27 April 2022 18:26

Economy

Politics

Kremlin’s racket and blackmail: How Russia's gas revenge further isolates Putin

Authors

Olexandr Zakharov , Ksenia Lisna

The Kremlin decided to make a new gas trick by cutting off gas supplies to Poland and Bulgaria on April 27.

As has already reported, this was stated by the officials of Poland and Bulgaria, noting that Gazprom had warned them the day before.

The formal reason was the refusal of European countries to pay for fuel in rubles, because the EU decided to refuse such an offer from Russia, which contradicts existing contracts.

has compiled the reaction of the Western markets and the official responses of the nations to such a move by Moscow, covered by the English-language media.

Revenge for sanctions and skyrocketing prices in Europe

Russia said the switch to gas payments in rubles instead of euros or dollars was a response to Western sanctions against the central bank that had frozen about half of the country's gold and foreign exchange reserves.

Europe depends on the Russian Federation for more than a third of its gas needs. The Financial Times reports that gas prices in Europe soared by 20% after Gazprom had cut off supplies to Poland and Bulgaria.

Futures contracts that monitor the wholesale price of gas in Europe increased to about 117 euros per MWh in early trading. Prices at the auction were almost seven times higher than a year ago.

EU statement and demarche of Hungary and Slovakia

Photo: Getty Images

Ursula von der Leyen, President of the European Commission, accused the Russian Federation of trying to use gas as a "blackmail tool", calling such actions unjustified and unacceptable and calling Russia an unreliable gas supplier.

At the same time, the EC President assured that the European Union had been ready for this scenario, working to ensure alternative supplies, and would continue this work.

Photo: Wikipedia

Meanwhile, although the EU decided to abandon the settlements with the Russian Federation in rubles, Hungary has concluded a corresponding agreement, Foreign Minister Peter Szijjártó said. Slovakia concluded the same agreement, he assured.

Poland: We will not be cowed by by Russia

Photo: Getty Images

Poland also accused Moscow of using natural gas for blackmail, according to the Associated Press.

Polish Prime Minister Mateusz Morawiecki said that the suspension of the supply was revenge for Warsaw's new sanctions against the Russian Federation — they were imposed against 50 Russian oligarchs and companies, including Gazprom.

The politician promised that Poland would not be cowed by the cutoff. He also said the country was safe from an energy crisis: Warsaw has been working on alternative sources for years, and already at the end of 2022 it was expected to completely abandon bloody gas.

Russian gas made up 45% of Poland’s overall gas usage. But Poland is much more dependent on coal for heating buildings and the fuel industry, with gas only making up around 7% of the country’s overall energy mix..

Several years ago, Warsaw opened its first terminal for liquefied natural gas, or LNG, in Swinoujscie, on the Baltic Sea coast. A pipeline from Norway is to due to start operating this year.

Bulgaria: We will not succumb to racket

Photo: Getty Images

For his part, Bulgarian Prime Minister Kiril Petkov also called Gazprom's move a gross violation of their contract and "blackmail".

"We will not succumb to such a racket," he assured.

In Bulgaria, the main consumers of gas are district heating companies, and only about 120,000 households rely on gas.

Bulgaria’s energy minister Alexander Nikolov said his country can meet the needs of users for at least one month.

"Alternative supplies are available, and Bulgaria hopes that alternative routes and supplies will also be secured at the EU level."

The New York Times, for its part, reports that Greece will help Bulgaria.

Photo: Getty Images

Greek Prime Minister Kyriakos Mitsotakis assured his Bulgarian counterpart Kiril Petkov that next month the country would make several deliveries of liquefied natural gas to the country.

Greece is looking for alternatives to Russian gas

Photo: Wikipedia

Russia’s move raised wider concerns that other Western countries could be targeted next as they increase their support for Ukraine. EU officials held emergency talks on 27 April.

The Greek government will also hold its own emergency meeting in Athens. Greece’s next scheduled payment to Gazprom is due on May 25.

Greece is ramping up its liquefied natural gas storage capacity, and has contingency plans to switch several industry sectors from gas to diesel as an emergency energy source.

It has also reversed a program to reduce domestic coal production over the next two years.

Alternatives for bloody regime

Russia can in theory sell its oil to India and China, because oil primarily moves by ship.

But the pipeline network that carries gas from Russia’s huge deposits in northwestern Siberia’s Yamal Peninsula does not connect with pipelines that run to China. And the Kremlin only has limited facilities to export super chilled liquefied gas by ship.

Fatih Birol, the head of the Paris-based International Energy Agency, described Russia’s move as a weaponization of energy supplies.

Photo: Wikipedia

"It makes it clearer than ever that Europe needs to move quickly to reduce its reliance on Russian energy," he stressed.

The Kremlin's behavior will hit him hard enough: The EU pays Russia about $400 million a day for gas, and Putin will lose this money in case of a complete cutoff.

Prices in Europe tol hit UK

Photo: Wikipedia

The BBC explains how Gazprom's decision could impact consumers in the UK.

Russia only provides about 5% of the UK's gas supplies, but that did not stop gas prices rising following Moscow's invasion of Ukraine.

They depend on wholesale markets, which can go down as well as up. A reduction in energy supplies has a global impact on prices, including in London.

The UK also has limited gas storage facilities, which means it is more affected by short-term price fluctuations in the wholesale market.

Electricity bills and pariah Russia

If Russian gas supplies to the wider EU were cut off, there would be increased competition for alternative supplies.

A third of the UK's gas comes through pipelines from Norway — Vaar Energi company said it's currently directing as much gas as it can to the European continent, where prices are higher than they are in the UK.

Currently energy bills in the UK are predicted to reach as high as £3,000 (about $3,700) a year.

Photo: Getty Images

At the same time, British Deputy Prime Minister Dominic Raab has said that Russia's decision is only isolating it further on the international stage.

"It will have a very damaging effect on Russia as well because it is becoming further and further, more and more, not just a political pariah, but an economic pariah."

Context.

Earlier we reported that Ukraine increased the daily possibility of gas imports at the western border to 54 million cubic meters.
In addition, on February 18, Europe announced that it intends to make the United States its main gas supplier.