It finally happened. As anticipated by European leaders and analysts all summer, Russia shut down its Nord Stream gas pipeline to Europe indefinitely. The decision appears to be a response to the G7 countries’ agreement on capping prices for Russian oil and European Commission chief Ursula von der Leyen’s proposal to impose similar measures on Russian gas. However, sooner or later, it was always going to happen. Cutting off the gas was a logical step for Moscow, which has failed to win any concessions from Europe by threats.
- Gazprom announced Friday that Nord Stream would not return to action after a planned three-day maintenance shutdown. As usual, this was blamed on technical issues caused by Western sanctions. Gazprom even published a photo of gas pumping equipment with an oil leak.
- Kremlin spokesperson Dmitry Peskov said Monday that pumping would not resume until the Western sanctions that caused the issue were lifted. “The problems pumping gas came about because of the sanctions Western countries introduced against our country and several companies,” Peskov said. “There are no other reasons that could have caused this pumping problem.”
- The complete shutdown of Nord Stream (which had previously been working at 20% of capacity) looks like an obvious response to the G7 meeting at which a price cap on Russia oil was agreed. It seems Russia takes this threat seriously, even though it will be hard to fully implement without support from China and India. Deputy Prime Minister Alexander Novak has pledged more than once that Russia will simply refuse to sell oil to countries that implement the price cap.
- Even so, it’s hard to see how a total halt in supplies to Europe could have been avoided. After starting a new gas war in the summer, Moscow’s logic is obvious: it wants to win concessions from Europe over sanctions and Western support for Ukraine. The logical next step is to try to provoke a crisis that sweeps politicians into power who are willing to make a deal with Russia. “We are already close to a situation in which exports to Europe will simply be completely halted, maybe as early as this winter. In my opinion, the most likely scenario is that Russia will try to squeeze Europe, reduce exports and finally stop them completely,” oil and gas expert Marsel Salikhov told The Bell in an interview last week.
- Intensifying the crisis in Europe also helps Russian Vladimir Putin at home. Russian TV channels enjoy telling viewers that living standards are plummeting across Europe due to the failures of European politicians. And the topic of “freezing Europe,” crippled by high inflation and rising gas prices, has been dominating the airwaves.
- However, Gazprom stands to be the biggest loser if gas supplies do not resume. Europe is Russia’s biggest and most profitable market for Russian gas: unlike oil, gas cannot simply be redirected to China — there is a lack of pipeline capacity. “Out of 135 billion cubic meters for export, Gazprom can redirect a maximum of 10-15 billion cubic meters to new markets. And prices will be lower,” Salikhov said.
- In these circumstances, Gazprom made what might be its last offer of a generous shareholder dividend. After shareholders were promised a share of 2021’s 1.2 trillion ruble profit only to have that promise rescinded, the company now wants to pay that sum for the first half of 2022. But the decision-making within Gazprom raises more and more questions — on the day when the record dividend was announced, shares in Gazprom leapt 6% a few hours before the news broke.
Why the world should care
Putin is betting heavily on his gas war. Believing that Europe is a vassal of the U.S., supporting Ukraine solely because of pressure from Washington, he clearly expects the Europeans to back down due to rising energy prices and inflation. If he is wrong, it could simply mean that Europe’s decoupling from carbon-based energy gathers pace.