The two countries have become the first to have their supplies cut after the Kremlin announced payments for gas would have to be made in rubles by ‘unfriendly’ buyers. Energy giant Gazprom confirmed in a statement: “Gazprom has completely suspended gas supplies to Bulgargaz (Bulgaria) and PGNiG (Poland) due to absence of payments in rubles.” Following the news, gas prices have surged as much as 24 percent as concern grows over Europe’s energy security. Despite pledges to shift reliance away from Russia, for now the country still supplies 40 percent of Europe’s gas leading to an increasingly precarious position.
Nathan Piper, Head of Oil and Gas Research at Investec, said: “The restriction of gas supplies from Russia to Poland and Bulgaria could represent an early phase in the use of gas to exert economic pressure by Russia on Europe.
“As we move into Spring gas demand declines with less heating required and so should prices but the risk around Russia supply is keeping prices elevated causing pain for consumers and industry.”
While Britain is less directly reliant on Russia for gas than mainland Europe a reduction in available supply more widely will push up global prices meaning the impacts will still be felt elsewhere.
Fears over exposure to Russian energy supplies have also hit oil prices with Brent Crude reversing a decline below $100 a barrel earlier in the week to rise back up to $106 (£84.31) a barrel.
The Euro meanwhile has slumped hitting its lowest levels against the dollar since 2017.
The currency has been falling since the start of the conflict with a sharp dip since Monday when Russian Foreign Minister Sergei Lavrov warned of the “real” risk of World War Three.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown warned energy was becoming “increasingly weaponised” with expectation growing the EU could place a complete embargo on Russian oil.
European President Ursula von der Leyen has condemned the move by Russia as “blackmail” and insisted the bloc has contingency plans in place.
Going forward though countries will now face the key question of whether to abide by Russia’s ruble payment requirement or risk being cut off.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, said: “The European Union has rejected the move in principle but now payment deadlines are starting to fall due, governments across Europe need to decide whether to accept Putin’s terms or lose crucial supplies and face the prospect of energy rationing.
“With Europe ill prepared for supplies to be cut off and Russia in need of the money, it is in the interest of both the EU and Russia to work out a solution.”
Russia adopted the requirement to pay for gas in rubles in response to sanctions which initially sent the currency into freefall.
Combined with emergency interest rates and currency controls the ruble has been temporarily stabilised however in the long run further reaching cuts to energy exports could do more harm to the Russian economy.
Ms Streeter said: “High incoming tax receipts expected have helped push up the currency this week.
“But if Russia’s customers continue to refuse to sign contracts in rubles, and accelerate efforts to find other sources of energy as they have pledged to do, these revenue streams risk turning into a trickle putting fresh pressure on the ruble.”