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Russia Stops Gas Flow To Poland, Bulgaria, Deepening Economic Conflict With Europe

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European officials denounced the move, which threatens the continent’s energy supply, as blackmail by Russia.

Natural-gas prices in Europe rose by 3.1% to €106.42, equivalent to $112.83, a megawatt-hour after earlier leaping more than 20%on Wednesday, as traders weighed increasing risks to already-tight supplies. They remain around half of their peak in March, but well above their levels a year ago, representing a key source of inflationary pressure on Europe’s fragile economies.

Russian President Vladimir Putin demanded last month that countries deemed hostile to Moscow, such as European Union members, pay for Russian gas in rubles. Most European countries have denounced the demand and stuck to their previous method of paying for gas from Russia. Gas contracts are usually denominated in dollars or euros.

Russian energy giant Gazprom PJSC said on Wednesday that it had stopped supplies to Bulgaria and Poland “due to nonpayment in rubles.” Bulgaria and Poland said the move was a breach of contracts. Other large European gas consumers like Germany and Italy haven’t been affected so far.

European officials and analysts see Moscow’s move as a way to exert further pressure on Europe, which, before the war in Ukraine, sourced some 40% of its gas from Russia. With the demand to be paid in rubles, the Kremlin also seeks to bolster its beleaguered currency and force Europe to stay engaged with its domestic banking system, which has otherwise been cut off from much of the world by Western sanctions.

“Gazprom’s announcement is another attempt by Russia to blackmail us with gas,” European Commission President Ursula von der Leyen said.

Analysts at energy consulting firm Rystad said that “Russia has fired the first shot back at the West,” wielding energy as a weapon.

“Poland and Bulgaria together losing access to Russian gas has not had a big impact on the total European market, but a more severe consequence is likely if other large countries or individual buyers are being cut off such as Germany and Italy,” Rystad wrote in a note to clients. “This action by Russia should be viewed with the caution of a precedent.”

“Russia is trying to shatter the unity of our allies,” Ukrainian President Volodymyr Zelensky’s chief of staff, Andriy Yermak, said on Telegram.

In a possible foreshadowing of how the gas situation could escalate, Russian State Duma Chairman Vyacheslav Volodin said Wednesday that Moscow should expand the measures against other unfriendly countries.

Following Moscow’s invasion of Ukraine, Berlin has been racing to reduce its dependency on Russian gas. The government of Chancellor Olaf Scholz is trying to limit this reliance by accelerating investments in renewable energy and building liquefied natural-gas terminals but has so far rejected an outright Russian-gas embargo, amid fears of the economic consequences.

Germany has bet that Russia won’t cut it off. Russia has few alternatives to sell the bulk of its gas elsewhere, with most of its pipeline capacity oriented to Europe. Pipelines to China already run at capacity, while new ones will take years to build.

EU member states are also discussing an oil embargo on Russia or other measures to slash its revenues from selling oil to the bloc as part of a sixth round of sanctions since the invasion of Ukraine. The European Commission is likely to make a proposal next week, although several member states, including Hungary and Germany, have so far resisted an immediate oil-purchase ban.

“The question is who is more resilient?…This is part of the war, this is how the war affects us,” said Latvian Prime Minister Krišjānis Kariņš. He believes Russia’s move was likely meant to slow or stop an EU oil embargo. “The Ukrainians are paying with their lives, we are paying with higher energy prices.”

In the event of a full shutdown of Russian gas flows, European countries such as Germany would need to ration energy and close factories, according to analysts. The country’s leading economic think tank said in a group report earlier in April that Germany would enter a sharp recession if Russian natural-gas deliveries are cut off.

Earlier in April, the German government temporarily took control of a local Gazprom unit in a bid to make sure gas would keep flowing.

A spokesman for Germany’s Federal Network Agency said that the security of supply in Germany is currently guaranteed. “We are monitoring the situation very closely,” the spokesman said.

Russia’s gas stoppage will have limited effect on Poland, which was already set to become independent of Russian gas by the end of this year. Still, Poland was due to take at least a further 5 billion cubic meters in gas from Gazprom, which likely won’t be delivered and will need to be replaced this summer, said James Huckstepp, head of EMEA gas analytics at S&P Global Commodity Insights. Most of the gas will get pumped across the border from Germany, he added.

It is a much bigger deal for Bulgaria, which gets more than three quarters of its gas from Russia and has few immediate options to easily replace it. A new pipeline to Greece through which Bulgaria plans to import gas from Azerbaijan has faced long delays and has yet to be completed, said Tom Marzec-Manser, head of gas analytics at ICIS. Using complex swap arrangements, Bulgaria could replace some of its Russian gas through an existing pipe to Greece, he added.

Bulgaria’s Energy Minister Alexander Nikolov said on Wednesday that the country had enough gas in storage for the coming month and was looking for alternative deliveries.

“Because all trade and legal obligations are being observed, it is clear that at the moment the natural gas is being used more as a political and economic weapon in the current war,” Mr. Nikolov said.

Bulgaria’s ruling coalition has been split on the issue of sending weapons to Ukraine, and analysts say that the halt of gas supplies could be an effort by Moscow to pressure Sofia into not sending military support. A delegation led by Bulgaria’s Prime Minister Kiril Petkov is headed to Kyiv this week.

Moscow has long used gas as a way to achieve its geopolitical aims. Last fall, Russia withheld deliveries to Europe from the short-term gas spot market despite a global shortage. It also kept the level of storage sites it controlled across the continent at low levels, helping to push prices to record highs. European lawmakers called for a probe into Russia’s manipulation of the market. Mr. Putin at the time dismissed the Kremlin’s use of energy as a weapon as “politically motivated blather.”

Martin Vladimirov, director of the energy and climate program at the Sofia, Bulgaria-based think tank Center for the Study of Democracy, said that Moscow’s move on Wednesday shows that it will leverage Europe’s gas dependence to continue to pressure the continent.

“The Kremlin playbook to undermine Europe’s unity on energy security and diversification continues,” Mr. Vladimirov said.

—Laurence Norman contributed to this article.

 

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