European natural gas prices spiked on Wednesday after Russian gas giant Gazprom announced it was cutting off supplies to Poland and Bulgaria in a significant escalation of economic hostilities from Russia.
The Kremlin’s move to cut gas supplies raised the prospect that other European nations could be shut off.
Russian state-owned energy giant Gazprom said it had “fully halted” supplies due to the two countries’ “failure to pay in roubles.” Russian President Vladimir Putin declared last month that buyers of gas must pay in roubles or face being cut off.
Ole R. Hvalbye, a commodities analyst at SEB, said: “As most other European nations have already said they will not pay for gas in rubles, this supply halt could result in physical and psychological repercussions leading the continent to brace itself for further Russian curtailments.”
Which European countries rely on Russian gas?
The EU imports 41% of its natural gas supplies from Russia. Germany received around a fifth of all Russian gas coming into the EU, with Italy, Turkey, France and Poland making up the rest of the top five destinations for Russian gas in Europe.
Smaller nations such as Malta, Luxembourg and Cyprus are the most dependant on oil and gas imports for their energy security.
European Commission President Ursula von der Leyen said the move was “another attempt by Russia to blackmail us with gas.”
“We are prepared for this scenario,” she wrote on Twitter. “We are mapping out our coordinated EU response.”
In March, the EU announced a plan to wean itself off Russian oil and gas by 2030. As part of the plan, the bloc pledged to reduce its demand for Russian gas by two thirds by the end of this year.
European natural gas prices jumped by as much as a fifth on Wednesday after the Gazprom announcement, before settling back to a gain of around 8% on the day.
How much Russian gas does the UK import?
The UK imports less than 5% of its gas from Russia but shortages elsewhere are likely to drive up wholesale price on the international market, inadvertedly driving up UK energy bills.
Contracts to buy wholesale gas to supply the UK market in July were up 15% to 218p per therm by early afternoon on Wednesday. That is less than half the record high of 500p per therm hit last month.
Kremlin spokesman Dmitry Peskov told reporters: “Russia was and remains a reliable supplier of energy resources to its consumers and remains committed to its contractual obligations.
“When the payment deadlines approach, if some consumers decline to pay under the new system, then the president’s decree of course will be applied,” Peskov said, per Reuters.
Walid Koudmani, chief market analyst at XTB, said: “So far, Russia has halted supplies to relatively small European countries, probably with the intention of sending a message to bigger countries, like Germany and France.
“While the sudden interruption of Russian gas exports to Europe will have significant repercussions for the European economy, it will also be a blow to Russia as the country cannot replace exports to the EU with exports to other customers due to inadequate infrastructure. As the situation benefits no one, the question is who will give in first.”
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