What does Putin’s gas powerplay mean for Europe?
European gas prices spiked by 24% today, hitting their highest level this month and almost seven times that of a year ago, after Russian energy giant Gazprom cut off all gas exports to Poland and Bulgaria.
Kremlin-owned Gazprom, the world’s biggest natural gas company, has warned that the taps to these “unfriendly” countries will remain off until they agree to pay for gas in Russian roubles.
The move, which is an attempt to boost the rouble, is Moscow’s toughest response yet to the crippling sanctions imposed by the West for its invasion of Ukraine.
Poland and Bulgaria have accused Gazprom of breaching its contract, insisting they will pursue legal means to seek compensation. And the EU held energy talks today to decide how to respond and to discuss “continuing to work with international partners to secure alternative flows.”
Moscow has not yet indicated why Poland and Bulgaria have been specifically targeted but it’s not hard to see why.
Russia’s centuries-old rival Poland has been proactive with its military aid for Kyiv, shown willingness to send it fighter jets, and sanctioned numerous Russian companies including Gazprom. Meanwhile, Bulgaria, once one of Moscow’s closest allies, has firmly turned its back on Putin by voting to support EU sanctions against Russia.
Yet they are not the only countries refusing Moscow’s request for gas payment in roubles. Austria – which receives around 80% of its gas from Russia – has done so too, as has Germany, which relies on Moscow for half its gas imports.
In fact, the only EU country which hasn’t refused to pay for its Russian gas in roubles is Hungary.
Warsaw and Sofia are being made examples of – with the Kremlin’s spokesman warning that other “unfriendly” countries could soon suffer the same fate.
How will they both cope?
Anna Moskwa, Poland’s Climate Minister, insists her country will fare just fine without it, and “there will be no shortage of gas in Polish homes.”
On the face of it, Warsaw is heavily dependent on Russian gas. In the first quarter of this year PGNiG, Poland’s state gas company, bought 53% of its gas imports from Gazprom. Yet according to Moskwa, Poland was already planning to stop importing Russian gas by the end of the year, when its long-term supply contract with Gazprom expires.
A new pipeline delivering gas from Norway, known as the “Baltic Pipe”, will also be fully operational by the end of the year and aims to replace all Russian deliveries. In the meantime, Poland’s underground gas storage is almost 80% full.
Bulgaria might be in a stickier position. The Balkan country relies on Gazprom for over 90% of its gas supply. Its government has sealed a deal to receive gas from Azerbaijan but this will depend on a new gas pipeline with Greece becoming operational later this year.
While the Kremlin has settled on just two targets so far, there will be a knock-on effect. The Czech Republic – almost entirely dependent on Russia for gas – will be jumpy, as will Germany, whose government has made its views about the dangers of immediately halting Russian gas very clear.
The UK is in the more fortunate position of relying on Moscow for just 5% of its gas supplies. But the country isn’t completely insulated: increased competition for alternative gas supplies inevitably causes wholesale gas prices everywhere to soar even higher.