European Commission President Ursula von der Leyen said this latest aggressive move by Russia is another reminder that we need to work with reliable partners and build our energy independence.
Thierry Monasse | News from Getty Images | Getty Images
The European Union is scrambling for alternative natural gas suppliers after Russia’s Gazprom halted supplies to two EU nations, sparking fears others will soon follow.
The developments come as Brussels fears that nations and energy companies will circumvent tough international sanctions against Russia – imposed on Moscow in the wake of its unprovoked invasion of Ukraine.
Gazprom, Russia’s state-owned energy company, earlier this week halted natural gas supplies to Poland and Bulgaria after both nations refused to pay for the commodity in rubles – something President Vladimir Putin had called for amid growing Western support for Ukraine.
The decision puts further pressure on the EU, which imports around 40% of all its natural gas from Moscow, to find alternative solutions.
“It helps open the eyes of those who still thought Russia wouldn’t use gas as a bargaining chip,” an EU official, who declined to be named due to the delicate nature of the situation, told CNBC of Russia’s latest move.
EU Commission President Ursula von der Leyen went further on Wednesday, accusing the Kremlin of blackmailing the bloc.
Kremlin spokesman Dmitry Peskov has dismissed allegations that Moscow is using its gas reserves to blackmail European nations of Poland and Bulgaria and said Russia is a reliable energy supplier. He also refused to say how many countries had agreed to switch to paying for gas in rubles, Reuters reported.
However, the pressure could escalate if Gazprom decides to cut supplies to other EU nations. The Kremlin warned on Wednesday that other countries will face the same problem if they don’t pay in rubles — something the Commission, the EU’s executive branch, opposes as it would breach existing sanctions.
“Russia’s move to halt gas supplies to Poland followed Berlin’s decision – under heavy political pressure – to supply Ukraine with air defense weapons. The tacit threat is that if Berlin continues to supply arms to Ukraine, Russia will cut off Germany’s gas supplies,” analysts at Gavekal, a financial research firm, said in a note on Thursday. “The economic impact would be catastrophic,” they added.
Payments in rubles
As such, the Commission has worked to become less dependent on Russian gas. It signed an agreement with the United States earlier this year under which the EU will receive at least 15 billion cubic meters of liquefied natural gas this year.
“We are working hand in hand with our member states to secure alternative gas supplies from other partners,” von der Leyen said on Wednesday.
Meanwhile, Brussels must decide how to continue paying for Russian natural gas without violating the bloc’s own rules. Russia issued a decree in late March according to which European companies will continue to pay gas in euros to Gazprombank – an institution that is not part of European sanctions – and this money will then be exchanged for rubles in a secondary account opened by these energy companies.
The EU has decided to continue paying Russian gas to Gazprombank in dollars and euros, and the institution then converts it into rubles when sending the money to Gazprom. This came after the Russian gas giant decided to cut supplies to Poland and Bulgaria for not paying for the raw material in rubles.
Bloomberg | Bloomberg | Getty Images
But the Commission has reservations here. The institution wants to ensure that the contractual obligation is actually fulfilled as soon as European companies make the first payment in euros.
The Commission is also wary of European companies holding secondary accounts with Gazprombank and the Central Bank of Russia coming into contact with that money and potentially breaching European sanctions.
“EU and European officials continue to warn companies that paying Gazprom in rubles would violate sanctions,” analysts at consulting firm Eurasia Group said in a statement on Thursday.
The solution that is on the table is that Gazprombank will do the conversion into rubles and deposit this amount into a Gazprom account.
Hungary, for example, said on Thursday that it would allow its gas payments to be switched from euros and dollars to rubles, as requested by Putin. According to media reports, nine other nations also pay their gas in euros to Gazprombank, which then converts it.
Federal Minister of Economics Robert Habeck said this could be compatible with the applicable sanctions. In any case, the matter continues to cloud the deteriorating economic outlook in Europe.
Speaking to CNBC on Thursday, Italy’s central bank governor Ignazio Visco said if Russia cut off all gas supplies, his country would slide into a recession later this year and next, albeit a modest one.
Earlier this week, UBS CEO Ralph Hamers also expressed concern about how changes in natural gas supplies could affect the economy.
“Russian gas is different – a much bigger challenge, and that’s really because of a big part[s] of industries rely on gas as a basic raw material to manufacture their products…so that could be causing the second-order effect specifically in the European economy,” he told CNBC’s Geoff Cutmore.