What will happen to gas supplies to Europe?

There is much discussion regarding natural gas supplies to Europe as the Russian invasion of Ukraine continues.

Here you can learn the key points on this subject:

What is Putin proposing?

Putin has said Russian gas importers must now pay with rubles. European leaders have said they do not accept this requirement, as Russian gas supply contracts say that the product must be paid for by euros or dollars and that one side cannot arbitrarily change the form of payment.

The change of currency, through which the payments are carried out, is usually made after long negotiations, analysts said, and customers seek something in return for the exposure resulting from rubla's payment, the Russian national currency, whose value is not sustainable.

Open issues related to currency change, with which payments are made, can affect energy markets, increasing uncertainty whether natural gas supplies to Europe can be cut off and cause a serious blow to the economy. But Russia also depends on oil and sales to finance the Russian government, when sanctions have hit its financial system.

The Kremlin's offer can be viewed as a legal vacuum. Importers, simply, can open a dollar or euro account in a designated bank and another bank account in the ruble. Importers would pay for gas supplies with euros or dollars, and directly the bank would exchange money in rubles.

However, on Friday, April 1st, Kremlin spokesman Dmitry Peskov said the change will not happen immediately:

<x)

European leaders have turned down Russia's request and described it as blackmail. They have said they will continue to pay for gas with euros and dollars.

German officials said they would not talk about the impact of Putin's decree, but have only indicated they are analyzing it. The economy ministry's spokeswoman, Beate Baron, stressed that Russia's Gazprombank has been asked ten days to explain the procedure, “and, of course, we will carefully analyse it”.

Meanwhile, a senior European Commission energy official said on Twitter that the European Union is being co-ordinated to create a joint approach”.

What is Putin trying to accomplish with this?

The Kremlin has said that payment change is necessary because Western sanctions have frozen foreign currency reserves. Because the move targets importers of non-friendly states “ ”, it can be seen as retaliation for Western sanctions that have removed Russian banks from international financial transactions and have led several Western companies to take their businesses away from Russia.

The economic advantages for Russia are not clear. In theory, ruble payments could raise the demand for national currency and help the Kremlin support its exchange course, which has begun to rise since it fell to low levels after the start of Ukraine's invasion. But gas exporter Gazprom has only sold 80 percent of his foreign net profits, so a push for Russian national currency would be minimal.

Kremlin has also indicated that he wants to extend rubles payments to other goods, such as metals.

One of the motives may be political, said Stefan Meister, head of the global order and democracy programme at the German Council for Foreign Relations.

“Russia is not interested in making this request just for gas, but wants a kind of political victory”, said Maister. “Wants to show Putin dictates conditions under which gas is exported”.

This movement partly targets the inner audience in Russia, said Maister, as Putin is trying to tell his people: “Look, these are the enemy states and now they have to pay under another” scheme.

“Therefore, I think this could also be to get domestic support, defining who the enemies are”, said Maister.

Another motive may be to protect the bank, Gazprombank, from being hit by sanctions, because this bank would be the payment channel and would enable gas supplies to continue, Maister said. This is the third largest bank in Russia, and as if Sberbank Russian largest bank has not left the international payment system, SWIFT.

What level of gas supplies does Europe have?

Co-ordinated sanctions of the United States and the European Union do not apply for oil and gas payments. This was the White House concession for European allies, who are much more dependent on Russian energy because Moscow provides 40 percent of the gas and 25 percent of Europe's oil supplies.

Gas supplies have continued through pipelines bringing gas from Russia to Europe, the websites of these pipeline operators have been said.

Many are not happy that Europeans are still buying energy from Russia, which averaged 43 percent of the annual government's profits from the sale of gas and oil between 2011 and 2020, is said in the US Energy Information Administration's data.

This money has helped buy tanks and missiles that are being used in the invasion of Ukraine. But this also implies that Russia has good reason not to interrupt natural gas supplies.

Would Europe survive an interruption of gas supplies?

Europe's economy would have difficulty without Russian gas, even though the impact could depend on how many states use this gas.

Germany has the largest economy on the European continent, “, very dependent on supplies with Russian energy”, said Monica Schnitzer, professor of economics at Munich University, a member of the German Government's Economic Experts Council.

“A suspension of these supplies brings risk for the German economy to slide into a recession with apparent higher inflation rates”, she said.

Inflation has already reached a record level, costing all prices, such as those of food products to the first class. Inflation has increased because of rising energy prices, as Europe faced energy crises even before the war in Ukraine began.

The crisis has caused many governments and companies to seek supplies from other sources, but even if energy is provided from other sources, it will not be enough to cover the needs if Russia stops gas supplies.

The Bruegel organisation has estimated that Europe would be short of between 10 and 15 percent of the normal demand to spend the next winter season, implying that extraordinary measures must be imposed to reduce gas use.

European leaders have said they cannot afford the consequences of an immediate boycott. Instead, they plan to reduce the use of Russian gas as soon as possible. They are ordering more liquid natural gas, which is transported across ships and are learning to supply gas from the gas pipeline from Norway and Azerbaijan. European states have also accelerated their work on building capacities for energy generation through the wind and the sun and are planning to impose stricter measures.

The goal is to cut by two thirds of the Russian gas supply by the end of the year, and to cut completely from Russian gas by 2027.

The situation is so serious that Germany has announced an emergency energy warning. This is the first warning of the emergency plan, which has three stages.

In a full emergency, government regulators would have to decide which companies to stop using gas so that homes and hospitals can be supplied. Chemicals, glass, metals, and ceramics make a lot of gas.

Gas nationalism would hit the European economy, which is only facing the consequences of the war, and high energy prices have increased inflation to the record rate of 7.5 percent. /rel