Russia loosens rules for fossil fuel payments by foreign countries to bypass US sanctions

Russia has eased its payment requirements for foreign buyers of its fossil fuels, allowing payments through banks other than Gazprombank.

The move to ease payments, announced Thursday (December 5) in an order by President Vladimir Putin, seeks to mitigate the financial impact of new US sanctions designed to curb Moscow’s revenue streams amid the war.

According to the US Treasury Department, Gazprombank, a private lender, has been a key conduit for European payments for Russian oil and gas since 2022, when Moscow mandated payments in rubles to bypass limitations on transactions in dollars and euros.

However, the US Treasury’s sanctions now aim to restrict the bank’s ability to facilitate such payments, prompting the Kremlin to allow “other ways” of settling transactions between Russian suppliers and foreign buyers.

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A Shift Amid Sanctions Pressure

The loosening of payment rules comes as Russia grapples with economic challenges stemming from the sanctions.

The Central Bank of Russia suspended currency trading last week after the ruble experienced a sharp decline, partly attributed to the blacklisting of Gazprombank.

“Gazprombank was the key financial channel for oil and gas payments with Europe,” said Maria Shagina, a sanctions expert at the International Institute for Strategic Studies. “Blacklisting the bank has already caused the Russian ruble to tumble and it will affect gas payments with Hungary and Slovakia.”

Hungary, which receives around two-thirds of its natural gas supplies from Russia, has sought a U.S. exemption to continue using Gazprombank for its transactions.

Unlike several European countries, including Germany and Poland, that have reduced or halted Russian gas imports, Hungary and Slovakia remain bound by long-term contracts with Gazprom.

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Potential Workarounds and Risks

While the Kremlin’s new payment mechanism provides a temporary workaround, Shagina warned that alternative financial institutions facilitating these transactions could also become targets of Western sanctions.

The move underscores the ongoing struggle between Moscow and Western nations to manage energy trade amid escalating geopolitical tensions.

As Russia continues to rely on energy exports to fund its military operations, the latest sanctions are likely to intensify efforts to cut off cash flows to Moscow, raising further uncertainty in global energy markets