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German energy firm agrees to Russian pay demand. West subverts sanctions, but preaches to India?

Source : Times Now

German energy firm agrees to Russian pay demand. West subverts sanctions, but preaches to India?
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One of Germany’s biggest energy firms is preparing to use a way to bypass sanctions on Russia and still get the gas it needs to run the country. Uniper’s playbook may be employed by other European energy firms which are thinking of making rouble payments to Russian gas exporters in order to avoid supply cuts. Europe gets 40% of its energy from Russia, some countries are more heavily dependent on the state than others. Germany for instance risks dramatic economic consequences if it snaps off energy trade with Russia completely in the short term.

Uniper said it has “no choice” but is “still abiding by EU sanctions”. Is it really doing that?

Why Russia wants Rouble

Following Russia’s invasion of Ukraine, sanctions swept into place that makes Russia an outcast in international transactions made in Euros or Dollars. The intent is simply this: that Russia is cut off from the flow of funds that could enable it to finance the war it launched against Ukraine.

The impact of the sanctions was felt almost immediately, as Russian reserves were frozen, many Russian banks were excluded from the SWIFT payments system, and international businesses pulled out of the country. Trade and means of trading with Russia collapsed.

As a result, the rouble was trading at 145 against a Dollar in March. Although the rouble recovered since then, and today, 1 dollar is 71.35 roubles, Russian President Putin has said that all payments to Russian firms will have to be made in roubles. This, he believes will firm up the rouble by creating more demand for the currency.

The money paid by European importers of Russian energy therefore will be accessed by the Russian state which in turn will feed the ongoing war. Europe, it is clear, cannot reduce its dependence on Russia overnight, but over time if it is able to do so, then a crucial source of revenue for Russia gets choked.

Hiding behind a technicality

European firms that pay Russian energy providers in roubles will be essentially hiding behind a technicality to bypass the ban. They intend to do this by opening a rouble and a foreign currency account with Switzerland-based Gazprombank, the privately-owned trading arm of energy supplier Gazprom.

European energy firms make payments in Euros, which Gazprombank then exchanges for roubles by borrowing from the Russian central bank. Gazprombank transfers this to the rouble account of energy firms. Then, on behalf of the European energy firms, Gazprombank pays back rubles to the Russian state.

The catch is this: as per the latest Russian decree the payment is complete only when converted to Roubles. Energy firms would not be at risk of circumventing sanctions if the payment was confirmed in Euros itself. An EU official quoted by BBC said: “What we cannot accept is that companies are obliged to open a second account and that between the first and second account, the amount in euros is in the full hands of the Russian authorities and the Russian Central Bank, and that the payment is only complete when it is converted into roubles.”

The decision of some nations to continue transactions with Russia on its terms has divided allies in the EU as well. Poland singled out Germany, Hungary, and Austria, saying they should be penalised.

Practise what you preach

India’s abstention on UN votes condemning the Russian invasion and refusal to sanction Russia had irked the West. But Europe itself is unable to, in the short term, do much to put an end to the crisis in Ukraine.

“I am not here to teach or preach but to understand the Indian perspective (on Russia) but also more to pull, than to push, India”, the German minister of state for foreign affairs Tobias Lindner had said on Wednesday (April 27) while speaking at the Raisina Dialogue in Delhi.

After India’s External Affairs Minister S Jaishankar expertly defended India’s oil and weapons purchases by exposing Western dichotomy, it is clear to them that ‘pushing’ India to accept demands not in the interest of its people won’t work. Neither should they try to ‘pull’ India into a war not of its making.

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