Why Russia cut gas from Poland and Bulgaria and what the consequences are | Ukraine and Russia

Russia has announced that it will cut gas shipments to two European Union countries: Poland and Bulgaria.

Russia thus loses two important customers for its gas and the revenue generated by these contracts, but it sends a strong message to the world: that it intends to defend itself with all available weapons against international sanctions.

Hydrocarbon exports are Russia’s most powerful tool in this regard.

“Gazprom’s (Russian state-owned gas) announcement that it will unilaterally suspend gas deliveries to customers in Europe is yet another attempt by Russia to use gas as a blackmailing instrument,” said European Commission President Ursula von der Leyen. , in note.

1. Why did these countries have their supply cut off?

Both nations’ refusal to pay Gazprom in rubles rather than dollars or euros has put them in the crosshairs of the Kremlin, which will turn off the taps on the pipelines carrying its fuel.

Russia changed the payment method for its customers after the economic sanctions imposed by Europe.

Since April 1, European companies are required to open a local currency account with Gazprombank.

Payments in rubles would benefit the Russian economy and improve the value of its currency.

Experts believe that with this measure, Moscow is trying to stop the devaluation of the Russian currency, which has lost about 40% of its value against the dollar since the beginning of the year.

“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, which makes the ruble the Bitcoin of the currency world (although obviously the ruble is less volatile and has an intrinsic value),” he replies.

But EU member states claim the move is a “serious breach of contract”.

On Tuesday (26), Poland, which during the war received more than a million Ukrainian refugees, announced sanctions against large Russian companies and against 50 oligarchs whose assets in the country will be frozen.

According to Bloomberg, some European companies have already paid for Russia’s new system, although the names of the companies have not been released.

Nathan Piper, Investec’s head of oil and gas research, told the BBC that the interruption of supplies to Poland and Bulgaria was the “beginning of Russian economic pressure on Europe” and a move that could “escalate” with other countries in the HUH.

Russian company Gazprom announces gas suspension for Poland

Russian company Gazprom announces gas suspension for Poland

2. Is the European plan to reduce dependence on Russian gas viable?

Russia currently supplies Europe with between 35% and 40% of its gas needs.

Long before the war in Ukraine, several European countries began to consider how to reduce their energy dependence on Moscow.

The first country to achieve 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, the search for viable alternatives to Russian gas has become a priority for Europe, which has launched the joint “REPowerEU” plan.

The aim is to reduce European imports of Russian gas by two-thirds next year.

“The war in Ukraine highlighted the urgent need for Europe to diversify its gas sources, as well as the long-term goal of transitioning 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.

At the end of March, the EU signed a major agreement with the US on liquefied natural gas (LNG) under which the US will supply Europe, by the end of the year, with a volume of natural gas equivalent to approximately 10% of what it receives from Russia.

“The problem is that the US cannot supply such a huge demand, and Europe is competing with other countries for imported LNG shipments,” Schroders experts say of rising needs from India and China.

“Another obstacle is that LNG, as the name implies, is liquid and to use it you have to turn it back into gas. This is a process called regasification, and Europe has little capacity for LNG regasification.”

For John Kemp, a market analyst at Reuters, “cutting off gas supplies could shake energy markets and further increase gas prices and household and business bills, when the cost of living is already soaring.”

Gazprom plant in the Sverdlovsk region, Russia — Photo: Disclosure

3. What global consequences will Russia’s decision have?

“Cutting off gas supplies has less of an impact on Europe during the spring, and Poland says it has sufficient reserves. However, markets are likely to see this as the start of a general militarization of energy,” Donovan explained in a market commentary. .

However, if 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 expected to start operating next October.

Even so, gas prices in Europe after Moscow’s announcement soared by around 20%.

Higher energy prices stemming from the Russian-Ukrainian war mean the likelihood of a significant slowdown or recession is greater, particularly in Europe.

“In low-income countries in Asia, Africa and Latin America, rising food and fuel costs will further 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 begun to weigh on industrial commodity and energy prices,” he added.

About Abhishek Pratap

Food maven. Unapologetic travel fanatic. MCU's fan. Infuriatingly humble creator. Award-winning pop culture ninja.

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