Putinflation

Russia cut off gas flows to Europe, using energy as an economic weapon ahead of winter

Wednesday, September 7, 2022 by Robinhood Snacks |
Gazprom causes gas problems (NIKOLAY DOYCHINOV/ Getty Images)

Gazprom causes gas problems (NIKOLAY DOYCHINOV/ Getty Images)

Winter is coming... Markets were shocked on Friday after Russia indefinitely shut down natural-gas flows to Europe. Kremlin-controlled Gazprom (the biggest natural-gas company) halted gas supplies to Germany from the Nord Stream 1 pipeline, a key gas artery for Europe. It’s a worst-case scenario for Europe as it races to fill gas-storage facilities to keep homes warm this winter.

  • Russia blamed the halt on economic sanctions imposed by the West, saying they led to technical problems. Russia said flows would resume if sanctions were lifted.
  • Europe says Russia’s weaponizing energy to force the West to remove sanctions and punish it for supporting Ukraine.
  • Coincidence? The move came after the G7 agreed to impose a price cap on Russian oil and the Biden admin asked Congress for $13.7B in extra aid for Ukraine.

Putin-flation... Gas prices have been falling for months, but they spiked after Russia turned off the taps (and the euro hit a 20-year low). Not helping: OPEC agreed to cut oil production next month. Nord Stream is key for Europe and its largest economy, Germany. But ever since Russia invaded Ukraine, the EU’s had to wean itself off the pipeline.

  • Before the war: Russia was Europe’s largest energy supplier, with Nord Stream accounting for over half of Germany's gas imports.
  • Since the war began: Russia has dramatically cut gas flows to Europe. Before Friday’s news, Gazprom had already slashed Nord Stream flows to 20% of capacity.
THE TAKEAWAY

Energy is a powerful weapon… and it doesn’t have to be nuclear. By zapping Europe’s gas supply, Russia is attacking its economic heart. A winter shortage could tip Europe’s ailing economy into a full recession — and cause a collapse in energy trading. Fortunately, Europe’s gas-storage levels have surged ahead of targets, which could help it avoid having to ration. But consumers and the economy could take a major hit from record prices.