Too proud for this gas

It’s official: Gazprom halted gas deliveries to Poland and Bulgaria after they refused to pay for these deliveries in the Russian currency. Naturally, the EU is calling this weaponisation of energy, blackmail and every other bad word. Naturally, the EU expected it could do absolutely anything to Russia and Russian assets abroad without risking a response. Naturally, it was wrong. And that’s not even the funniest part.

After accusing Russia of blackmailing the EU by halting gas flows to Bulgaria and Poland, EC president Ursula von der Leyen turned her attention to European gas buyers, warning them to not agree to pay in rubles because it would be a breach of sanctions.

“Companies with such contracts should not accede to the Russian demands,” von der Leyen said this week. “This would be a breach of the sanctions so a high risk for the companies.”

Meanwhile, Germany’s Uniper said, well, the opposite. "We consider that the amendment of the payment process complies with the sanctions law and so the payments are possible," said the company’s CFO.

Also meanwhile, the Bulgarian government is assuring us consumers there will be plenty of gas, from Turkey or Greece. And our one single gas storage cavern is 17% percent full, which, apparently, is plenty enough. Not only this but the government is threatening, yes, they are threatening Russia with retaliation although what the nature of this retaliation might be, save for stealing transit gas, I have no idea and, I suspect, neither do they.

Equally meanwhile, Austria and Hungary have stated they have zero problems with paying for Russian gas in rubles and I can’t wait to see what threats von der Leyen is going to send their way. (29.04 edit: I didn’t have to wait long. She berated Hungary and Slovakia that they are breaching sanctions by agreeing to pay in rubles)

This is just a quick sketch of the gas situation in most of Europe right now. The EU is surprised that Russia has done what it said it would do a month ago. It is surprised that its attitude of “Rules only apply to you, not to me” backfired so spectacularly. Poland is importing gas from Germany. Bulgaria will be importing it from Turkey (Russian or Israeli gas) or from Greece (LNG). But we will be coordinating and distributing all the gas going to Southeastern Europe and Italy. Well, maybe.

It’s great that there is enough gas to go around… but is there? The initial market reaction to Gazprom’s move was instinctive and may have been driven as much by actual supply-demand dynamics as by the urge to make a quick profit when the dust settles. The EU has assured everyone interested that it will act in a united manner to secure enough gas for everyone. Excuse me while I wipe an errant tear, wondering just how much this generosity will cost us in higher LNG and gas-from-Turkey prices as we try to score points as Most Anti-Russian Nation.

But the news keeps flooding in. Germany, Bloomberg reports, tried to send a ruble payment for gas deliveries for this month and next through a trading subsidiary of Gazprom, which the German government seized earlier this year, I suppose as punishment for the war. Guess what Gazprom did? That’s right, it rejected the payment. The EU can now bask in the warm light of “I told you those Russians were unreliable!” after doing its absolute best to get on those Russians’ nerves.

But wait, there’s more. Algeria, which is being considered as one of very few alternatives for pipeline gas deliveries, has given Spain an ultimatum: don’t re-sell our gas to other European countries or we’ll turn the tap off. Why? Because Spain apparently has plans to send gas to energy-starved Morocco, which has been embroiled in a political dispute with neighbour Algeria for quite a while now.

The dispute escalated last year, when Algeria broke off diplomatic relations with Morocco. Spain is promising it won’t send Algerian gas to Morocco. Algeria doesn’t seem to believe it. Shocking.

But here is my favourite from this tumultuous week. Bulgaria, one MP who’s deputy chair of the energy committee in parliament, has already found alternative suppliers of gas. The only thing that stands in the way of signing the contracts, Ivaylo Mirchev said, was… the price.

He then went on to express his hope that with the help of the EU we would find a solution to the price conundrum by the end of the year. In the meantime, I guess, fertiliser producers, refiners, and every other industry that depends on affordable natural gas to stay in business, will take a summer break.

History has shown repeatedly that executive decisions made entirely on political grounds with no regard for economic considerations and, apparently, with insufficient knowledge of geopolitics, don’t produce positive results, to put it mildly. This will be no exception. Any gas we use as replacement for Russian flows will be more expensive because that’s how markets work. And the ripple effect across industries and households may end up being very painful.

So, what happens next? Germany will continue buying Russian gas and will start paying for it in rubles. There is simply no way Germany can be as proud as Bulgaria right now. It’s too big. If Bulgaria fails, the EC wouldn’t suffer too much. If Germany fails, on the other hand, the EC will suffer.

Germany, by the way, is not the only one. None other than Latvia recently signed a fresh eight-year gas delivery contract with Gazprom, pretty much hours after it proudly said that it, along with its two Baltic neighbours, it was going fully independent of Russian gas.

In other words, the president of the EC may well continue to warn against payments in rubles but she is unlikely to make the transition from words to actions. Most of the EU will continue importing Russian gas and then reselling some of it to Poland and Bulgaria and we will proudly pay higher prices because, of course, no price is too high for pride. Until unemployment goes into the double digits, I imagine, but who knows.

The current situation is a brilliant cautionary tale or rather several cautionary tales at once. First, it’s not very smart to become over-reliant on one single supplier of a critical commodity.

Second, it’s even less smart to spend years deliberately antagonising this supplier after you have become over-reliant on it. Going full U.S. with the sanctions on an exporter the size of Russia was the most moronic course of action the EU could take and yet it took it with with bells on*.

Third, ignoring economic considerations in favour of political ones when you make decisions that concern your whole population means you should prepare for snap elections. It has, after all, been a whole six months since the last snap elections in Bulgaria, we’re getting bored.

*In case you’re wondering what Europe could have done instead of sanctions, my answer is pretty much anything. It has had years to see where the situation in the Ukraine was heading. It did nothing. The position of Europe on the Ukraine war is not one based on morality. It is one based on a guilty conscience.