BYBRUSSELS – VLADIVOSTOK SEP 07, 2022 – 4:39 PM GMT+3
The European Union proposed a price cap on Russian gas on Wednesday after President Vladimir Putin threatened to halt all energy supplies if they took such a step, raising the risk of rationing in some of the world’s richest countries this winter.
The escalating standoff threatens to drive up sky-high European gas prices further, adding to already eyewatering bills EU governments are paying to stop their energy providers collapsing and prevent cash-strapped customers from freezing in the cold months ahead.
Europe has accused Russia of weaponizing energy supplies in retaliation for Western sanctions imposed on Moscow over its invasion of Ukraine. Russia blames those sanctions for causing gas supply problems, which it puts down to pipeline faults.
As tensions rose, Putin said that contracts could be ripped up in the event of price caps and warned the West it risked being frozen like a wolf’s tail in a famous Russian fairy tale.
The EU however plans to press ahead with a price cap on Russian gas and also a ceiling on the price paid for electricity from generators that do not run on gas.
EU energy ministers are due to hold an emergency meeting on Friday.
“We will propose a price cap on Russian gas… We must cut Russia’s revenues which Putin uses to finance this atrocious war in Ukraine,” European Commission President Ursula von der Leyen told reporters.
Putin anticipated the move and said Russia would hit back.
“We will not supply anything at all if it contradicts our interests,” Putin said at an economic forum in Vladivostok.
“We will not supply gas, oil, coal, heating oil – we will not supply anything,” Putin said. He also questioned a United Nations-brokered deal to export grain from Ukraine.
Europe usually imports about 40% of its gas and 30% of its oil from Russia.
Crack in EU ranks?
However, there were signs of division among EU members over the price cap plan. A Czech minister said it should be taken off the agenda for Friday’s meeting. The Czechs are helping to guide discussions as holders of the EU’s rotating presidency.
“It is not a constructive proposal, according to me. It is more another way to sanction Russia than an actual solution to the energy crisis in Europe,” Czech news agency CTK quoted Industry Minister Jozef Sikela as saying.
Eurelectric, a body representing the European electricity industry, also criticized plans for an EU cap of 200 euros ($198) per megawatt hour on the price of electricity from generators that do not run on gas.
“The root cause of the problem is a shortage of gas supply and our addiction to imported fossil fuels. Governments should seek to tackle this rather than resorting to distortive, ad-hoc interventions in the electricity market,” said Kristian Ruby, secretary general of Eurelectric.
The energy crisis facing Europe has grown more acute after Russia’s Gazprom fully suspended gas supplied through the Nord Stream 1 pipeline to Germany after it said it found an engine oil leak during maintenance work last week.
Putin rejected Western claims that Moscow was using gas as a weapon to break opposition to its invasion of Ukraine.
The Russian president said Germany and Western sanctions affecting the supply of parts were to blame for the pipeline not being operational.
The impact of the surge in prices is forcing companies to curtail production and governments to spend billions on support to cushion consumers from the impact.
Around half of all aluminum and zinc production has been forced offline in the European Union due to the power crisis, an industry association said on Wednesday, and it called on the bloc to cut costs to prevent the permanent closure of metal producing plants.