Russian Gas divides Europe

Russian gas concerns and divides Europe. The EU is facing a major energy crisis. It is therefore looking for solutions to ensure its energy supply while trying to contain the price hike. To do this, several avenues have been explored.

In sum, the EU seems to be interested in the profits of energy suppliers and not in a cap on Russian gas prices. In fact, faced with the threat of Russian gas cuts, European energy ministers are proposing a broader taxation of revenues.

The threat of Russian gas cut-off

The cap on the price of Russian gas was intended to counteract the surge in energy prices. The Swedish Minister of Energy, Khashayar Farmanbar, said

“Everyone is anxious to find a solution”.

He was relaying the ministers’ concerns about soaring energy prices and the impact on homes and businesses. This exceptional European tax was intended to allow the government to reduce household bills in the context of the energy crisis.

Nevertheless, President Putin announced this week that Moscow would cut off gas supplies to Europe if necessary. In Hungary, Peter Szijjarto confirms the risk of reprisals:

“If price restrictions were to exclusively affect Russia, it would lead to an immediate shutdown of Russian supply.”

Some countries still heavily dependent on Russian gas have refused to take the risk.

Generalized taxation on gas problematic

Faced with this impasse, the energy ministers reviewed their strategy and abandoned the objective of capping Russian gas. Instead, they put forward the idea of a broader taxation of gas revenues, which was met with reservations by the EU executive.

According to the Italian Minister for Ecological Transition, Roberto Cingolani, 15 EU states have come out in favor of a generalized tax on gas. But countries like the Netherlands have expressed doubts about this. The Dutch State Secretary for Extractive Industries, Hans Vijlbrief, states:

“I wouldn’t say there’s broad support for a general tax on gas revenues.”

The European Commission added that a cap on natural gas prices in Europe would be counterproductive. In fact, this would mean redirecting it to other regions and depriving the EU of this resource. The European Commissioner for Energy, Kadri Simson, confirms this analysis:

“We must be careful not to jeopardize the security of our energy supply.”

The Commissioner does not include any general tax measures on gas revenues in the latest list of announced measures.

The impact of Russian gas supply restrictions

Russian gas supplies have been cut by nearly 90% over the past 12 months, according to Refinitiv data. Moscow blames technical problems for the blackouts. These malfunctions would be, in the opinion of the Kremlin, due to the European sanctions put in place following the invasion of Ukraine.

VNG, one of Germany’s largest importers of Russian gas, is, as of Friday, the latest European company to seek state support due to Russian cuts. Many European countries are now talking about the idea of setting up financial instruments to support companies on a European scale.

The head of the European Central Bank, Christine Lagarde, argues that governments should take responsibility for supporting energy firms.

The contribution of fossil fuel companies

In this context, the European ministers suggest that companies exploiting fossil fuels should pay a “solidarity contribution”. Eamon Ryan, Irish Minister for the Environment, comments:

“Getting some of those profits back and returning them to households makes sense to me.”

It would also be a question of “skimming off the super-profits” of wind and nuclear companies and coal plants. Thus it would have been possible to lower the record energy rates indexed to the price of gas.

Energy ministers will meet again at the end of the month to negotiate and approve final plans for this, according to Czech Industry Minister Jozef Sikela.