Energy prices rise in Europe as Russia threatens to cut off gas supplies

Russian gas supplies to Europe have been at the top of the European agenda since Moscow launched its military offensive against Ukraine. In the preceding months, coinciding with the build-up of Russian troops near the Ukrainian border, European leaders also warned of the heavy dependence of many European countries on Russian gas. As a result, alternatives began to be explored in places such as Norway, Qatar, Japan and Azerbaijan.

However, several analysts warn that the reserves of these nations are not sufficient to replace Russian hydrocarbons. Moreover, some of them, such as Qatar, already have maximum production and agreements with other countries that they cannot break.

For these reasons, and given the current situation, gas supply represents a major challenge for Europe. 

In the midst of the strong diplomatic, political and economic confrontation between the West and Russia due to the war in Ukraine, Moscow has threatened to suspend the flow of natural gas to Europe through the Nord Stream 1 pipeline. According to Deputy Prime Minister Alexander Novak, Russia could take this decision in 'reciprocal' response to the sanctions imposed by Brussels. These economic measures have had devastating effects on the Russian economy. The Moscow Stock Exchange has been closed for more than a week, while the rouble has hit record lows.

Therefore, as Novak warned, Russia has "every right to retaliate and impose an embargo on gas pumped through Nord Stream 1". This pipeline, along with Yamal-Europe, Soyuz and Brotherhood, make up the network of pipelines that transport this precious commodity to Europe. Nord Stream 2 was intended to complement and reinforce the flow of gas, but due to the current situation, the process to put it into operation is at a standstill.

The Russian deputy prime minister also alluded to Europe's high energy dependence, saying that it would be "impossible" to find a substitute for Russian oil on the European market in the short term. "It will take years and it will remain much more expensive for European consumers. Ultimately, they will suffer the most from this outcome," Novak told Russian state television.

The European Union buys about 40 % of its gas from Russia, although some countries import half of their gas from Russia, such as Germany, Gazprom's biggest customer. Other countries such as Italy, Poland, Estonia, Latvia, Lithuania and Finland are in a similar position. 

But Gazprom's key partner is undoubtedly Berlin. Russian gas is so important for Germany that it has even been a source of controversy between the previous government of Angela Merkel and the United States when former President Donald Trump imposed sanctions on all those involved in the construction of Nord Stream 2. Then, Berlin rejected the measure, calling it "interference".

Within this project, Manuela Schwesig, prime minister of the federal state of Mecklenburg-Western Pomerania, the region where the pipeline ends, has been one of the main supporters of getting Nord Stream 2 underway. "Those who are trying to stop the pipeline are wrong," she said in January 2021. 

But Schwesig is not the only voice within Germany in favour of the pipeline and even of a rapprochement with Russia. Gerhard Schroeder, former German Social Democrat chancellor, is also in favour of the pipeline. Schroeder, who has called himself a "friend" of Vladimir Putin, headed the board of Nord Stream 2.

As Marcel Dersus, an analyst at Kiel University's Institute for Security Policy, told Al-Arab, 'this poses a double risk for Germany, as it allows a hostile foreign power to influence decision-making and raises doubts about Germany's credibility among Germany's allies'.

Despite the threats, Novak acknowledges that "nobody will win" in this field. In this regard, it is worth remembering that, for the Russian giant Gazprom, Europe accounts for a large part of its sales. For this reason, and in the midst of tensions with its European partners, Moscow has signed new oil and gas agreements with China.

Novak's remarks come days after the International Energy Agency (IEA) urged the EU not to sign any more contracts with Gazprom. "Europe needs to rapidly reduce Russia's dominant role in its energy markets and increase alternatives as quickly as possible," said Fatih Birol, executive director of the IEA. Birol also referred to Russian gas as an "economic and political weapon".

This important issue also came up during a recent meeting in London between Justin Trudeau, Prime Minister of Canada, and his British and Dutch counterparts, Boris Johnson and Mark Rutte. Both Johnson and Rutte have agreed that an immediate veto on Russian gas would be a mistake. Both called for a "step-by-step" transition. Ottawa, for its part, has already stopped importing Russian oil. However, Canada is a major producer of this fuel, so Russian crude is insignificant for the country, unlike other European nations. 

The war in Ukraine has also led to a sharp rise in the price of oil in Europe. The value of Brent crude, Europe's benchmark crude oil, has reached $130 per barrel. In the midst of this increase, the United States has announced that both Washington and Brussels are in talks to ban the purchase of Russian oil. Novak also made a statement on this point, assuring that "the rejection of Russian oil would have catastrophic consequences for the global market".

With the aim of seeking alternatives and "reducing dependence on Russian oil and isolating Russia", Joe Biden's administration will ban the import of Russian gas and oil, and has also begun talks with major oil producers such as Saudi Arabia and Iran. It is even considering lifting certain sanctions on Venezuela.