Russia Curbs Gas Supplies to Germany in Warning for Europe

(Bloomberg) — Germany said Russia is using energy as a “weapon” after Moscow reduced natural gas supplies in retaliation for Europe’s penalties over the war in Ukraine.

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A unit of Gazprom PJSC that was seized by Germany has had its deliveries reduced by about 10 million cubic meters a day, according to German Economy Minister Robert Habeck.

While the move appears to be largely symbolic — amounting to about 3% of Germany’s Russian gas imports, according to Habeck, the Kremlin is showing it won’t shy away from squeezing its largest customer. Benchmark gas prices in Europe surged more than 20%.

“The situation is escalating to the point that the use of energy as a weapon is becoming a reality,” Habeck told reporters on Thursday in response to Russia’s move.

On top of the German standoff, shipments to Europe via Ukraine were curtailed on Thursday after a key cross-border entry point was put out of action because of troop activity on the ground, according to Kyiv. Moscow’s counter-sanctions also targeted a pipeline that crosses Poland, removing a potential backup route for European customers to receive Russian gas.

The tension comes just as a solution appeared to be emerging for what has been the main headache for weeks — Moscow’s demand for ruble payments for its gas. Companies including German giant Uniper SE were increasingly confident they could keep buying Russian supplies without breaching sanctions.

Italian Prime Minister Mario Draghi on Wednesday seemed to back such a move, and more European buyers are opening ruble accounts.

Read: Draghi Says European Companies Can Pay for Gas in Rubles

Germany has been seeking to wean itself off Russian gas, but it still accounts for about 35% of the country’s supplies, down from more than half before the invasion of Ukraine in late February. It will take another step later this year when the its first floating liquefied natural gas terminal goes on line.

Habeck said Germany can cope with the latest disruption in part by securing alternative supplies, adding that there’s no need to elevate Germany’s alert level in response to Moscow’s sanctions against Gazprom Germania GmbH. The country’s three-stage emergency plan, which is currently at its first level, could see its network regulator eventually ration gas if supplies get tight.

The fuel is a crucial part of the energy mix of Europe’s largest economy. Some 15% of Germany’s electricity is generated from gas — compared with less than 9% in 2000, as the country winds down nuclear and coal. The fuel is also critical for heating homes and industrial processes in the chemicals and pharmaceuticals sectors.

Moscow prohibited dealings with Gazprom Germania and its various subsidiaries now under the control of Germany’s energy regulator. That includes energy supplier Wingas GmbH, a European gas storage business, the London-based trading arm of Gazprom and EuRoPol Gaz, owner of the Polish section of the Yamal-Europe pipeline connecting Russia to Germany.

Germany last month temporarily took control of Gazprom Germania. Most of the group’s companies had come under pressure after clients and business partners refused to do business with them after Russia’s invasion of Ukraine. That raised the prospect that owners of key European energy infrastructure wouldn’t survive.

“We are monitoring the situation closely,” he told lawmakers earlier Thursday. “Energy can be used powerfully in an economic conflict.”

(Updates with details on Poland)