EU proposes price cap on Russia gas as Putin threatens to cut off energy supplies

The European Union proposed a price cap on Russian gas on Wednesday hours after President Vladimir Putin threatened to halt all supplies if they took such a step, raising the risk of rationing in some of the world’s richest countries this winter.

The escalating standoff threatens to send sky-high European gas prices higher still, adding to already eyewatering bills EU governments are paying to stop their energy providers collapsing and prevent cash-strapped customers freezing in the cold months ahead.

Europe has accused Russia of weaponising energy supplies in retaliation for Western sanctions imposed on Moscow over its invasion of Ukraine. Russia blames those sanctions for causing the gas supply problems, which it puts down to pipeline faults.

EU energy ministers are due to hold an emergency meeting on Friday to discuss how to tackle the energy crisis.

“We will propose a price cap on Russian gas… We must cut Russia’s revenues which Putin uses to finance this atrocious war in Ukraine,” European Commission President Ursula von der Leyen told reporters.

The Commission will also put forward other measures including a mandatory cut in electricity use during peak hours, and a cap on the revenues of energy generated from other sources.

Speaking earlier at an economic forum in Vladivostok, Putin anticipated the move, warning that supply contracts could be ripped up and warning the West it would be frozen like a wolf’s tail in a famous Russian fairy tale.

0:58 EU asks countries to cut gas use by 15% until March

“Will there be any political decisions that contradict the contracts? Yes, we just won’t fulfill them. We will not supply anything at all if it contradicts our interests,” Putin said.

“We will not supply gas, oil, coal, heating oil – we will not supply anything,” Putin said.

Europe usually imports about 40% of its gas and 30% of its oil from Russia.

The Group of Seven (G7) wealthy democracies announced plans to impose a price cap on Russian oil exports last week in a move that could also restrict Russia’s ability to secure tankers and insurance from countries beyond the G7.

Crank in EU ranks?

However, there were signs of division among EU members over the price cap plan. A Czech minister said it should be taken off the agenda for Friday’s meeting. The Czechs are helping to guide discussions as holders of the EU’s rotating presidency.

“It is not a constructive proposal, according to me. It is more another way to sanction Russia than an actual solution to the energy crisis in Europe,” Czech news agency CTK quoted Industry Minister Jozef Sikela as saying.

The energy crisis facing Europe has grown more acute after Russia’s Gazprom GAZP.MM fully suspended gas supplied through the Nord Stream 1 pipeline to Germany after it said it found an engine oil leak during maintenance work last week.

Putin rejected Western claims that Moscow was using gas as a weapon to break opposition to its invasion of Ukraine.

The Russian president said Germany and Western sanctions were to blame for the pipeline not being operational and that Ukraine and Poland decided on their own to switch off other gas routes into Europe.

He called on Germany to return a turbine for the pipeline’s Portovaya compressor station that would allow Russia to resume pumping gas.

0:43 Putin boasts about Russia’s advanced weapons, says Moscow willing to share with allies

The impact of the surge in prices is forcing companies to curtail production and governments to spend billions on support to cushion consumers from the impact.

Around half of all aluminum and zinc production has been forced offline in the European Union due to the power crisis, an industry association said on Wednesday and it called on the bloc to cut costs to prevent the permanent closure of metal producing plants. Read full story

Europe’s electricity industry body urged governments to provide emergency credit to energy companies facing a liquidity squeeze from soaring collateral needs as power prices rise.

In Germany, where the government is spending 65 billion euros to shield consumers and businesses from rocketing prices, a survey showed that more than 90% of medium-sized companies see rising energy and raw materials prices as a major or existential threat.