How Russian Gas Is Paid For — NeilW

At the end of March we finally got the details of how Russia will require foreign buyers of gas to make payment.

The process is relatively straightforward. For EU buyers, contracts will remain in force at the price stated in EUR. The change is the account Gazprom will require payment into at Gazprombank, from one denominated in EUR to one denominated in RUB.

In addition banks making payments on behalf of gas buyers will not be able to pay into Gazprom’s RUB account directly. Instead they will have to open a ‘K’ series account in EUR at Gazprombank and make the EUR payment there. Gazprombank will then act as agent for the gas buyer and place those EUR on the Moscow Exchange for auction in exchange for RUB which will then be placed in a parallel ‘K’ series account denominated in RUB at Gazprombank. Gazprombank will then, again as agent, transfer the RUB from the ‘K’ series account to the RUB account of Gazprom.

Only when Gazprom receives the RUB into its account is the payment considered to have been made under Russian Law.

There we could end the discussion and, in fact, many commentators have done just that. Here, however, we like to look a little deeper into things to see how things work institutionally and answer the questions that have been ignored: where is the RUB on the Moscow exchange actually coming from, and who in their right mind would hold the EUR in Russia right now?

To do that we need to dive into the Moscow Exchange and find out how that works....