Putin’s plot to blackmail Europe backfires as Russia’s cash reserves plummet after gas cut

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Russian President Vladimir Putin’s efforts to blackmail Europe by cutting off its gas supply has appeared to backfire after Russia’s budget surplus shrank following the supply squeeze and sanctions slapped down by the West. It has now fallen from 482billion roubles (£6.8billion) in year-to-date data from the previous month.

This is despite Russia’s supply squeezes sending its state-owned energy giant Gazprom to rake in record profits as the price of gas skyrocketed. Putin’s invasion of Ukraine and the gradual reduction of gas flows combined to hike up prices, initially ramping up revenues for the Kremlin. 

But economists have sent the Russian President an alarming warning as the surplus has been tipped to change into a deficit this month. It is selling far less gas to the EU, which received 40 percent of its gas from Russia last year. 

It comes after Moscow suspended gas flows through the major Nord Stream 1 pipeline linking Russia to Germany via the Baltic Sea, blaming this on infrastructure repair issues.

Kremlin spokesman Dmitry Peskov told Russian state TV: “If the Europeans absolutely absurdly make a decision to refuse to service their equipment, or rather, equipment that belongs to Gazprom, but which they are contractually required to service, this is not Gazprom’s fault. It is the fault of those politicians who made decisions on sanctions.”

Gazprom has said flows will not restart until “the issues on the operation of the equipment are resolved”. And it came after the state-owned conglomerate had already slashed the system’s operational capacity to just 20 percent of its normal levels.

But while earlier cuts have sent the price of gas in Europe soaring, benchmark gas futures in Europe dropped by up to nine percent to their lowest level in a month on Monday. And it came as EU energy ministers met to as the bloc scrambles to avert a winter crisis amid Putin’s supply crunch, drawing up emergency measures such as limiting power demand. 

While members from across the bloc failed to agree on slapping down a price cap on imported Russian gas, prices of the fuel dropped by 40 percent from the highs reached last month down to €192 (£166) per megawatt hour. 

It comes after European Commission President Ursula von der Leyen said the bloc’s proposals to cope with the energy crisis would lower prices in Europe “while guaranteeing security of supply”.

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While Germany, the Netherlands and Denmark fear a price cap would worsen Europe’s energy security as it would be made tougher to attract supplies in the price-competitive global market for liquefied natural gas (LNG), Italy and Poland say a price cap would help shield consumers and industries from skyrocketing prices. 

But despite the disagreements, Sweden’s Energy Minister Khashayar Farmanbar has said “everybody is in a hurry to find a solution”.

Negotiators appeared to align more closely on other measures such as a windfall tax on the profits of energy giants raking in excess revenues from wind, nuclear and coal-fired power that have been able to sell their power at record prices due to the surging cost of gas. 

Irish Environment Minister Eamon Ryan said: “Taking some of those excess profits and recycling them back into the households makes sense.”

The proposals are set to be unveiled today, with another emergency meeting expected later this month to approve the final plan. 

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While the EU argued that Russia is “weaponizing” gas supplies and is trying to blackmail leaders in an attempt to have crippling sanctions lifted, Moscow claims the West is launching an “economic war” amid the Ukraine invasion.

But despite slapping down a series of harsh sanctions aimed at battering the Russian economy, the bloc has still been handing Putin billions for energy imports amid the war as it is hugely dependent on Russian gas in particular. 

And, according to a report by Reuters news agency, Russia is expected to earn more than $337billion (£288billion) from its energy sales this year, a 38 percent increase from last year.

However, the EU has slapped down an oil embargo on Russia and has laid out a blueprint for completely scuppering energy links under its REPowerEU strategy. Under this, it will phase out all Russian gas and replace it with supplies from alternative producers and source more of its energy from renewables.  



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