The Lowdown Hub

Russia blames sanctions for gas pipeline shutdown

Russia has warned that it will not resume gas supplies along a key pipeline to Europe until sanctions are lifted. Moscow has blamed Western countries for its decision not to reopen the Nord Stream 1 pipeline after it was shut for three days for maintenance. When asked if supplies would resume pumping if sanctions were eased, a Kremlin spokesman said: "Definitely". Gas prices soared on Monday due to mounting concerns over energy supplies. The Dutch month-ahead wholesale gas price, a benchmark for Europe, was up as much as 30% in early trading on Monday. Prices in the UK rose as much as 35% before winding back to £4.50 per therm.

Wholesale prices have been very volatile in recent weeks. They fell sharply last week when Germany announced that its gas storage facilities were filling up faster than expected. Europe has accused Russia of using gas supplies to blackmail European countries because of the Ukraine conflict. Kremlin spokesman Dmitry Peskov said on Monday: "Pumping problems arose because of sanctions imposed against our country and against a number of companies by Western states, including Germany and the UK. "There are no other reasons that would lead to problems with pumping." Last week, state energy firm Gazprom said that an oil leak in a turbine on the Nord Stream 1 pipeline was behind the closure. But this has been disputed by the European Union and Siemens itself, the German firm which maintains the turbine. "Such leaks do not normally affect the operation of a turbine and can be sealed on site. It is a routine procedure within the scope of maintenance work," Siemens said in a previous statement.

While the UK is not reliant on Nord Stream 1 for its gas, the Kremlin's decision to squeeze supplies to Europe has driven up the overall cost of wholesale gas. The overall increase has been behind the spike in the energy bill price cap for consumers in England, Wales and Scotland.

Mr Peskov criticised European leaders for the surge in bills: "It is obvious that Europe is getting worse for people, entrepreneurs, companies, to live and work: less money is being earned, the standard of living is falling," he said. Liz Truss, who will become the UK's prime minister on Tuesday, has promised to announce a plan to deal with high energy bills soon after she enters office. However, UK businesses are not protected by a price cap and, last week, the British Chambers of Commerce warned firms would "close their doors this winter" if they were not given support with soaring bills. Energy expert Bill Farren-Price told the BBC's Today programme that the "crunch moment" would come later in the year if demand is particularly high for gas and is going to exceed what can be imported. He added that looking at action on energy bills would be the top priority for the incoming prime minister. A number of European governments have revealed plans to help businesses and consumers cope with surging energy costs. On Sunday, Germany announced a €65bn (£56.2bn) package which includes one-off payments to the most vulnerable and tax breaks to energy-intensive firms. Over the weekend, Sweden and Finland also announced multi-billion pound packages to support energy companies. Other European ministers have accused Russia of using energy supplies as an economic weapon against those supporting Ukraine. Moscow has denied it is deliberately restricting exports in the run-up to winter.

European governments are convinced Russia has weaponised the gas markets, by restricting supplies in order to push up prices. This makes life harder for businesses and consumers, and tests their own commitment to supporting Ukraine in the face of Russian aggression. But we know that Russia makes huge sums from exporting oil and gas, so how can it afford to do this, especially when it has a war to pay for? Well for a start, with prices sky-high, it can make the same amount of money from selling much less gas than would ordinarily be the case. Secondly, gas sales are much less important to Russia financially than oil exports. But Europe really needs Russian gas, because it has limited alternatives. So the gamble Moscow may be making is that while turning off the taps could ultimately hit its own revenues, its opponents will suffer a great deal more.