian gas.

The updated guidance from the European Commission, shared with EU countries last week and seen by news agency Reuters, outlines that transactions can be defined as completed when the agreed currency is paid.

The trading bloc is still dependent on Russia for around 40 per cent of its supplies, raising the prospect of supply shortages this winter if companies and countries were unable to trade natural gas.

The European Commission argued that it should be understood that “such payments in that currency discharge definitively the economic operator from the payment obligations under those contracts, without any further actions from their side as regards the payment.

The fudge measure follows Russian President Vladimir Putin signing into law demands for “unfriendly’” overseas buyers, including EU nations, to pay for Russian gas supplies in roubles.

His decree confirmed that a transaction would only be deemed complete by Russian authorities after the foreign currency was converted to roubles.

Its proposed system would require EU businesses and nations to set up Gazprombank accounts which will convert euros or dollars into roubles prior to the transaction.

This would not specifically be allowed under the latest update from the European Commission, with nearly all of the supply contracts between Russia and the West are in euros and dollars.

However, if companies sign off deals as completed as soon as euros are placed in banks – it would remove their potential culpability for sanction busting.

Gazprombank is currently not included in EU sanctions, but such conversion processes would likely involve Russia’s central bank, which is under sanctions.

Russia has routinely engaged in retaliatory measures following the West’s imposition of multiple sanction packages on the country following the invasion of Ukraine.

The Kremlin has already ordered for gas supplies to be shut off to Poland and Bulgaria after both countries failed to pay in roubles, and also cut off all exports of electricity to Finland today after the country pledged to join NATO.

Several EU governments and large importers have since sought more clarity from Brussels on whether they can keep buying gas, which heats homes, produces electricity and powers factories across Europe.

The bloc is also edging slowly towards oil sanctions, although Hungary is continuing to withhold support for the measure – which is seen as the key feature of the EU’s proposed sixth package of measures against the Kremlin.