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Last week, state-controlled Gazprom, Russia’s largest natural gas company, cut off deliveries to Bulgaria and Poland because the two countries failed to pay for the gas in rubles, Russia’s national currency.
Russia had previously warned that “unfriendly” nations would be required to pay for their gas supplies in rubles, which Ursula von der Leyen, president of the European Commission (EC), called “blackmail.”
The Kremlin denied it was using gas as a weapon to weaken the resolve of Western allies to hold to the sanctions imposed on Russia after it attacked Ukraine.
The EC argues that current contracts with Gazprom specify payment may be made in dollars or euros and that Russia’s demand violates the agreements.
Germany and Italy, Europe’s two largest users of Russian gas, have until almost the end of May to comply with Russia’s demand.
Those two nations have said they will continue to pay in euros and then Russia can convert the payments into rubles if it chooses.
Under the new arrangement, Germany—as well as Austria, Hungary, and Slovakia—will open accounts at Gazprombank, Russia’s second-largest lender and not under sanction. The countries will pay their natural gas bills in euros deposited into those accounts.
Gazprombank then would convert the euros into rubles and forward the payment to Gazprom. Western sanctions against Russia do not forbid this arrangement, the EC said.
Russia’s move spiked natural gas prices up 20 percent across Europe, which depends on Russia for almost 40 percent of its gas. About 55 percent of the gas Germany burns comes from Russia.
After the initial jump, prices settled back to a 4.1-percent increase, about €107.43 per megawatt-hour, or about $114.28. The U.S. average cost was $10.29 last November, according to the U.S. Energy Information Administration.
Poland and Bulgaria are receiving gas from other European countries in a display of “tremendous solidarity,” van der Leyen said.
Poland has been preparing to wean itself from Russian gas but had not yet been ready to turn off the tap.
However, “we will cope with this blackmail in such a way that Poles will not feel it,” prime minister Mateusz Morawiecki declared in a public statement.
Bulgaria refused to pay in rubles or to follow the German compromise, citing legal risks involved in breaking the terms of its contract.
After receiving Russia’s demand for rubles as payment, “we asked for legal opinion from an international law firm and assessed all relevant risks,” energy minister Alexander Nikolov told the Financial Times.
If Bulgaria deposited payment in dollars in a Gazprombank account, the bank would take control of the money but would not be required to specify an exchange rate, Nikolov noted.
Bulgaria “would have no proof that it had fulfilled its contractual obligations,” he said.
Bulgaria had made a $50-million payment in dollars but Russia refused the payment, returned the money, and shut off Bulgaria’s gas the next day.
Bulgaria uses only about 3 billion cubic meters of natural gas annually and had been planning to let its Gazprom contract expire at the end of the year.
Plans were already underway to replace Russia’s gas with deliveries through Turkey’s pipelines and with liquefied natural gas.
“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…are being cut off, such as Germany and Italy,” analysts at consulting firm Rystad Energy wrote in a note to clients.
“This action by Russia should be viewed with the caution of a precedent,” they said.
Germany has ended imports of Russian oil, thanks to an agreement with Poland to use its ports and pipelines, and is working to stop using Russian gas by the end of the decade.
On the day Russia cut off supplies to Bulgaria and Poland, the European Union (EU) vowed to phase out all purchases of Russia gas, support countries denied Russian gas, and speed the continent’s adoption of renewable energy.
Earlier in the Ukraine war, the EU drafted plans to cut Russian gas use by two-thirds by the end of this year and end all purchases of Russian energy by 2030.
Hungary and Serbia would fare worst if the European Union were to ban all Russian energy imports, the study said. Leaders of both countries fiercely oppose such a ban.
An embargo on Russian energy would send Turkey’s inflation rate to 67 percent, according to the Vienna Institute for International Economic Studies.
TRENDPOST: Principles have their limits when economic survival is at stake. Again, while there were no such sanctions put on America for the war crimes they committed in their illegal invasions, mass murders and destruction of countries such as Afghanistan, Iraq, Syria etc.—or sanctions against Saudi Arabia and the United Arab Emirates for its Yemen War that is the worst humanitarian crisis on earth—there is a general consensus among Western nations that Russia must pay the price for their war.
Overall, European countries that staunchly oppose Russia’s war and support sanctions have allowed themselves a loophole by which they keep receiving Russia’s gas and, in turn, have paid Russia tens of billions of euros since the war began—hard currency that Russia can use to purchase foreign products.
TREND FORECAST: The European Union (EU) will ban imports of Russian oil as soon as nations have lined up replacements or alternative energy sources, not before, and “not before,” which will be a long time coming.
The EU also will not embargo Russian gas until replacement energy supplies are locked down, something that will take years to accomplish. The risks of foreign dependency have become painfully obvious in energy supplies, notably in Europe’s reliance on Russia for about 40 percent of its natural gas supply,
In recent months, U.S. processors have maximized their capacity to liquefy and ship gas and even have diverted some cargoes from Asia to Europe, although Europe lacks the facilities to receive more liquefied gas than it does now.
As a result, more than 75 percent of U.S. liquefied gas has gone to Europe this year, more than double the 34 percent that was shipped in 2021.
More terminals are being built on both sides of the Atlantic Ocean, but building a single terminal can take as long as five years.
Ten new European terminals are planned, spread across Belgium, Cyprus, Germany, Greece, Italy, and Poland, but most have yet to secure their financing.
“In the near term, there are really no good options other than begging an Asian buyer or two to give up their LNG tanker for Europe,” Robert McNally, energy advisor to president George W. Bush, told The Wall Street Journal.