Trouble in the pipeline if Russia cuts Europe off

Putin has ordered Gazprom, Russia’s largest natural gas producer, to cut supplies to Europe by 60 per cent. Bulgaria, Greece, Macedonia, Romania, Croatia and Turkey will take the first hit before the impact reaches the heart of Europe, which takes more than a third of its energy from Russia. This marks Russia’s first retaliation against Ukraine and against Europe, which has been waging economic and financial war against Russia since early last year, culminating in the attack on the ruble in December.
Putin’s order to cut the gas supply to Europe follows talks in Moscow between Maros Sefcovic, European Commission vice president for Energy Union, and Gazprom chairman Alexey Miller, over energy cooperation between the EU and Russia. To the dismay of Europe, Russia has killed the South Stream project to supply natural gas to Europe via a pipeline through the Black Sea and Bulgaria. Instead, Russia is opting for the Turk Stream pipeline, which means Turkey will have a big say in the annual supply of 63 billion cubic metres of gas to Europe.
Since becoming embroiled in a conflict with Ukraine, Russia no longer wants to supply gas to Europe via its southwest neighbour, which has defected to the West. Russia has accused Ukraine, which is bankrupt, of siphoning off gas meant for Europe. At present, 40 per cent of Russia’s gas supply to Europe goes through Ukraine. It is obvious that Ukraine is at risk of losing its gas from Russia and it will no longer serve as a conduit for supplies to Europe.
Sefcovic expressed his dismay at Russia’s decision to bypass Ukraine, as the Turkish pipeline project does not fit with Europe’s existing infrastructure.
The pipeline spat boils down to geopolitics. Amid deteriorating relations with the West, whose sanctions have helped push Russia to the brink of bankruptcy, Putin is beginning to hit back. And after cutting back Europe’s gas supply, he can go ahead and completely switch it off if he chooses. Europe would then be plunged into an energy and economic crisis since it wouldn’t be able to switch to another energy supply in time.
Second, Putin may also announce a freeze on repayment of Russia’s $600-billion foreign currency debt by making the excuse that sanctions have made it impossible for Russian banks or companies to service it. European banks, which are already weak, will then see a big black hole in their balance sheets.
Third, Putin is dumping the dollar like crazy. He is buying back the ruble and getting rid of the greenback. Foreign analysts are sounding the alarm over the rapid drop in Russia’s foreign reserves, which have plunged from $500 billion at the beginning of 2014 to a current level of $339 billion. But Russia is proving that it can survive on its own currency, the ruble, without the need of huge dollar reserves. Since Russia has entered into a currency swap agreement with China, it can use the ruble to purchase goods and services from China while China can use its yuan to buy energy and other goods from Russia. By doing so, both countries have bypassed the dollar. If Russia were to close its borders to Europe, it could survive by trading with China alone.
Meanwhile, Europe has been suffering badly from the economic downturn since 2009. The European Central Bank is pondering following in the footsteps of the US Federal Reserve by printing money to purchase sovereign bonds of financially troubled EU countries.
To its confrontation with Russia over the Ukraine crisis, Europe has added anti-Islamic sentiment following the massacre at the offices of French satirical newspaper Charlie Hebdo. This has prompted the French to respond by sending its aircraft carrier to the Gulf to prepare for a war against ISIS in Iraq. At the same time, in our own region, Japan is now boosting its defences for a face-off with both China and North Korea. We appear to be witnessing the danger of war loom on three fronts: in Europe, in the Middle East and in Asia. And the danger will loom larger for as long as the political ambitions of the West and the East, led by Russia and China, fail to find common ground.