The European Union has proposed a price cap on Russian natural gas, just as Russian President Vladimir Putin warned that such a move would force Moscow to cut off all energy supplies. Europe is in the middle of an escalating standoff with Russia that could see already rising European gas prices rise further ahead of the cold months ahead. Brussels accuses Moscow of rigging energy supplies in retaliation for Western sanctions imposed on Moscow over its invasion of Ukraine. Russia continues to insist that the sanctions are causing supply problems, which it attributes to pipeline faults. On Friday, Russia’s Gazprom completely suspended gas supplies through the Nord Stream 1 pipeline to Germany after it said it found an engine oil leak during maintenance work.
Rising tensions
Putin has warned that contracts could be rejected in the event of price caps. “We will offer absolutely nothing if it conflicts with our interests,” Putin said Wednesday at an economic forum in Vladivostok. “We will not supply natural gas, oil, coal, heating oil – we will not supply anything,” Putin said. Europe typically imports about 40 percent of its natural gas and 30 percent of its oil from Russia. Despite the warnings, the EU plans to push ahead with a price cap on Russian gas and also a cap on the price paid for electricity from non-gas-fired generators. “We will propose a price cap on Russian natural gas … We need to cut Russia’s revenues that Putin is using to finance this horrible war in Ukraine,” European Commission President Ursula von der Leyen told reporters. EU energy ministers are due to hold an emergency meeting on Friday. The Netherlands, which has steadfastly opposed a cap on the price of natural gas, would support one aimed at Russian gas, a source with knowledge of the matter told Reuters news agency on Wednesday. However, a Czech minister said earlier that it should be removed from the agenda of Friday’s meeting. The Czechs help steer the discussions as holders of the EU’s rotating presidency.
Curtailing production and spending billions
On Wednesday, Ukrainian President Volodymyr Zelenskyy thanked the EU for confirming five billion euros ($4.97 billion) in macroeconomic financial aid. He also added that the country needs a “full” financing program from the International Monetary Fund. I had a phone conversation with 🇩🇪 Chancellor @OlafScholz on a wide range of issues. He thanked for the confirmation of the macro-economic assistance of 5 billion euros from the EU, stressed the need for a full IMF program. Plans to further strengthen 🇺🇦 defense capabilities were discussed. — Volodymyr Zelensky (@ZelenskyyUa) September 7, 2022 Zelensky made the comments in a Twitter post after speaking with German Chancellor Olaf Scholz, who he said discussed plans to further boost Ukraine’s defense capabilities. Europe is also spending billions of dollars to support consumers from the impact of rising energy costs. New British Prime Minister Liz Truss is expected to unveil her plans on Thursday, with the bill from the forecast price freeze rising to 100 billion pounds ($115 billion). Many European companies have already been forced to cut production. Eurelectric, a body representing the European electricity industry, criticized plans for an EU cap of €200 per megawatt hour on the price of electricity from non-gas-fired generators. “The root cause of the problem is the lack of natural gas supply and our addiction to imported fossil fuels,” said Kristian Ruby, Eurelectric’s general secretary. “Governments should seek to address this rather than resorting to distortive, ad hoc interventions in the electricity market.”
