European Commission President Ursula von der Leyen said that this latest aggressive move by Russia is another reminder that we must work with reliable partners and build our energy independence.
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The European Union is vying to find alternative suppliers of natural gas after Russia’s Gazprom cut off flows to two EU countries, raising fears that others will soon follow.
The development comes as Brussels fears nations and energy companies are circumventing harsh international sanctions against Russia imposed on Moscow as a result of its unprovoked invasion of Ukraine.
Gazprom, Russia’s state-owned energy company, cut off natural gas supplies to Poland and Bulgaria earlier this week after both nations refused to pay for the goods in rubles, something President Vladimir Putin demanded amid growing Western support for Ukraine.
The decision puts additional pressure on the EU, which imports about 40% of all its natural gas from Moscow, to find alternative solutions.
“This contributes to opening the eyes of those who still thought that Russia would not use gas as a lever,” an EU official told CNBC, who declined to be named due to the sensitive nature of the situation.
European Commission President Ursula von der Leyen went further on Wednesday, accusing the Kremlin of blackmailing the bloc.
Kremlin spokesman Dmitry Peskov dismissed allegations that Moscow was using its gas supplies to blackmail European nations Poland and Bulgaria, saying Russia was a reliable energy supplier. He also declined to say how many countries have agreed to switch to paying for gas in rubles, Reuters reported.
But pressure could escalate if Gazprom decides to cut supplies to other EU countries. The Kremlin warned on Wednesday that other countries would face the same problem if they did not pay in rubles, something the commission, the EU’s executive branch, opposes, as it would violate current sanctions.
“Russia’s move to cut off gas flows to Poland has followed Berlin’s decision – under strong political pressure – to supply Ukraine with weapons for air defense. The implied threat is that Russia will cut off gas supplies to Germany if Berlin continues to supply weapons. for Ukraine “, analysts at Gavekal, a financial research firm, said in a note on Thursday. “The economic effects would be catastrophic,” they added.
Payments in rubles
As such, the commission is working to make it less dependent on Russian gas. Earlier this year, it signed an agreement with the United States that would provide the EU with 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 will have to decide how to continue paying for Russian natural gas without violating the bloc’s own rules. Russia issued a decree in late March that European companies will continue to pay for gas in euros to Gazprombank, an institution that is not part of European sanctions, and then the money will be converted into rubles into a secondary account opened by them. energy companies.
The EU decided to continue paying for Russian gas in dollars and euros to Gazprombank, and then the institution converted it into rubles when it sent the money to Gazprom. This is after the Russian gas company decided to reduce supplies to Poland and Bulgaria, as it does not pay for the goods in rubles.
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But this is where the committee has concerns. The institution wants to make sure that once European companies make the first payment in euros, then the contractual obligation is actually fulfilled.
The Commission also fears that European companies with a second account with Gazprombank and Russia’s Central Bank will come into contact with the money, potentially violating European sanctions.
“EU officials and European authorities continue to warn companies that making ruble payments to Gazprom will violate sanctions,” analysts at consulting firm Eurasia Group said in a note Thursday.
The decision that is on the table is Gazprombank to make the conversion into rubles and pay this amount to the account of Gazprom.
Hungary, for example, said on Thursday that it would allow their gas payments to be converted from euros and dollars into rubles, as Putin requested. Media reports say nine other countries also pay for their gas in euros to Gazprombank, which then converts them.
German Economy Minister Robert Habeck said this could be compatible with the sanctions. In any case, the issue further obscures Europe’s deteriorating economic prospects.
Speaking to CNBC on Thursday, Italy’s central bank governor Ignacio Visco said that if Russia cut off all gas supplies, then his country would be in recession later this year and next, albeit modestly.
Earlier this week, UBS CEO Ralph Hammers 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 a lot of it is[s] “industries depend on gas as their main commodity to produce their product … so this could have a second-tier effect, especially in the European economy,” he told CNBC’s Jeff Cutmore.
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