SWIFT sanctions against Russia exempt energy payments

LONDON (ICIS)–The latest sanctions package against Russia formally adopted by the European Council on 2 March will not affect payments made for EU imports of Russian energy and raw materials, German and US officials said.

ENERGY EXEMPT

“Energy supplies were specifically excluded in the sanctions package. So they are not sanctioned. In this respect, cash flows that affect these energy supplies are not part of the sanctions package,” a German government spokesperson said at a press conference on 28 February , when the sanctions were first tabled .

“There are ways and means to ensure that gas bills can continue to be paid,” another spokesperson said at the conference.

“Precisely these supplies of raw materials and energy can continue to be paid for,” a third German spokesperson said.

Despite these comments and similar US official comments about these sanctions not encompassing payments for energy imports, a number of major oil and gas companies started writing off their stakes in Russian energy projects.

SANCTIONS

The new sanctions exclude seven Russian banks from the SWIFT system which is widely used in international trade to exchange financial data.

The banks sanctioned include Otkritie, Novikombank, Promsvyazbank, Rossiya Bank, Sovcombank, Vnesheconombank, and VTB Bank.

These sanctions will enter into force on 12 March and will also apply to any legal person, entity or body established in Russia whose proprietary rights are directly or indirectly owned for more than 50% by the above-mentioned banks, according to the council’s press release.

The sanctions also prohibit:

-to invest, participate or otherwise contribute to future projects co-financed by the Russian Direct Investment Fund.

-to sell, supply, transfer or export euro denominated banknotes to Russia or to any natural or legal person, entity or body in Russia, including the government and the Central Bank of Russia, or for use in Russia.

Transactions with the Russian Central Bank are also banned as part of this sanctions package.

PAYMENT ALTERNATIVES

“Maybe Gazprom can use its subsidiaries in the EU to manage the payments. A European customer could pay his bill to Wingas, for example, and they would transfer the money within the corporation,” a German source familiar with the matter told ICIS. “Another possibility would be the help of companies in countries which do not take part in the sanction regime.”

Another source close to the matter also said payments via Wingas might be an option, unless sanctions applied to it.

Wingas is a Gazprom subsidiary in Germany and fully owned by Gazprom.

FLOW HALT FEARS

The ICIS benchmark TTF front-month contract rocketed throughout Wednesday amid growing fears of flows from Russia stopping despite Russian deliveries increasing since the invasion of Ukraine last week.

According to Thierry Bros, energy professor at Paris-based Science Po university, in order to displace all Russian coal and gas, the EU should:

-continue to buy additional non-Russian coal and gas on spot markets

-facilitate a gas-to-coal switch for power generation regardless of CO2 pricing to reduce risks of blackouts and recession

-temporarily freeze the EU ETS system for a few years to avoid extreme high CO2 prices to negatively impact EU consumers

-initiate long-term request to US, Norway and Qatar to boost gas exports (pipe and LNG) from 2026 as in the long term Europe will need to replace the 170bcm from Russia and the 482TWh from coal (equivalent to 96 bcm of gas), or a total of 266bcm of extra non-Russian gas.

-start building new nuclear plants while continuing to invest massively in renewables.