In a stunning turn of events, Russia’s Gazprom has cut off natural gas supplies to Poland and Bulgaria. This marks a sharp rise in tensions between the two countries, especially in light of the war in Ukraine. The main reason for the shutdown is that the gas companies refused to pay in rubles. Until they are paid in rubles, the shutdown will continue. What’s worse, Russia may be threatening more economic sanctions.
Gazprom cuts off gas supplies to Poland and Bulgaria
The European Union depends on Russian gas to heat their homes and cook their meals, making a cut to those supplies a particularly dangerous situation. Experts fear that the EU is becoming too reliant on Russian gas exports and are warning that this dependency could be weaponized. The decision by Gazprom to cut off gas supplies to Poland and Bulgaria comes at a time when warmer weather is depressing demand for natural gas in Europe.
Earlier this week, Gazprom suspended gas supplies to Poland and Bulgaria because they refused to pay in Russian rubles. President Vladimir Putin had earlier demanded that Europe pay in rubles instead of euros. Since the EU is heavily dependent on Russian gas, the decision to cut off gas supplies to Poland and Bulgaria will be viewed as a means of ramping up economic pressure on the European Union and deterring further support for Ukraine.
Earlier this week, Gazprom informed Bulgaria’s state gas company Bulgargaz that it would stop supplying Bulgaria with gas unless they agreed to pay in rubles. The Bulgarian energy ministry said that it would take steps to seek alternative gas supplies from its neighbors. Bulgaria has yet to impose any restrictions on its gas consumption. While the two EU member states have long held an anti-Russia stance, they have never been averse to Gazprom.
The move was a direct response to the sanctions that the West has imposed on Russia for its involvement in the Ukraine conflict. Russia and the EU have a long-standing bilateral trade relationship and Gazprom has a strong relationship with both nations. As such, it is unlikely that the situation will change anytime soon. Further, Gazprom has been warned not to breach contracts by siphoning gas to other European customers.
This latest move by Gazprom follows the first cut offs of gas supplies in Europe since the decision was announced by Russian President Vladimir Putin last month. The company also forced foreign buyers to pay in roubles instead of dollars. The move could hurt Europe’s economy and lead to rationing. Earlier, Gazprom had warned both countries that it would suspend gas supplies to the two countries, but that there is no word yet on whether Bulgarian customers will receive any.
Despite the crisis, Polish officials struck a confident tone on Tuesday night. In a news conference in Warsaw, Poland’s climate minister played down the impact of Russia’s decision on Poland. “We are prepared to fully cut off our gas supplies from Russia,” he said. Andriy Yermak, president of the country’s parliament, said that Russia’s goal was to break up the centre and east of Europe and deliver a blow to democracy.
Russia’s Gazprom is under sanctions for the invasion of Ukraine
On Thursday, the U.S. and European Union implemented economic sanctions against Russia for its invasion of Ukraine. The sanctions are aimed at hurting the Russian economy and financial system, and pressuring Russian President Vladimir Putin to reconsider his invasion. Interestingly, these sanctions do not target Russia’s oil exports, which contributed 36% of its national budget last year. Despite this, there is still no end in sight to the Russian invasion of Ukraine.
The energy industry is already feeling the impact of President Vladimir Putin’s decision to invade Ukraine, as European countries are diversifying away from Russian oil and natural gas. Germany, for example, has shelved plans to build a new pipeline to receive Russian gas and has announced plans to expand its nuclear power plants. BP, Shell, and ExxonMobil have also withdrawn from multibillion-dollar energy projects in Russia.
Germany’s Finance Minister has rejected a EU-wide ban on Russian gas imports. However, as the number of civilian deaths in Ukraine rises, increasing pressure on EU member states to impose sanctions on Russia’s energy sector has increased. Germany’s Gazprom Germania includes the trading and storage firm Wingas, and operates six billion cubic meters of underground caverns.
Meanwhile, the Biden administration has announced sanctions against Russia’s main development and military banks. They also imposed comprehensive curbs on Russia’s sovereign debt. These sanctions are intended to cut Russia off from Western finance. One such example is the Nord Stream 2 natural gas pipeline, which is under sanctions. But despite this, the project has not been completed and Germany has mothballed it.
In response to these international pressures, Russia’s Security Council has taken action. President Vladimir V. Putin’s speech on the Ukrainian invasion and the war in eastern Ukraine, “will only encourage more Russian aggression.” Moreover, the U.S. and UK have imposed sanctions on Russia’s leaders in the U.N. Human Rights Council, which requires a two-thirds vote by the 193-member General Assembly.
The Biden administration has also cut off several Russian banks from the SWIFT system – a global financial messaging system – and has imposed new restrictions on the country’s central bank, Sberbank. These restrictions will prevent Russia from using its huge international reserves to undermine sanctions. Also, the US Treasury Department has imposed sanctions against VTB Bank, another major lender in Russia. These sanctions will force Russia to look elsewhere for funding.
The British government has also imposed economic sanctions on Russia’s top oligarchs. Affluent Russian oligarchs such as Vladimir Putin’s favourite, Igor Shuvalov, have been targeted by these sanctions. This is not to mention the oligarchs who own the SMP Group. There are many billionaire Russians who own SMP Group, a major construction firm for gas pipelines in Russia.
Russia’s Gazprom refuses to pay in rubles
As the price of natural gas spirals upwards, many gas importers have begun asking if they can pay Gazprom in rubles. In January, the Russian energy giant froze much of its foreign currency reserves in response to the Ukraine crisis. The situation has been exacerbated by Western countries’ recent decisions to freeze most of the country’s foreign reserves. Gazprom, which operates in many European countries, must sell some of its hard currency reserves to the central bank in order to meet international obligations.
While the EU is in the midst of a crisis regarding the supply of gas, it is in the best interest of the European Union to resolve the dispute with Russia, the latest development is further complicating matters. The EU is the largest buyer of gas in the world and depends on Russia for 40% of its natural gas supply. However, Hungary’s authoritarian leader said that he would pay Gazprom in rubles even if this means paying more. While the move may seem to be a small one, it could potentially lead to lengthy arbitration.
While it is unlikely that Russia will demand payment in rubles right now, the move is a significant one for the country. While it would prevent financial sanctions and help prop up the ruble’s value, the move would not immediately impact the European Union’s gas imports. The EU imports roughly 40 percent of its annual gas needs from Russia, so it’s essential that it be paid in rubles.
Despite the EU’s objections to paying in rubles, the Russian energy giant is still refusing to sell gas to EU and NATO member nations. Bulgaria and Poland have suspended gas imports and are in limbo. However, the move is also causing a disruption in the EU’s natural gas supply. If it continues, it could end up affecting the entire European Union.
The European Union has introduced new sanctions against Russia over the invasion of Ukraine. These sanctions include funds related to Gazprom dividends and other income from EuroPolGaz. The companies own EuroPolGaz, which controls the 684-km (420-mile) Yamal-Europe gas pipeline, which traditionally transports Russian gas to Europe. The situation has made Russian gas flows into Europe erratic, but they remain below zero until late 2021.
Poland’s main gas supplier PGNiG has been told by Gazprom to stop supplies to the country if it fails to pay in rubles. The move was prompted by Poland’s refusal to accept the Russian demand that it pay for gas in rubles. The gas giant said it was prepared for different scenarios and is looking for alternative suppliers. Poland receives 9 billion cubic meters of Russian gas each year.
