Francesco Guarascio, Kate Abnett

BRUSSELS, (Reuters) – The European Commission warned Russian gas buyers that they can violate sanctions if they convert gas payments to roubles. Officials struggled with clarifications about the EU’s position on Moscow’s payments system, which has caused confusion within the bloc.

Gazprom, Russia’s largest gas company (MCX) cut supply to Poland and Bulgaria Wednesday afternoon after the latter refused to pay in roubles for their gas. This was Moscow’s most severe response to the West’s sanctions on the country over its conflict with Ukraine.

This escalation is in response to a Russian president Vladimir Putin’s decree last month that required countries Moscow considers unfriendly to pay gas in Russian roubles as part of a new payment system.

The mechanism requires buyers to place euros and dollars in an account at Gazprombank. Gazprombank will then convert the funds into roubles. Gazprombank can transfer the money in Russian currency to Gazprom.

The European Union’s energy ministers are expected to meet Monday to address the crisis. Member states have been divided about whether or not sanctions should be lifted if Russia uses its mechanism.

At a briefing held on Thursday, a top EU official indicated that the EU would respect sanctions if EU buyers declared their gas purchases as complete once payment in euros has been received and converted to roubles.

European buyers have to open a Gazprombank rouble account. This would allow them to deposit their dollars or euros after the conversion into Russian currency.

Russia would consider the payment complete only after the gas to-roubles conversion is completed. This transaction would also involve Russia’s central banking, which is under EU sanctions.

“What we can’t accept is that companies must open a second bank account. The amount in euros remains in full Russian hands and is subject to the Russian Central Bank. We will only make the payment when the money is converted into roubles.” A senior EU official explained.

This is a clear violation of sanctions.”

Gazprombank opening an account for roubles in its own right may violate EU sanctions. The official did not offer a definitive assessment.

CONFUSION

The clarifications on Thursday were provided in response to a Wednesday request from ambassadors of EU countries for more information on the matter.

Poland and Bulgaria claimed that the Commission’s guidelines were confusing at the meeting, while other countries, including Spain, Denmark and Finland, said the same thing, EU officials stated to Reuters.

Officials stated that there was disagreement among countries over whether sending money to Gazprombank to be exchanged into rubles by a Russian bank would violate sanctions.

According to the Kremlin payments for deliveries made after Putin’s last-month decree were due in May. However, a source who asked anonymity identified May 20 as the “validation” date.

Though some EU gas traders have opened roubles accounts to fund their operations, Commission officials stated that they weren’t notified by any gas buyers.

Gazprombank and Gazprombank have not responded to our requests for comment.

Hungary said that it would pay Euros for Russian gas via Gazprombank. The bank will convert the money into roubles in order to satisfy the new requirement. According to Greece’s energy minister, it also plans to pay Gazprom next week in a manner that does not violate EU sanctions.

Finland claims that EU-level guidance is needed to avoid countries arriving at divergent interpretations for the payment system.

Fortum is a Finnish utility that the state owns 50.76%. On Thursday, Uniper, the German subsidiary of Fortum, announced it would continue paying in euros to Russia’s Gazprom through the new payment system.

However, the minister of European Affairs in Finland said that Uniper should follow German energy policy.

Germany, heavily dependent upon Russian pipeline gas for its energy, warned in March that it might go bankrupt if Russia’s entire supply is cut off.

On Thursday, three sources claimed that Eni, the Italian energy company was still waiting to hear if Russia’s payment scheme violates sanctions.