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What Russia cutting off energy to Poland and Bulgaria means for the world

Pipes are seen at the gas transmission point in Rembelszczyzna near Warsaw, Poland, on Wednesday.
Janek Skarzynski
/
AFP via Getty Images
Pipes are seen at the gas transmission point in Rembelszczyzna near Warsaw, Poland, on Wednesday.

The Russian national energy giant Gazprom announced on Wednesday that it was cutting off natural gas exports to Poland and Bulgaria over the countries' refusal to pay in rubles.

It was seen as a way for Russia to prop up its unstable currency and also retaliate against its European neighbors for Western sanctions related to the invasion of Ukraine.

It also marked a new front in the war. Russia, which has grown more isolated from a Europe increasingly aligned with the United States, signaled it was willing to use the continent's heavy reliance on Russian natural gas as political leverage.

Here's what the decision, which one European leader called "blackmail," could mean for the continent and the world:

It could accelerate the European Union's transition away from Russian energy

About 40% of the EU's gas comes from Russia, but the bloc had been trying to wean itself off of Russian energy even before the invasion of Ukraine.

"We will remain united and support each other while phasing out Russian energy imports," European Council President Charles Michel said in a tweet.

Analysts say the decision demonstrates that Russia would be prepared to penalize other, larger European countries for failing to pay in rubles — even if it means Gazprom takes a financial hit.

"It does show that Russia is willing to halt supplies if people don't subscribe to the new payment system," said James Waddell, head of European gas at the London-based Energy Aspects. "It's a warning shot for other bigger buyers in Western Europe that they are willing to carry out that threat."

Germany and Italy are among the major European importers of Russian natural gas.

Some European energy companies appear willing to meet Russia's demand, however. At least four European gas buyers have made payments to Gazprom in rubles, Bloomberg reported. Hungary announced earlier this month that it would pay for Russian natural gas in rubles, too.

Energy prices could rise across the world as the EU seeks fuel elsewhere

EU countries that don't buy natural gas from Russia will have to buy it somewhere else. That could lead to a shake-up in global energy markets, which have already seen their prices spike.

European buyers will likely seek out liquefied natural gas, or LNG, and bid up the prices as they have in the past, according to Henning Gloystein, energy director at the Eurasia Group.

"This, of course, means that gas buyers across the world as far away as Japan and China and South Korea will have to pay more for gas because these Europeans are entering the market and driving up the price," Gloystein told NPR's Morning Edition.

With the summer approaching and little need for heat, Gloystein says gas demand is lower, but that will change in the winter months.

In addition to buying new energy, some countries say they'll rely on their energy reserves. Officials say both Poland and Bulgaria have fuel reserves they could draw from.

The European energy crunch may lead to a larger financial crisis

Rising energy prices could also worsen a global economy that's already stifled by inflation, says Jason Bordoff, director of Columbia University's Center on Global Energy Policy.

"If Russia were to really cut gas supplies to much of Europe, particularly Germany, it would cause severe economic pain," he said. "You're talking about potential recession."

Bordoff said it would be too difficult to find enough alternative energy supplies to fill the gap in the short-term, which could lead to energy rationing and record high natural gas and energy prices.

Relations between Russia and the West remain tense

European leaders angered by Russia's decision to cut off gas supply to EU members Poland and Bulgaria called it "blackmail" and said they would seek alternative sources of fuel.

"This is unjustified and unacceptable," European Commission President Ursula von der Leyen said in a statement. "And it shows once again the unreliability of Russia as a gas supplier."

The Kremlin said the move was a "necessary" response to what it called "unprecedented unfriendly steps" — including a decision to freeze the Russian Central Bank's foreign currency reserves.

"They blocked our accounts, or — to put in Russian — they 'stole' a significant portion of our reserves," Kremlin spokesman Dmitry Peskov said in a call with journalists.

Some Russia-based analysts said taking payment in rubles was simply a way for Gazprom to protect its revenues from Western sanctions.

Peskov also pushed back on criticism that Russia was "weaponizing" its energy resources. "Russia was and remains a trusted source for gas deliveries and remains committed to all its contractual obligations," he said.

But Bordoff, of Columbia University, says he thinks Russia made a misjudgment when it cut off supply to Poland and Bulgaria.

"I think using gas as a weapon, using energy as a weapon is shortsighted, self-defeating and shooting yourself in the foot from Russia's standpoint," he said.

"It's why Russia, for the most part, has not used energy that way before, even at the height of the Cold War or the height of conflict between Europe and Russia."

Copyright 2022 NPR. To see more, visit https://www.npr.org.

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