Opinion

2 May, 09:15 PM

Why Putin is blackmailing Europe with gas

Serhiy Fursa

Ukrainian investment banker, columnist

Putin is blackmailing Europe and risks losing Russia’s largest market.

Putin is blackmailing Europe and risking the loss of Russia’s largest market. This is irrational, logically speaking. It's like bombing the Russian city of Voronezh, economists joke. But that's what he's doing. Putin is like a poker player who constantly raises, and bets all-in with a poor hand.

Putin has taken the first step. He attacked Ukraine. He thought it would be a walk in the park. And he was wrong. His plan A and plan B did not work. He has lost, but can't admit it.

And then he became hostage to his first step because it turned out that he could not just get out of the game. Such are the rules for an autocrat, a dictatorship. If you admit that you were wrong, you become a loser, and you lose power. And if on the morning of Feb. 24 Putin was thinking about a mention in the history books, today he is preoccupied exclusively with his own survival.

Putin is raising the stakes again. And he demands, it seems, nonsense — let him be paid for gas in rubles. There is no economic sense in this. But when did Putin care about economic sense?

His goal is to force Europe to take steps that would violate sanctions against Russia's Central Bank. They will violate European unity. And then he can use gas blackmail, again and again, breaking sanctions against Russia.

Is Putin taking a risk? Of course. In fact, he is imposing a self-embargo if Europe does not give in to his blackmail. Gas accounts for a quarter of all Russia's oil and gas revenues, and the lion's share of this gas is sold on the European market. And Putin may lose those. He is blackmailing Europe by cutting off gas, ostensibly screwing shut the gas values for Poland and Bulgaria.

Why is he willing to take such a risk? Well, first of all, now he has cut off only Poland and Bulgaria, which didn’t account for much of the Kremlin’s gas sales. Both countries were preparing to give up Russian gas this year anyway. Secondly, Europe has already stated that it will completely abandon Russian gas within a few years. Therefore, Putin no longer needs to be considered a reliable supplier. It just doesn't make sense. Because there will simply be no new contracts.

Thus, Putin is putting at stake the proceeds from the sale of gas for the next two years. And Gazprom's assets that still remain around the world. Because by cutting off gas supplies, Putin is violating the contract and will later face court decisions. This is a huge bet, as it draws the possibility of an oil embargo nearer. The abandonment of Russian energy dependency will soon become critical.

He is taking a risk in order to have sanctions lifted. If he succeeds now, he may demand something else next time. He knows that the West is preparing restrictions on oil sales with the introduction of a special escrow account, which will receive revenues from oil sales and only part of them will go to Russia's budget. At least, he believes this is possible. He’s gambling, knowing that this could lead to an increase in the price of oil and partially compensate for losses.

Putin is raising the stakes, and testing Europe’s strength.

Does Brussels know about this? And what about Washington? And Berlin? Of course they know. But will the bureaucrats and politicians give in?

 Business would, we understand, but in Europe business is law-abiding and will play by the rules. But it is also a matter of honor for politicians now, and they have already walked this path. They are also already providing weapons to Ukraine. It will be very difficult for them to bow to Putin now.

 So it is likely that we will see a very rapid gas embargo, but it will be introduced by Putin himself. It will be costly for Europe, and will actually lead to an economic downturn, at least in Germany. But in this way, Germany will simply be paying for its mistakes.

Still, Putin is again betting on the weakness of the West. The West has already shown him that he was wrong, but Putin is doing the same thing again and again.

What if he makes a mistake again? Russia will drastically lose most of its energy revenues – he will limit the gas supply himself. And sanctions on oil are expected next week. Not blanket sanctions, but they will definitely deal a blow to the flow of petrodollars.

Can such a player win? Sometimes they do. But if it's not simpletons playing against him, if the players at the table keep their nerve, then he stands no chance. And, the funniest thing is that he is aware of this, and still goes ahead with it.

Will he keep raising the stakes?

After he bluffs and loses gas income, will he press the nuclear button? He does not care about a world in which there is no Putin. But if it were that simple, he would press it. Fortunately, things don’t work that way. For many of the people under the dictator, Putin's survival is not the goal of their entire lives. Who knows what they might do if he gave the order to use nuclear weapons, and condemned them as well as himself to obliteration.

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