EU energy groups prepare to meet Vladimir Putin’s terms for Russian gas
ft.com
ft.com
breeched contracts: https://www.bloomberg.com/news/articles/2022-04-13/eu-warns-...
asked Commission to clarify EU guidance: https://www.bloomberg.com/news/articles/2022-04-27/eu-nation...
that guidance: https://ec.europa.eu/info/sites/default/files/business_econo...
16:35 “Something I noticed from the moment I heard this Euros per Rubles program, you see, the Europeans, in their sanction-mania, basically put a guillotine between the European economies and the Russian economy.“
“As a practical matter, it is now illegal to trade Euros for Rubles in the European zone, and so, the only way to get Rubles is by going to Gazprom, because the system, for those that don’t know, the system is very simple: if I am a European company that needs to buy gas for whatever reason, I go to Gazprom Bank, I make a deposit in Euros, Gazprom Bank opens a parallel account in my name in Rubles, they are the ones who exchange my Euros for Rubles, and I take those Rubles and I pay Gazprom for the gas that I need. That’s the system.”
“Now the thing is, you see, I can not show up with Rubles and pay. Gazprom Bank has said specifically that nobody can do this, because they want to close some loopholes that is not important for this conversation, but the point is you can only go with Euros, deposit them, and get Rubles. But who values those Euros? Gazprom. Gazprom can set whatever price it wants for those Euros that I deposited with them. If they want to be generous, they can give me 85 Rubles per Euro. If they want to be nasty, they can say 65. And how am I to challenge that? How am I to get any kind of redress? I can’t.“
“In fact, there is no way for me to get Rubles to buy the gas that I need for my company. And you see, because of the scheme, or the program, whatever you want to call it, Gazprom Bank can give preferential treatment to any company that it wants to, from any nationality. Say, I’m a Serbian company, now Serbia uses the Dinar but of course for their foreign currency exchanges they use the Euro, they would have Euros, they would go to Gazprom Bank, they would deposit them, and because I’m a Serbian company and Serbia is friendly to Russia, it’s not on the «unfriendly nations» list, on the contrary, Gazprom can say «oh, Mr. Serbia, here you go, 85 Rubles per Euro», but if I’m a German company, Gazprom can easily say «well, you’re only going to get 70 Rubles per Euro», and that price differential, which in this hypothetical case is 20%, would render one company extremely profitable, competitive, because it would have cheap energy, because these Rubles can only be used to buy gas, and so, what Gazprom Bank is doing by this scheme, is essentially, it will be able to fine-tune, and literally crash, any country’s economy if they don’t play their game.”
“And worst of all, the Russians are expanding the system to encompass not just natural gas, but also oil. Rosneft which is the big oil company in Russia is planning on rolling out a program very similar to Gazprom’s, and they will probably be linked up somehow eventually. And the same can be said insofar as agricultural commodities, industrial commodities, metals, different gasses, different industrial products. So all of a sudden, the Kremlin will have enormous power over the Eurozone, as a practical matter, the Russians, if they start to fiddle with the exchange rate for different companies from different countries, they get different rates, will have essentially broken the Eurozone, because the Euro will no longer be fungible, it will have different valuations in different places, geographically, and the consequences of this will be catastrophic for Europe.”
“I mean, people haven’t really thought this through. This is a big deal.”
Putin doesn't have to sell and the EU doesn't have to buy.
Cheaper price for Serbia and Hungary? Well, those countries will be economically sanctioned. The EU can bankrupt both countries at will.
Not that the EU wants to. But there is no love for Serbia in the rest of Europe. Ugly nationalists with blood on their hands. We used to like Djokovic. Even that isn't the case anymore. And Hungary just received notifications of the blocking of all EU money for their recent very undemocratic elections.
If Putin thinks the EU will implode because of this blackmail, he lives in a imaginary world. The EU is like NATO: it arises to unity when challenged.
Putin has made NATO stronger than ever. Now he's about to do succeed in doing the same for the EU. Well, Hungary will have to choose a side soon. Frankly, I'd be sad for the Hungarian people if they are expelled from the EU. But I like the idea of expelling undemocratic countries out of the EU.
So Putin cut the pipelines. Well, that would trigger a recession in the EU. But no soldier from the EU is killed, because the Ukrainians are doing the fighting. So the public opinions won't withdraw their support to the Ukrainian cause.
On the contrary, in my opinion, but that point is debatable.
But a recession in the EU just when the USA's growth is decreasing sharply.... that would lead to recession in China too. I can't see the Chinese leader risking that this very year, because he needs to appear strong to be confirmed in a lifelong mandate in power.
And Putin would take a huge risk by cutting the pipelines, e.g. the flow of euros when its war in Ukraine is not getting momentum, even after the change in strategy. Russian troops are doing better, for sure, but their territorial gains are super slow.
We'll see.
PS: my admiration to the Ukrainian people for its courage and fortitude. May the Russian people find the same courage and get rid of Putin.
Before Putin's so-called "demands": 1/ EU companies paid energy in euro or dollar to Russian banks NOT under sanctions 2/ Russia sent the energy.
After: the same, except that the EU companies must use a specific Russian bank, so that Putin can pretend to be paid in rubles.
It is just a show, since the EU companies still pay in euro or dollar.
That changes nothing in practice. It does enable Putin tough to underline that the EU sanctions make a huge exception for energy.
Well, OK, but everybody at a certain level of power already knew it.
Maybe the public opinions in the EU had not yet clearly understood that the EU pays $1B per say to Russia in winter for energy, despite proclaiming "huge sanctions".
But now the pressure of the public opinions to get rid of the EU dependency to Russia is super high. And they feel guilty towards Ukraine, so they want more weapons and ammunition delivered to Ukraine.
So once again, Putin miscalculated: Germany was reluctant to provide Ukraine with weapons and now they are sending modern tanks, heavy artillery etc. That u-turn happened within 2 days of Putin's demands.
Yes, Putin can provoke an economic recession in the EU by blocking pipelines but then he will miss that money. He had prevented that problem by putting aside $600B ... but almost all of it is now blocked by sanctions.
The EU has had recessions before. It just did because of Covid and decided to inject €750B of magic money: the EU Central just created that money. But that money is labelled in euros. Its value has not plunged despite this huge artificial input of money, because the EU is a safe bet in the middle term (10 to 20 years).
So the EU can inject again hundreds of billions so that the recession will be limited - if not totally reversed. This would fuel the inflation though, which would pose social issues. Social compensations can be put in place. Well, there will be a price, but nothing like we had in 2008 or even Covid.
Putin can not print money like the EU. Well, he can print as many rubles that he wants except that... nobody wants to be paid in rubles. The ruble value is keeping up because it is artificially maintained (super high interest rates + strict limitation of use of hard currencies by Russian entities).
If Putin stops the pipelines, within months Russia would have no hard foreign currencies left. It will need to buy them in rubles. At the value that the global markets will decide. Which will be a fraction of its current value. A large inflation will ensue.
In the end, China will - or not - help Putin. Because the "West" has very deep pockets and a huge credibility on markets. The current alliance supporting Putin amounts to 600M persons living in advanced economies against the 145M Russians and their second league economy and an untrusted currency.
But being help by China will have a huge price. Russia will become partially vassal to China.
Putin needs to win its war fast. The more it lasts, the more the sanctions will show their effects. The EU will find substitute to the Russian energy faster than Russia will be able to deliver its energy to new clients all being equal.
But things are not equal: the "West" is rich enough to pay its energy at an expensive price. Putin will have to meet the global markets' prices, e.g the price all included: production + transportation. It means that Putin will need to give large discounts. Hence the low price paid by India recently.
So there are two simultaneous races going on:
1/ Who will get out first of the mutual energy entanglement? At what cost?
2/ Will Russia be able to end the war quickly before a huge amounts of weapons of all kind are sent to Ukraine?
Be to end a war, Putin needs either complete victory (which is quite doubtful) or a partial victory (big enough so that Ukraine will agree to a peace treaty).
Predicting how a war will unfold is just impossible. The most probable issues are either: - a Russian defeat: the public opinion evolves against the regime, because of the economic recession and the casualties. And/or the morale of the Russian soldiers keeps going down. - in the coming weeks or months the front line will stabilize, with strong positions on both sides. This is said by many military experts as the most probable, especially if China provides ammunition and weapons.
In both cases, Putin's regime will fall in the following years. Economic crisis, lost of legitimacy since the glorious Red Army (which was indeed glorious during WWII) would have been defeated or in stalemate), shame of being vassalized by China instead of being the glorious Imperial Russia. Therefore social unrest => repression => more social unrest etc and then Putin escape to China. Or the regime becomes totalitarian, like North Korea.
In the end, the only problem for the West is political: keep the alliances united (EU, NATO) + limit the economic consequences whatever they come from. => one can fairly say that the EU and NATO will be put to test. Are the peoples in those countries committed enough to democracy to pay the price of supporting Ukraine. => there will be tensions but I think it will unite the EU more than ever. Because it give the EU a very profound meaning: an alliance of democracies against tyranny. Hungary will have to choose. Poland too, but at a later stage.
For Putin, only a victory can preserve his power. Otherwise, he will have to turn Russia into North Korean. If he can, which is doubtful. I can't see the Russian people going back to the Soviet era.
Putin knows that perfectly. Hence all his pretending of using nuclear bombs etc, which is nonsensical: if defeated in Ukraine, what's the point of a mutual destruction of Europe, the USA and Russia??? He keeps saying "I have nuclear heads, be careful!". So what, we have too. No edge, just another show to scare the public opinions. Like being paid in rubles: just a show.
The Russian people needs to get up and fight for its freedom - put Putin out of power. Or be a vassal of China. I can't wait to see Navalny in power. Unthinkable? Well, remember Mandela.
Winter has come.
The only issue I find with your comment is the expectation that there will be mass unrest or protests in Russia. Somehow I don't see this. People in ex-soviet countries are sadly used to accepting the status quo and trying to make the best out of it.
I do hope I'm wrong, though.