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Moscow sanctioned the European subsidiaries of the state-owned company Gazprom, a day after Ukraine cut off a major gas transit route, increasing pressure on Europe to secure alternative gas supplies in the short term.
Following the announcement, gas prices skyrocketed. Europe’s main benchmark gained 12% as supply threats from Europe weighed on buyers due to heavy reliance on Russia.
Earlier, Moscow cut off supplies to Bulgaria and Poland, as countries scramble to fill up dwindling gas reserves before winter. Russia has mainly sanctioned Gazprom’s European affiliates, which includes energy trading, storage and transmission company Gazprom Germania, which Germany put under trusteeship last month to try to secure supplies.
But Russia’s most relevant sanction is against the owner of the Polish part of the Yamal-Europe gas pipeline, which carries Russian gas to Europe. Kremlin spokesman Dmitry Peskov said there can be no relations with the affected companies nor can they participate in the supply of Russian gas.
This gas pipeline has a length of more than 4,000 kilometers and starts from western Russia, passing through Belarus and Poland, ending in Frankfurt, Germany.
Germany, Russia’s main customer in Europe, said some Gazprom Germania subsidiaries were not receiving gas because of the sanctions. “Gazprom and its subsidiaries are affected,” commented Robert Habeck, German Economy Minister, during an intervention in the Lower House of the Bundestag. “This means that some of the subsidiaries are not receiving more gas from Russia. But the market offers alternatives,” he added.
The list of entities sanctioned by Russia in response to Western sanctions includes Germany’s largest gas storage facility, located in Rehden, Lower Saxony, with a capacity of 4 billion cubic meters and operated by Astora, as well as Wingas, a trading company that supplies industry and local utility companies.
What is Putin looking for with these sanctions?
Putin ordered to pay in rubles to what he considers “unfriendly countries”, and is considered a retaliation for the sanctions that have isolated many Russian banks from international financial transactions and has generated a massive exit of companies in Russia.
While the economic rationale for demanding rubles is unclear because Gazprom already has to sell 80% of its revenue abroad for rubles, the boost to the Russian currency could be minimal. Another motive could be political, not least to demonstrate to the public that Russia can dictate the terms of gas exports.
By requiring payments through Gazprombank, the move could discourage further sanctions against that bank. If the Russian president was looking for a pretext to leave out the countries that have supported Ukraine, the decision could also fulfill that function.
Simone Tagliapietra, an energy expert and member of the Bruegel think tank in Brussels, said that “by acting in this way, Russia is taking advantage of the fragmentation of the European Union: it is a divide and rule strategy… and that is why we need a response. coordination of the European Union”.
There is discontent in the old continent because many European companies continue to buy energy from Russia, which between 2011 and 2020 obtained an average of 43% of its annual government revenue from oil and gas sales, according to the United States Energy Information Administration.
But cutting gas to Europe does not benefit Russia either, although it could sell oil by ship to India and China, countries that do not participate in the sanctions, but not so with gas, since the system of gas pipelines from the main fields in the north of Russia, on the Yamal peninsula, to Europe, does not connect to the gas pipeline that leads to China.
Moody’s analysts said in a recent study that a complete power cut (oil and gas) would push Europe into an economic recession. Germany, the continent’s largest economy, would be the hardest hit. According to the German central bank, the economy could fall by up to 5 percentage points.
The Bruegel think-tank estimates that Europe will be short 10% to 15% of normal demand to get through the upcoming winter heating season.
with AP
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