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Europe scrambles for gas solution as Putin squeezes supply

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Ursula von der Leyen (President of EU Commission) stated that Russia’s recent aggressive moves are yet more proof that the EU must partner with trustworthy partners and work to increase energy independence.

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After Russia’s exit, the European Union has been racing to locate alternative natural gas suppliers. GazpromTwo EU countries saw their flows cut, triggering fears of others following suit.

The developments come as Brussels is fearful about nations and energy firms circumventing strict international sanctions on Russia — imposed on Moscow in the wake of its unprovoked invasion of Ukraine.

Gazprom, Russia’s state-owned energy firm, cut supplies of natural gas to Poland and Bulgaria earlier this week, after both nations refused to pay for the commodity in rubles — something that President Vladimir Putin requestedDespite growing Western support for Ukraine

This decision further puts pressure on the EU to look for alternative solutions, as it imports around 40% of its natural gas from Moscow.

It contributes to opening eyes for those still believing Russia wouldn’t use gas to leverage,” an EU official said to CNBC. He did not wish to identify himself due to the delicate nature of the situation.

European Commission President Ursula von der Leyen went further Wednesday, accusing the Kremlin of blackmailing the bloc.

Dmitry Peskov, a Kremlin spokesperson, denied accusations that Moscow used its gas supplies for blackmailing European countries Poland and Bulgaria. He said Russia is a reliable supplier of energy. Reuters also reported that he declined to reveal the number of countries who had agreed to pay for their gas in rubles.

Gazprom may choose to decrease supplies to EU members, putting the pressure on to escalate. The Kremlin warned Wednesday that other countries will face the same issue if they do not pay in rubles — something that the commission, the executive arm of the EU, opposes as it would breach current sanctions.

“Russia’s move to halt gas flows to Poland followed Berlin’s decision—under intense political pressure—to supply Ukraine with air-defense weaponry. In a note, analysts from Gavekal, an international financial research firm, stated that Russia could cut off Germany’s supplies of gas, “if Berlin continues shipping arms to Ukraine.” The economic impacts would be devastating, they said.

Ruble payments

Accordingly, the commission works to lessen its dependency on Russian natural gas. In April, it signed an agreement whereby the United States was included. the EU will receive at least 15 billion cubic metersThis year, there will be a lot of liquefied natural gases.

On Wednesday, von der Leyen said that “We work hand in hand to ensure alternative gas supply from our partners,” as well.

Brussels will decide, in the meantime how to continue paying Russian natural gas and not break the bloc’s rules. Russia issued a decree in late March saying European companies will continue to pay for gas in euros to Gazprombank — an institution that is not part of European sanctions — and then this cash would be converted into rubles in a secondary account opened by these energy firms.

EU decided to continue paying Russian gas in euros and dollars to Gazprombank. The bank then converts the currency to rubles to send the money to Gazprom. The reason for this is Russia’s decision to reduce supplies to Poland and Bulgaria in exchange for refusing to pay for the commodity by rubles.

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This is the problem that concerns the commission. This institution is concerned that European companies will make their first euro payment and then fulfill the contractual obligations.

Also, the commission is wary of European firms opening a Gazprombank or Central Bank of Russia second accounts. This could lead to cash being withdrawn from European sanctions.

Analysts at Eurasia Group stated Thursday that EU and European officials are continuing to warn businesses about making Ruble payments to Gazprom, a violation of sanctions.

Gazprombank will convert the rubles into Gazpromrubles, and then pay that amount to a Gazprom bank account.

For example, Hungary said that they will convert their gas payments from dollars and euros to rubles as requested by Putin. Reports in media claim that Gazprombank converts nine nations’ gas payments to euros.

German Economy Minister Robert Habeck has said that doing so could be compatible with the sanctions that are in place. This matter adds to Europe’s worsening economy outlook.

CNBC spoke with Ignazio visco, Italy’s central banking governor. Visco said Thursday that Russia could cut all its gas supply to Italy. This would result in his country being in recession this year, and next.

UBS CEO Ralph Hamers expressed concern earlier this week about the impact that changes in natural gas supply could have on the economy.

“Russian gas that’s a different — a much bigger challenge and that is really because large part[s]Many industries depend on gas to produce their products… that could lead to the second order effect in Europe’s economy, he explained to Geoff Cutmore at CNBC.

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