Putin ‘blackmailing’ Europe by strangling oil supply

Russian President Vladimir Putin has made moves against Europe that could devastate it. But now the EU has retaliated with an unexpected embargo.

Russian President Vladimir Putin has severed all gas supplies to Bulgaria and Poland in a move seen as both blackmail and punishment after Europe’s refusal to pay for its gas in rubles.

But now Europe has retaliated with its own unexpected embargo.

Moscow attempted to bypass harsh economic sanctions imposed over its invasion of Ukraine by insisting all its natural gas exports be paid for in its own currency.

Until now, Europe has relied on Russia for about 45 per cent of its natural gas imports – and 40 per cent of its total gas usage.

So in a bid to take advantage of this, back in March Mr Putin said that “unfriendly’’ foreign buyers would have to pay Gazprom in rubles instead of euros or US dollars.

Europe called his bluff, pointing out there’s no such “unfriendly” clause in the supply contract from Gazprom.

Two months later, when Bulgaria and Poland’s gas bills fell due, they stuck by the signed agreement. So Mr Putin turned off the taps.

Now the rest of Europe is wondering who will be next.

“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,” Bulgarian Energy Minister Alexander Nikolov said.

It comes as no surprise that the Kremlin uses fossil fuels to blackmail us.

This is something the @EU_Commission has been preparing for, with Member States and international partners.

Our response will be immediate, united and coordinated.

https://t.co/hUc7DzGfd5

— Ursula von der Leyen (@vonderleyen) April 27, 2022

European Commission president Ursula von der Leyen was blunt in her assessment of the situation.

“The announcement by Gazprom that it is unilaterally stopping delivery of gas to customers in Europe is yet another attempt by Russia to use gas as an instrument of blackmail.”

Now she’s taken an unexpected retaliatory step.

The European Union on Thursday announced its intention to ban Russian crude oil imports within the next six months. The move is likely to be approved by the Union’s member nations within days.

“Let us be clear, it will not be easy,” Ms von der Leyen told the European parliament in Strasbourg, France. “Some member states are strongly dependent on Russian oil. But we simply have to work on it.”

World oil prices rose sharply shortly after the announcement as nations scrambled to secure non-Russia supplies.

Oils ain’t oils

“Putin must pay a price, a high price, for his brutal aggression,” Ms von der Leyen told the European parliament. “Today, we will propose to ban all Russian oil from Europe.”

But that price will come at a price.

Since the fall of the Soviet Union in 1991, Europe’s attempts to work with its east European neighbours saw Europe become heavily dependent on Russian fossil fuels.

That includes about 27 per cent of its crude oil imports and about 45 per cent of its natural gas imports. It doesn’t include refined products.

This means a fossil fuels embargo won’t be easy.

The EU banned Russian coal last month. But this was seen as simply speeding up of a process already under way as part of climate change mitigation moves.

Now crude oil deliveries will be prohibited – whether it’s carried by European or Russian tankers.

The European Union had hoped to have the embargo formalised on May 9 – Victory Day in Russia when the country celebrates the victory over Nazi Germany in 1945. But the EU needs unanimous support from its 27 member states.

That support remains in question.

Landlocked nation Hungary, which is led by pro-Putin Prime Minister Viktor Orban, is seeking an extension in order to source alternative supplies and says it will only agree to the tanker embargo if its pipeline crude oil imports are exempted. Slovakia wants a three-year transition period, as does the Czech Republic.

Natural gas, however, remains off the potential embargo list.

Large parts of Europe, especially in its north and east, use Russian piped natural gas as a heating source in winter and fuel for its electricity turbines.

And that’s Mr Putin’s first – and last – point of economic leverage over its increasingly disaffected neighbours.

‘Zero-sum game’

Europe is addicted. Russia is reliant.

Natural gas – and the hard currency it earns – is of critical importance to both economies.

But the Kremlin’s decision last week to sever Bulgaria and Poland’s natural gas supplies is considered to be just the first disconnection of many.

European leaders have been left fearing who will be next.

During the critical winter months, losing such a crucial home-heating fuel could result in people freezing to death. But as the northern summer approaches, worries remain about its economic consequences.

The PCK oil refinery, which is majority owned by Russian energy company Rosneft, in Schwedt, Germany. Picture: Hannibal Hanschke/Getty Images

Electricity may have to be rationed. Heavy industry will have to slow down.

“There’s a sense of foreboding,” Centre for Strategic and International Studies (CSIS) energy analyst Nikos Tsafos says. “We don’t know who. We don’t know when.”

Moscow’s key demand is that its European customers pay in rubles.

The contract it has signed with them, however, specifies euros.

And Russia, under fresh international sanctions, cannot convert these into hard currency.

Meanwhile, the EU has been juggling its own supplies to make sure Bulgaria and Poland don’t go short. Norway and Greece are expected to make up any shortfall for them.

“Europeans can trust that we stand united and in full solidarity with the member states impacted in the face of this new challenge. Europeans can count on our full support,” Ms von der Leyen said.

Russian President Vladimir Putin. Picture: Alexey Danichev/Sputnik/AFP

European Commission president Ursula von der Leyen. Picture: Patrick Hertzog/AFP

But the EU’s ability to absorb more such blows remains in doubt.

And that’s Mr Putin’s hope.

“Energy security in Europe is becoming a zero-sum game, where different European countries are competing over a finite set of supply,” Mr Tsafos told Foreign Policy. “Poland and Bulgaria, maybe they can make do. But if this goes bigger, that becomes so much harder to cope with.”

Poisonous gas

Russia’s gas exporter Gazprom had been waging war for almost a year before the invasion, says Atlantic Council think-tank analyst Alan Riley.

It reduced the availability of gas to deliberately hurt Europe’s economies.

“Its role was to soften up the European Union by keeping natural supplies low and prices high in advance of the conflict,” he says. “Moscow wanted to keep the Europeans vulnerable and therefore less likely to intervene when Russia invaded Ukraine.”

When war broke out, Europe’s gas reserves were low and prices were extraordinarily high.

In December last year, gas storage reserves were at tier lowest in more than five years.

“Gazprom made the situation still worse by draining its own storages to fulfil its own contracts rather than importing more gas,” Mr Riley says. “This rapid draining of storages left European gas storage dangerously low at the height of winter, increased market panic, and further inflated gas prices.”

These were not commercial decisions, he adds.

While the shortages and extreme prices drove up profits in the extreme short term, it caused European customers to switch fuels or suppliers – or go out of business.

Now, Mr Riley says, the EU has no choice but to acquire Gazprom and other Russian energy company assets in Europe and heavily regulate their activities.

“They thus cannot be permitted to operate freely as ordinary commercial entities on the European market,” he says.

Jamie Seidel is a freelance writer | @JamieSeidel