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Current Affairs

Russia cuts natural gas to Poland and Bulgaria

Date: 30 April 2022 Tags: Miscellaneous

Issue

 Natural gas supplies to Poland and Bulgaria has been stopped by Russia’s gas company Gazprom.

 

Background

Europe is working on strategies to reduce energy dependency on Russia as the war with Ukraine is escalating.

 

Details

  • The state-controlled company Gazprom refused to supply natural gas as Bulgaria and Poland refused to pay in Russian rubles, as demanded by President Vladimir Putin.

  • European leaders argue that the move is a violation of contract that said that payment will be conducted in Dollars or Euro.

  • Poland has tried to insulate itself from Russian gas by building LNG terminals for imported gas through ships. Bulgaria has also stored enough gas.

 

New system

  • New rules say that importers must establish an account in dollars or euros at Russia’s third-largest bank, Gazprombank.

  • A second account must be opened in rubles. The importer would pay the gas bill in euros or dollars and direct the bank to exchange the money for rubles.

 

Reasons of Ruble payment

  • The financial benefits of the move would be minimal as the Gazprombank has to sell 80% of its foreign earnings for rubles.

  • It could be a show to public at home that Putin can dictate the terms of gas exports. The move could discourage further sanctions against that bank.

 

Concerns for Europe

  • European countries are worried that Russia may use energy as a bargaining chip to tackle sanctions. There are fears of effects on economy due to shortages.

  • Russia could be employing divide and rule strategy by isolating countries that have supported Ukraine during the war.

 

Concerns for Russia

Russia is excessively dependent on energy sales for funding its military campaign. Without markets for its commodity, it may witness lack of funds.

 

Reducing reliance on Russia

  • Countries in Europe are gradually reducing dependency on Russian energy. More gas shipments are being ordered from other countries.

  • Many countries are building LNG terminals to store natural gas. It may take years before Europe completely reduces its dependency.