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European gas prices have risen by more than 20% as Russia uses its vast energy resources as a weapon against Ukraine’s European allies.
Moscow is following through on a threat to cut off gas supplies to countries that refuse President Vladimir Putin’s new demand for payment in rubles. The question now is which countries will be targeted next, as the speaker of the Duma has called for other “unfriendly” states to be cut off as well.
Russia’s Gazprom PJSC said it has halted gas supplies to Poland and Bulgaria and will continue to do so until the two countries agree to pay for the fuel in rubles, as demanded by Moscow.
“We should do the same with other countries that are hostile to us,” Vyacheslav Volodin wrote on Telegram.
In principle, the European Union has rejected paying in rubles, claiming that it violates sanctions and strengthens Russia’s hand. But, as payment deadlines approach, governments across Europe must decide whether to stick to their guns and risk energy rationing, or to cave in to Putin’s demands.
There has been no official reaction from major European capitals, though European Commission President Ursula von der Leyen has stated that the EU’s gas coordination group will meet on Wednesday to plan a coordinated response to Russia’s “blackmail.”
Last week, the EU appeared to hint at a possible compromise solution that would allow the gas to continue flowing. However, the move against bloc members Poland and Bulgaria is likely to make a solution more difficult to achieve. Germany is heavily reliant on Russian gas and has threatened to ration fuel if supplies are cut off.
Putin’s gambit also removes the option of sanctioning Russian gas from the EU’s potential toolkit. On Wednesday, European ambassadors will meet, and options for an oil ban are expected to be discussed.
Putin stated that switching to rubles would help protect Russia’s massive gas revenues from EU sanctions or seizure.
The move also appeared to be aimed at ensuring that Gazprombank, one of the few large state banks spared the harshest sanctions, would be largely unaffected.
Putin has also repeatedly emphasised the economic and political costs of higher energy prices in Europe, implying that the Kremlin believes western governments will be unable to withstand the domestic pressure of a cutoff for as long as Moscow can.
The first ruble payments are due in late April and early May, though individual payment schedules for companies have not been disclosed. The deadline for Poland’s main gas company PGNiG fell on Friday, according to Polish news outlet Onet.pl, and Gazprom said on Tuesday that payment was due immediately.
Other companies have more time, and European governments and executives are still figuring out how to respond in many cases. Last week, the EU suggested that companies continue to pay in euros and seek exemptions from Moscow from the new decree.
This ruling requires businesses to open two accounts with Gazprombank, one in foreign currency and one in rubles. The foreign currency payments would be converted into rubles by the Russian bank before being transferred to Gazprom PJSC, the state-owned gas company.
Dutch benchmark futures rose as much as 24% to 127.50 euros per megawatt-hour, the highest level since April 1. At 9 a.m. in London, they were trading 9% higher.
This is the first cut-off to Europe since gas price disputes between Russia and Ukraine disrupted supplies to European nations in 2006 and 2009.
The second disruption, in the freezing winter of 2009, lasted nearly two weeks and halted all gas transit to the EU via Ukraine, causing a supply scramble. Slovakia and other Balkan countries were forced to ration gas, close factories, and reduce power supplies.
Poland has stated that it has enough gas in storage and that consumers will not be affected. Energy Minister Alexander Nikolov told reporters in Sofia that Bulgaria has secured supplies for “at least a month.”