- Cristina J Orgaz @cjorgaz
- BBC News World
April 28, 2022
Credit, Getty Images
Russia has announced that it will cut gas supplies to two European Union countries: Poland and Bulgaria.
Russia loses two important customers for its gas and the revenues from these contracts, but sends a strong message to the world: that it intends to fight back against international sanctions with all available weapons.
Hydrocarbon exports are Russia’s most powerful tool in this regard.
“The announcement by Gazprom (the Russian stateowned gas company) that it would unilaterally cut gas supplies to customers in Europe is another attempt by Russia to use gas as a blackmail tool,” said European Commission President Ursula von der Leyen.
Credit, Getty Images
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The ruble, Russia’s currency, has lost around 40% of its value against the dollar since the start of the year.
1. Why were these countries cut off from supplies?
Both nations’ refusal to pay Gazprom in rubles instead of dollars or euros has put them in the crosshairs of the Kremlin, which will turn off the taps on the pipelines that carry its fuel.
Russia has changed the payment method for its customers after economic sanctions imposed by Europe.
Since April 1, European companies have had to open a local currency account with Gazprombank.
Payments in rubles would benefit the Russian economy and improve the value of their currency.
Experts assume that with this measure Moscow is trying to stop the devaluation of the Russian currency, which has lost around 40% of its value against the dollar since the beginning of the year.
Credit, Getty Images
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Since the Russian invasion on February 24, more than a million people have come to Poland from Ukraine.
“Why does Russia want to receive rubles when it can print as many rubles as it wants?” asks Paul Donovan, chief economist at Swiss bank UBS Global Wealth Management.
“Avoiding financial sanctions is easier with the ruble, making the ruble the bitcoin of the currency world (although the ruble is obviously less volatile and has intrinsic value),” he replies.
However, EU member states claim the move is a “gross breach of contract”.
Poland, which took in more than a million Ukrainian refugees during the war, announced on Tuesday (April 26) sanctions against large Russian companies and 50 oligarchs whose assets in the country will be frozen.
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Gas supplies to Poland and Bulgaria are stopped by the Russians
According to Bloomberg, some European companies have already paid for Russia’s new system, although the companies’ names have not been released.
Nathan Piper, head of oil and gas research at Investec, told the BBC the disruption to supplies to Poland and Bulgaria was the “start of Russian economic pressure on Europe” and a move that could “escalate” with other countries in the HUH .
2. Is the European plan to reduce dependence on Russian gas viable?
Russia currently supplies between 35% and 40% of its gas needs to Europe.
Long before the war in Ukraine, several European countries began thinking about how to reduce their energy dependence on Moscow.
The first country to gain full independence was Lithuania. In 2015, almost 100% of the gas supply came from Russian imports.
But the situation has changed dramatically in recent years after the country built an offshore liquefied natural gas (LNG) import terminal in the port city of Klaipeda.
Now finding viable alternatives to Russian gas has become a priority for Europe, which launched the joint “REPowerEU” plan.
The aim is to reduce European imports of Russian gas by twothirds next year.
“The war in Ukraine has highlighted the urgent need for Europe to diversify its gas sources and the longterm goal of switching to clean energy sources,” said Mark Lacey, Alexander Monk and Felix Odey, global analysts at Schroders.
“The European REPowerEU plan is extraordinarily ambitious,” they add.
Credit, Getty Images
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Energy prices soar after pandemic and war in Ukraine
At the end of March, the EU signed a comprehensive liquefied natural gas (LNG) deal with the US, under which by the end of the year the US will supply Europe with a quantity of natural gas equivalent to about 10% of what it receives from Russia.
“The problem is that the US cannot meet such high demand and Europe is competing with other countries for imported LNG supplies,” Schroders experts say of the increasing demand from India and China.
“Another obstacle is that LNG, as the name suggests, is a liquid and you have to turn it back into a gas in order to use it. This is a process called regasification and Europe has little capacity for LNG regasification.”
For John Kemp, a market analyst at Reuters, “when the cost of living is already skyrocketing, the gas disruption could shake energy markets, further increasing gas prices and household and business bills.”
Credit, Reuters
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The Russian stateowned company began demanding payments in rubles for gas supplies
3. What global consequences will Russia’s decision have?
“The gas supply disruption has less of an impact on Europe in the spring, and Poland says it has adequate reserves. However, markets are likely to see this as the beginning of a general militarization of energy,” Donovan explained in a market commentary. .
However, should Russian gas supplies run out, Europe could turn to existing gas exporters such as Qatar, Algeria or Nigeria.
A new pipeline from Norway is also scheduled to go on stream in October next year.
Despite this, gas prices in Europe rose by around 20% after Moscow’s announcement.
Higher energy prices as a result of the RussoUkrainian war mean there is a greater likelihood of a significant slowdown or recession, particularly in Europe.
“In lowincome countries in Asia, Africa and Latin America, rising food and fuel costs will continue to affect spending on durable goods” that are more expensive, such as cars, furniture, refrigerators, stoves, televisions or computers, he believes the market analyst.
“With consumers under pressure in all major economies, the likelihood of a recession, or at least a significant slowdown, in one or more regions is very high and has started to weigh on industrial commodity and energy prices,” he added.
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