EU plans for life without Russian gas amid inflation spike

EU leaders met on Friday (24 June) to prepare for further cuts in gas supplies from Russia, limit the impact on inflation, and seek alternative supplies.

They accused Moscow of “weaponising” energy via a supply squeeze that Germany warned could partly shut its industry.

“The notion of cheap energy is gone, and the notion of Russian energy is essentially gone, and we are all in the process of securing alternate sources,” Latvian Prime Minister Krisjanis Karins said.

Governments must “support those portions of society that suffer the most”, he added.

According to a draft summit statement seen by Reuters, leaders of the 27 EU nations will place the blame for a massive spike in prices and sagging global growth on the war that began exactly four months ago.

Following unprecedented Western sanctions imposed in response to the invasion and a refusal to pay for energy in roubles as the Kremlin had demanded, a dozen European countries have been hit by cuts in gas flows from Russia. Even some that did pay in Russian currency found their supplies dwindling.

“It is only a matter of time before the Russians close down all gas shipments,” said one EU official ahead of Friday’s talks.

German Economy Minister Robert Habeck warned his country was heading for a gas shortage if Russian supplies remained as low as they currently are, and some industries would have to close come winter.

“Companies would have to stop production, lay off their workers, supply chains would collapse, people would go into debt to pay their heating bills,” he told Der Spiegel magazine.

He added that it was part of Russian President Vladimir Putin’s strategy to divide the country.

The EU relied on Russia for around 40% of its gas needs before the war. Some countries, however, were much more reliant. For instance, Germany relied on Russia for 55% of its gas, leaving a considerable gap to fill in an already tight global gas market.

Weaponisation of gas

Inflation was the primary concern during talks on the EU’s economic situation between leaders on Friday morning. Still, there were also positive comments about growth and the summer tourism season, an EU official said.

Inflation in the 19 countries that use the euro has shot to all-time highs of above 8%, and the EU executive expects growth to dip to 2.7% this year.

Eurogroup chief Paschal Donohoe warned that the bloc must “acknowledge the risk we could face if inflation becomes embedded in our economies”.

According to a draft statement seen by Reuters, EU leaders will say that “in the face of the weaponisation of gas by Russia”, the European Commission should find ways to secure “supply at affordable prices”.

“We need to start buying energy collectively, we need to implement price caps, and we need to make plans together to get through the winter,” Belgian Prime Minister Alexander De Croo said on Friday as he arrived at the summit.

“If we don’t pay attention, then the whole EU economy will go into a recession with all its consequences,” he added.

The bloc responded to the war with uncharacteristic speed and unity, but some sanctions, such as a planned embargo on Russian oil imports, have repercussions on its economies.

EU countries have already poured billions of euros into tax cuts and subsidies to combat surging energy prices.

But that adds up to hefty bills for already stretched coffers, leaving many scrambling to find a solution, and EU countries disagree on a bloc-wide solution to address soaring prices.

Spain and Portugal capped gas prices in their local electricity market this month. Still, other states warn price caps would disrupt energy markets and drain state coffers further if governments had to pay the difference between the capped price and the price in international gas markets.

[Edited by Alice Taylor]

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