Russia has cut off gas supplies to Europe indefinitely. Here’s what you need to know

Environment

Russia’s move to indefinitely suspend gas flows to Europe via Nord Stream 1 is seen as a further escalation of its policy to inflict economic pain to Germany.
Lisi Niesner | Reuters

Europe has been thrown into its biggest energy crisis in decades with natural gas supplies from Russia becoming volatile and unpredictable even before the invasion of Ukraine began. Now, those supplies have come to a complete halt.

Russia claims punitive economic sanctions imposed on it by the West are responsible for the indefinite halt to gas supplies via Europe’s main pipeline.

“Problems in pumping arose because of the sanctions imposed against our country and against a number of companies by Western states, including Germany and the U.K.,” Kremlin spokesman Dmitry Peskov told reporters on Monday, according to Russian state news agency Interfax.

Asked whether pumping gas via Nord Stream 1 was completely dependent on the sanctions and that supplies would resume if these were lifted or relaxed, Peskov replied, “Of course. The very sanctions that prevent the maintenance of units, which prevent them from moving without appropriate legal guarantees, which prevent these legal guarantees from being given, and so on.”

“It is precisely these sanctions that the Western states have introduced that have brought the situation to what we see now,” Peskov added.

Coming directly from the Kremlin, such comments represent the clearest indication yet that Russia is seeking to pressure Europe to lift the economic measures, brought on to punish Russia over its unprovoked invasion of Ukraine, in order for the taps to be turned back on ahead of winter.

European lawmakers have repeatedly accused Russia, traditionally its largest energy supplier, of weaponizing energy exports in an attempt to drive up commodity prices and sow uncertainty across the 27-nation bloc. Moscow denies using energy as a weapon.

Russia’s state-owned energy giant, Gazprom, halted all exports via Nord Stream 1 from Aug. 31, citing maintenance work on its only remaining compressor.

However, while flows were due to resume after three days, Gazprom on Friday cited an oil leak for the indefinite shutdown of the pipeline. The shock announcement came hot on the heels of a joint statement from the G-7 economic powers backing a proposal to put a price-capping mechanism on Russian oil.

In what energy analysts see as an escalation of Russia’s bid to inflict economic pain on the region, the Kremlin has since said that the resumption of gas supplies to Europe is completely dependent on Europe lifting its economic sanctions against Moscow.

The halt to supplies via the Nord Stream 1 pipeline, which connects Russia to Germany via the Baltic Sea, prompted European gas prices to jump Monday, with many fearful that parts of Europe could be forced to ration energy through the winter. It has also exacerbated the risk of a recession in the region. 

Gazprom vs. Siemens Energy

Meanwhile, Gazprom’s deputy CEO, Vitaly Markelov, told Reuters on Tuesday that gas flows via the Nord Stream 1 pipeline would not continue until Germany’s Siemens Energy repairs faulty equipment.

Siemens Energy was not immediately available to comment when contacted by CNBC on Tuesday.

However, the company told Reuters that it’s not currently commissioned by Gazprom to do maintenance work on the turbine with the suspected oil leak, but said it remains on standby to do so.

Siemens Energy added that it “cannot comprehend this new representation based on the information provided to us over the weekend.”

Gazprom’s Deputy CEO Vitaly Markelov told Reuters on Tuesday that gas flows via the Nord Stream 1 pipeline would not continue until Germany’s Siemens Energy repairs faulty equipment
Sascha Schuermann | Afp | Getty Images

Mark Dixon, founder of the Moral Rating Agency, a research organization focused on foreign firms in Russia, said Gazprom blaming Siemens Energy for the gas supply cut was “yet another example of a state lie from the Russian Federation.”

“Russia lied its way into the invasion and has lied ever since,” Dixon said. “Gazprom is Russia, make no mistake. It has no choice but to lie in chorus with [Russian President Vladimir] Putin.”

Russia has drastically reduced gas supplies to Europe in recent months, with flows via the pipeline operating at just 20% of the agreed-upon volume before the indefinite suspension.

“Russia’s move to again cut gas supply to the EU just as the region scrambles to fill its inventories ahead of winter is a further escalation of its policy of the past months to inflict economic pain through repeated supply cuts to Germany, the EU’s biggest economy and gas consumer,” analysts at political risk consultancy Eurasia Group said in a research note.

“Sources in Berlin say they are now making all winter energy plans on the assumption of zero supply from Russia,” they added. “That means there will now also be a focus on central and southern Europe, which still receives Russian gas including through pipeline transit of Ukraine and Turkey.”

Winter is coming

European policymakers are currently racing to secure gas supplies in underground facilities in order to have enough fuel to keep homes warm during the colder months.

Energy analysts say Russia’s latest move to suspend gas flows via Europe’s major supply route could exacerbate what was already likely to be an extremely challenging winter period.

“The European energy sector continues to be shocked by price volatility and uncertainty over energy balances for the coming winter,” analysts at consultancy Rystad Energy said in a research note, noting that power spot prices across Western Europe have climbed to “unparalleled levels.”

“This latest move has significantly increased the risk that Europe may not get further gas flows through Nord Stream 1 for the whole winter,” they added.

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