Russia halts gas exports to Poland and Bulgaria

“The decision by Gazprom to halt gas supplies to Poland and Bulgaria after both countries refused to use Russia’s proposed mechanism for gas payments in roubles is a significant escalation in the energy stand-off between Russia and the EU. The move also substantially increases risk of further gas-supply interruption to other EU countries if they also decide not to pay for gas in roubles. Russia’s decision is a strategic retaliation against the EU, leveraging its power as the most important supplier of natural gas to Europe. Europe received around 40% of its gas from Russia before the war in Ukraine.”

“Current geopolitical dynamics underline the need for a closely co-ordinated EU-wide energy strategy to improve the EU’s energy security, including a co-ordinated approach to Russia. Hungary’s agreement to meet Russia’s demand for gas payments in roubles risks undermining a common approach – and shows the urgency for the EU to create an ‘energy union’ to enable Member States to better co-ordinate energy policies. Russia’s demand, thus, could push some EU buyers into using its mechanism to pay for gas in roubles, undermining the EU’s sanctions and weakening its common approach.”

“In the near term, EU countries are likely be able to endure a large-scale disruption to Russian gas supplies through the summer, via a combination of higher liquefied natural gas (LNG) imports, including from the US and Qatar; use of gas storage; and demand cuts. The impacts could also be mitigated to some degree depending on how well the interconnected EU energy market is able to redistribute supplies across countries. However, even in this scenario, price increases could be very adverse for Europe’s economic recovery while a prolonged halt of Russian gas supplies, depending on weather conditions, could rapidly deplete current gas reserves in several countries.”