2022 Russia–European Union gas dispute

Following Russia's invasion of Ukraine in February 2022, the United States, the European Union,[1] and other countries,[2] introduced or significantly expanded sanctions to cut off "selected Russian banks" from SWIFT,[3] Those assets of the Central Bank of Russia that were held in Western nations were frozen: the Central Bank of Russia was blocked from accessing more than $400 billion in foreign-exchange reserves held abroad.[4][5] Accounts in Western banks that are owned by Gazprom were also frozen. Any money deposited into these frozen Gazprom accounts − including payments for natural gas − would also be frozen.

The Biden administration had initially allowed Russia to continue to repurpose the substantial funds it had kept in U.S. financial institutions to make due payments on Russia′s sovereign debt. But on 4 April, the U.S. Department of the Treasury banned Russia from withdrawing funds held in U.S. banks to pay off its debt obligations.[6] Russia, which in early 2022 held $630 billion in foreign-exchange reserves,[7] was consequently unable to make payments on its debt in US dollars or Euros as it was contractually required to do.

Two dollar denominated bonds issued by Russian government matured on 4 April 2022.[8] On 5 April, Russia attempted to pay its bond holders with dollars from $600M of reserves held in U.S. banks but these were blocked by the U.S. government as part of the Western sanctions.[9] In April 2022 Russia defaulted on its foreign debt by failing to pay its obligations in U.S. dollars. The credit agency S&P Global stated that Russia was in "selective default" because it tried to pay obligations on dollar denominated debt in rubles, which could not be converted into "dollars equivalent to the originally due amounts".[8][10][11]

As a response to a new round of severe sanctions introduced by the EU countries against Russia, Russian President Vladimir Putin on 23 March 2022 announced that he had made a decision whereby payments for Russian pipeline gas would be switched from "the currencies that had been compromised" (US dollar and euro) to payments in roubles vis-à-vis the previously formally designated "unfriendly countries", including all European Union states; on 28 March, he ordered the Central Bank of Russia, the government, and Gazprom to present proposals by 31 March for gas payments in rubles from "unfriendly countries".[12][13][14] President Putin's move was construed to be aimed at forcing European companies to directly prop up the Russian currency as well as bringing Russia's Central Bank back into the global financial system after the sanctions had nearly cut it off from financial markets.[15] ING bank's chief economist, Carsten Brzeski, told Deutsche Welle he thought the gas-for-ruble demand was "a smart move".[15] At the end of April 2022, Russian Foreign Minister Sergey Lavrov said that the $300 billion of Gazprom′s funds that had in effect been "stolen" by the "Western 'friends'" were actually the monies they had paid for Russia′s gas, which meant that all those years they had been consuming the Russian gas free of charge; he thus made a point that the new payment system was designed to preclude "the continuation of the brazen thievery those countries were involved in".[16]

On 28 March, Germany's Economy Minister Robert Habeck announced that the Group of Seven countries had rejected Russian President's demand that payment for gas be made in rubles.[17] On the same day, Russian president's spokesman, Dmitry Peskov, said that Russia would "not supply gas for free".[18]

In the evening of 29 March, it was reported that the physical gas flows through the Yamal-Europe pipeline at Germany's Mallnow point had fallen to zero.[19] The following day, Germany's Economy and Climate Minister Robert Habeck triggered the "early warning" level for gas supplies, the first step of a national gas emergency plan that involved setting up a crisis team of representatives from the federal and state governments, regulators and private industry and that could, eventually, lead to gas rationing; he urged Germans to voluntarily cut their energy consumption as a way of ending the country's dependence on Russia.[20][21] A similar step was undertaken by the Austrian government.[22] Meanwhile, Gazprom said it continued to supply gas to Europe via Ukraine. Russia's gas had also begun flowing westward through the pipeline via Poland.[21] Russia's TASS reported that President Putin had a phone call with Germany's Chancellor Olaf Scholz to "inform him on the decision to switch to payments in rubles for gas".[23] According to Olaf Scholz's office, President Vladimir Putin told the German Chancellor that European companies could continue paying in euros or dollars.[24]

On 31 March, President Vladimir Putin signed a decree − decree 172 − that obligated purchasers of Russian pipeline gas ("in gaseous state") in the designated "unfriendly countries"[25] after 1 April 2022 to make their payments for Russian gas in rubles only through a facility to be run by Russia's Gazprombank, a subsidiary of Gazprom.[26][27][28] To pay for gas, purchaser companies from "unfriendly countries" would be required to open two accounts at Gazprombank and transfer foreign currency in which they previously made payments into one of them,[29][26] which currency Gazprombank would then sell on the Moscow Stock Exchange for rubles that are deposited into the second (foreign-purchaser owned) ruble-denominated account[30] (this currency conversion would be done in Russia).[27][26] Gazprombank would then transfer this ruble payment to Gazprom PJSC (a company that operates gas pipeline systems, produces and explores gas, and transports high pressure gas in the Russian Federation and European countries[31]), at which point the purchaser would be deemed to have legally fulfilled (under Russian law) its obligations to pay.[25] Gas purchasers were thus still able to make payments in foreign currencies.[27] The natural gas contracts stipulated the currency in which payments to Gazprom were to be made[26] − 97% of which were in US dollars or euros[29] − as well as the accounts into which the payments were to be deposited, which were Gazprom-owned accounts at Western financial institutions. These accounts had been frozen by Western sanctions and any payments into these accounts would also be immediately frozen, whereas payments deposited into these Gazprombank accounts (located in Russia) would be accessible to Gazprom, which would circumvent these Western sanctions.[29][32]

The first post-April 1 payments were due near the end of April and in May.[27] Putin stated that any country refusing to use the payment mechanism would be in violation of their contracts and face "corresponding repercussions".[26] The Russian government would consider a failure to pay to be a default and the existing contract would be terminated. The decree allowed exceptions to be made for buyers that would permit them to pay as before.

On 29 April 2022, Germany's Economy Ministry clarified that European energy companies won't be in breach sanctions if they comply with decree 172, saying in an emailed statement that "According to these guidelines, account K, to which payment is made in euros/dollars, is in line with the sanctions if companies declare that contracts have been fulfilled with payment in euros or dollars."[33]

On 26 April 2022, Gazprom announced it would stop delivering natural gas to Poland via the Yamal–Europe pipeline and to Bulgaria from the following day as both country had failed to make due payments to Gazprom in rubles.[34][35] Poland said it did not expect to experience disruptions due to its natural gas storage facilities being about 75% full (ensuring 40–180 days of supply), the Poland–Lithuania gas pipeline becoming operational in May 2022, and the Baltic Pipe natural gas pipeline between Poland and Norway becoming operational in October 2022, which would make Poland fully independent of Russian gas.[34][35] Poland could also import gas via the Świnoujście LNG terminal in the city of Świnoujście in the country's extreme north-west. Meanwhile, Bulgaria was almost completely dependent on Russian gas.[35]

On 27 April 2022, Gazprom announced that it had "completely suspended gas supplies" to Poland's PGNiG and Bulgaria's Bulgargaz "due to absence of payments in roubles".[36] Bulgaria, Poland, and the European Union condemned the suspension.[37] The announcement of the suspension caused natural gas prices to surge[27] and the Russian ruble to reach a 2 year high against the Euro in Moscow trade.[38]

• Energy crisis
• 2021–2022 global energy crisis
• 2022 Russian financial crisis
• Economic impact of the 2022 Russian invasion of Ukraine – Financial crisis beginning after the invasion of Ukraine and subsequent sanctions
• Energy policy of Russia – Overview of the energy policy of Russia
• Energy superpower
• Russia in the European energy sector
• Russia–Ukraine gas disputes