Europe appears to be on the brink of an energy crisis that could further drive up household bills after Russia halted gas supplies to two EU countries and threatened others, in a move condemned by European leaders as blackmail.
The immediate consequence of Gazprom’s decision to stop supply to Poland and Bulgaria while warning other nations opposed to Russia’s war in Ukraine that they could soon be hit was a 20% rise in the wholesale gas price.
The move, described by Poland’s prime minister, Mateusz Morawiecki, as a “direct attack” on his country, was justified by the Kremlin as a response to a failure of the two countries to comply with demands for payments to be made in roubles.
It has led, however, to a dangerous standoff as Ursula von der Leyen, the president of the European Commission, said any EU country giving in to Russia by paying for gas in roubles would be in breach of the bloc’s sanctions regime, with which the UK and others have acted in lockstep.
“Gazprom’s announcement that it is unilaterally stopping gas delivery to certain EU member states is another provocation from the Kremlin,” Von der Leyen said. “But it comes as no surprise that the Kremlin uses fossil fuels to try to blackmail us.”
While the initial rise on the wholesale market pared down to 8% later on Wednesday, the price of gas remains nearly seven times higher than a year ago, and experts warned of potential further pain for consumers should the supply crisis escalate.
Britain has reduced the supply of gas from Russian gas fields to below 5%, but the privatisation of UK supplies in the North Sea ties consumers to international energy markets, leaving the UK exposed to rising prices.
Craig Erlam, a senior market analyst for the UK and Europe at the foreign exchange company OANDA, said: “This may be a warning sign to others in the hope that they don’t follow suit, but if they do, the standoff could play havoc with energy prices. With the Kremlin putting itself in a position where it must apply the same punishment to all if they don’t comply, Europe may find itself without Russian gas or looking weak.”
In other developments:
In an address in St Petersburg, Vladimir Putin said any countries attempting to interfere in Ukraine or creating “unacceptable strategic threats for us” would be met with a “lightning-fast” response from Moscow. He claimed he had “all the tools for this – ones that no one can brag about … We will use them if needed. And I want everyone to know this. We have already taken all the decisions on this.”
The UN secretary general, António Guterres, arrived in Ukraine committing to evacuate civilians and seek a diplomatic way to end the war, after his controversial meeting with Putin and the Russian foreign minister, Sergei Lavrov, in Moscow on Tuesday.
Serhiy Volyna, the acting commander of the 36th marine brigade in the besieged port city of Mariupol, said hundreds of civilians including children were living in unsanitary conditions and running out of food and water.
The interior ministry of Moldova’s breakaway region of Transnistria issued a statement claiming it had come under attack from Ukraine, raising fears that the country would now be dragged into active conflict.
Despite the risk to Russia’s own economy from the standoff over energy, Putin’s spokesperson, Dmitry Peskov, said on Wednesday that other countries could also lose supply if they followed Poland and Bulgaria in refusing to pay in Russia’s currency.
The EU imports about 40% of its gas from Russia, with Germany the biggest recipient. Putin is seeking payments in roubles in order to bolster the value of the currency, which has slumped to record lows since the imposition of sanctions. In Berlin, officials conceded that the development was a cause of worry.
A spokesperson for the German economic ministry said: “We are seeing with concern that there has been a stop of deliveries to European partner countries. We are coordinating closely within the European Union to consolidate the situation.”
Opposition MPs in Germany called on the government to enact an embargo of Russian gas now in anticipation of further stops. “Russia needs to know: when they hit one of us, we all respond,” tweeted Norbert Röttgen, of the Christian Democratic Union (CDU). “Therefore an oil and gas embargo is now also a question of European solidarity.”
Von der Leyen sought to calm concerns, saying the EU had reached a deal with Joe Biden’s White House for an increased supply of liquefied natural gas from the US this year and in the coming years.
In response to claims from Gazprom on Wednesday that 10 unnamed European companies had already agreed to pay in roubles, Von der Leyen said this would be a breach of the bloc’s sanctions regime.
Hungary’s foreign minister, Péter Szijjártó, said his government had struck a deal to pay into a euro-denominated account with Gazprombank, which in turn would deposit the amount in roubles to Gazprom Export. He claimed that Slovakia had reached the same agreement.
Von der Leyen said she was coordinating with European capitals to maintain a unified position. “This latest aggressive move by Russia is another reminder that we need to work with reliable partners and build our energy independence,” she said. “Today the Kremlin failed once again in this attempt to sow division between Europeans. The era of Russian fossil fuels in Europe will come to an end. Europe is moving forward on energy issues.”
Bulgaria’s energy minister, Alexander Nikolov, said Russia was weaponising its dominant position in gas and oil supply. He said: “It is clear that at the moment the natural gas is being used more as a political and economic weapon in the current war.”
Putin said in March that countries that were “unfriendly” over the war in Ukraine would have to change their method of payment for gas supplies.
By refusing to switch to roubles, European governments were opting to “punish Russia at any cost to the detriment of their own consumers, taxpayers and producers”, a spokesperson for Putin said on Wednesday.
The European Commission has said companies should continue to pay Gazprom in the currency agreed in their contracts, about 97% of which are in euros or dollars.
Russia supplies about 55% of Poland’s annual demand of about 21bn cubic metres of gas, but Poland is far more reliant on coal to heat homes and fuel industry, with gas accounting for only 9% of its overall energy mix.
The Polish gas company PGNiG confirmed that supply had stopped but a spokesperson said its clients were still getting the fuel in line with their needs.
The company said: “Cutting gas supplies is a breach of contract and PGNiG reserves the right to seek compensation and will use all available contractual and legal means to do so.”
In Bulgaria, Russian imports account for more than 90% of the country’s gas needs but the government insisted on Wednesday that no restrictions would be imposed on domestic gas consumption for the moment.
Nikolov said: “As long as I am a minister and responsible for this, Bulgaria will not negotiate under pressure and with its head bowed. Bulgaria does not give in and is not sold at any price.”
Gazprom said it would also stop moving gas through Poland and Bulgaria to others such as Germany if it discovered any withdrawal of volumes from pipelines.
“Bulgaria and Poland are transit states,” Gazprom said. “In the event of unauthorised withdrawal of Russian gas from transit volumes to third countries, supplies for transit will be reduced by this volume.”