For months after Russia’s all-out invasion of Ukraine, France’s president aspired to act as a mediator and peacemaker between Kiev and Moscow. This week he and other European leaders became belligerents in a sharply escalating energy conflict between Russia and the West. It was time, Macron said, for a “general mobilisation”. The Kremlin’s weaponization of fossil fuels has forced European governments to take drastic measures, unthinkable just a few months ago, to soften the Russian offensive and protect their energy markets and economies from the fallout. Sweden and Finland had to provide emergency liquidity assistance to power producers who were facing increasing requirements for collateral for hedging operations. Finland’s Economy Minister Mika Lintilä has said the region may be on the brink of a 2008 version of Lehman Brothers’ energy sector collapse. Germany unveiled a second support package for households and businesses worth 65 billion euros, bringing to about 350 billion euros the amount pledged so far by EU governments to offset soaring prices and diversify supply . Just two days after taking office as the UK’s new prime minister, Liz Truss has announced a cap on household and business energy bills expected to cost at least £150bn over two years. The G7 powers also agreed on September 2 to impose a global price cap on Russian crude oil, a bigger source of revenue for the Kremlin than natural gas, although it could be difficult for other major importers such as China to implement. India and Turkey may refuse to participate. European Commission President Ursula von der Leyen, who is due to present a package of emergency measures next week, said the price of Russian gas imports should also be capped – an idea put forward by Italy’s Mario Draghi who won the support from EU energy ministers on Friday, despite fears it would prompt the Russian leader to turn off the taps entirely. Russia has delayed gas supplies to European markets since September last year, driving wholesale prices 10 times higher, pushing inflation to 40-year highs and economies to the brink of recession. Throughout, Moscow denied it was doing or said it was on technical grounds – disputed by Brussels and member states. This week the pretense finally dropped. On Monday, in what appeared to be retaliation for oil and gas price cap proposals, the Kremlin said natural gas deliveries through the Nord Stream 1 pipeline, its main pipeline to European markets, would only resume when the West lifted economic sanctions against Russia. “The last mask has fallen,” von der Leyen said. Russia is still pumping natural gas through Ukraine and through the TurkStream pipeline – about a fifth of the total it was sending in June – but the prospect of a complete shutdown of gas flows has arrived earlier than many in Europe expected. Putin backed the threat at an economic forum in Vladivostok on Wednesday. “We will offer absolutely nothing if it is against our interests. No natural gas, no oil, no coal, no fuel oil, nothing,” he said. Moscow also received a sign of support from other oil producers this week – three days after the G7 oil price cap – when the OPEC Plus group of countries, which includes Russia, agreed to cut output by 100,000 bpd. Alexander Novak, Russia’s top energy official, has spoken of the “collapse” of Europe’s energy markets. “Winter is coming and many things are hard to predict,” he said. But some officials and analysts believe this may have been the week Moscow’s pressure campaign began to lose steam. An indefinite shutdown of Nord Stream 1, Russia’s natural gas pipeline, was supposed to be the Kremlin’s big weapon that would send the wholesale price to new stratospheric levels. But by Wednesday wholesale prices had fallen below Monday’s level. “If this is it, then this could mean the end of the show,” said Simone Tagliapietra, a senior fellow at the Bruegel think-tank in Brussels. Confidence is growing in European capitals that Europe can get through the winter without severe economic and social dislocation or energy constraints. Von der Leyen said the EU “weakened the power that Russia had in our economy and on our continent”. Natural gas storage in EU facilities stands at 82%, well above the bloc’s target of 80% for the end of October. Member states have diversified supplies, increasing imports of pipelines from Norway, Algeria and Azerbaijan and LNG from the US and other producers. European Commission President Ursula von der Leyen, who is due to unveil a package of emergency measures next week, said the price of Russian gas imports should also be curbed © Olivier Hoslet/EPA/Shutterstock Before its invasion of Ukraine, Russia accounted for 40 percent of EU gas imports, but now only 9 percent, von der Leyen noted. “Everyone was waiting [Russia] to get to the closure of Nord Stream in winter, because winter is when they can maximize the pressure,” said Tagliapietra. “This acceleration of events tells us that the Kremlin probably did not contribute to Europe’s ability to find such a response.” An EU official said: “Putin has not achieved his goals – our dependence on him has declined much faster than expected.” Economists at Deutsche Bank now believe Germany’s economy will contract by 3-4 percent in 2023 instead of 5-6 percent, on higher-than-expected storage and reduced consumption. But EU leaders are also aware of the pain that will be caused by rising energy bills this winter and the escalating costs for EU governments of absorbing households from exorbitant costs. “All member states are suffering and feel it could be a winter of discontent,” the official said. With inflation expected to remain high next year, consumers are bracing for the biggest blow to living standards in a generation as wages fail to keep pace with prices. Consumer confidence fell to its lowest level since records began in 1974 in the UK and fell to a near-record low in the eurozone. The latest S&P Global PMI, a monthly business survey, showed business activity contracted in August in the euro zone and the UK. The UK economy started to shrink in the second quarter and even the latest government bailout has not dispelled a potential recession. The European Central Bank now expects the eurozone to stagnate in the final quarter of the year and the first three months of 2023 and shrink overall next year in a bearish scenario. Vladimir Putin played down the threat at an economic forum in Vladivostok on Wednesday. He said: “We will offer absolutely nothing if it is against our interests. No gas, no oil, no coal, no fuel oil, nothing” © via REUTERS Angel Talavera, head of European economics at Oxford Economics, said it was “inevitable” that governments would end up with bigger support packages. Roberto Cingolani, Italy’s energy transition minister, said: “Since we are in this terrible situation, it makes sense to have emergency measures to protect citizens and companies.” Video: How Putin held Europe hostage over energy | FT power source
