Putin gas cutoff shakes up Europe at little cost to Kremlin

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BRUSSELS (AP) — Cutting off natural gas to Poland and Bulgaria cost Russian President Vladimir Putin very little — but it is adding stress on European countries wrestling over how to reduce energy imports that are feeding the Kremlin’s war chest and keep a united front on the war in Ukraine.

European Union officials say yielding to Putin’s demand to pay for gas in rubles would violate Western sanctions imposed over the war. Poland and Bulgaria were cut off after refusing the demand and say they will manage because they were already working to end their dependence on Russian energy supplies.

But analysts say there is enough ambiguity in the European stance to let the Kremlin continue its efforts to undermine unity among the 27 member countries — even if an implied threat to cut off major customers such as Germany and Italy may turn out to be an empty one because it would cost Russia heavily.

The decision to end gas shipments sent a chill through officials wondering how their utility companies will heat homes and generate electricity next winter but cost Russia very little revenue. Both Poland and Bulgaria are relatively minor customers who were about to end their contracts at the end of the year anyway, giving Putin maximum disruption of what he regards as a hostile alliance for only minimal costs.

Poland’s entire gas import was only 10 billion cubic meters per year, out of total European imports of 155 billion from Russia. Gas in roughly that amount is already flowing to Poland from other European countries pitching in to help.

So Russian energy giant Gazprom has lost relatively little revenue but opened a new front in its confrontation with Europe.

“He wants to fragment European countries and their stance toward energy diversification and the overall stance against Russia,” said Simone Tagliapietra, an energy expert and senior fellow at the Bruegel think tank in Brussels. “What he is creating is a system where he can basically divide countries, as we are seeing, for the ones that don’t want to comply with this new scheme will be cut off, while others will try to comply and essentially go against the European Union indication.”

European payments for oil and gas amount to $850 million a day even as governments condemn the war, the result of decades in which Russia was regarded as a reliable supplier of cheap gas despite warnings from Poland and other central and Eastern European countries that Russia could use it as a weapon. While Europe needs the oil and gas to power vehicles, generate electricity and keep industry churning, the sales are the main pillar of the Kremlin’s budget.

European Union countries or companies bowing to the terms of a Russian presidential decree that insists they pay their gas bills in rubles will be in breach of the bloc’s sanctions, senior EU officials said Thursday. Around 97% of European gas contracts with Russia are in euros or dollars.

Under Putin’s new payment system, the Kremlin has said importers would have to establish an account in dollars or euros at Russia’s third-largest bank, Gazprombank, then a second account in rubles. The importer would pay the gas bill in euros or dollars and direct the bank to exchange the money for rubles.

Before the conversion is made, Russian authorities could say the companies have not paid because the funds have not been turned into rubles in the second bank account. The sanctions violation essentially comes with the use of the second bank account because the ruble conversion involves a transaction involving Russia’s sanctioned central bank.

The EU’s executive branch, the European Commission, says companies could remain in compliance by paying in euros or dollars per their contract, then making a “clear declaration” to Gazprombank that their payment obligations are over.

That leaves an opening for the Kremlin to accept the declaration or not — a potential pressure point for member countries.

The two-account workaround means Putin “is augmenting his discretionary powers, because it will be up to Gazprom to decide if and how to provide exemptions for this conversion into rubles scheme,” said Tagliapietra, the energy expert. “If this fragmentation happens, it will be extremely difficult for Europe to coordinate any action on the energy diversification front.”

That could slow progress on achieving the EU’s goal of cutting Russian gas imports by two-thirds by year’s end and undermine unity on further sanctions, this time aimed at the Kremlin’s main money-maker, oil and gas sales.

“How can we have a joint energy response if different countries are doing, or not, business with Putin?” he said.

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