EU plans to cap Russian gas price as Putin issues warning

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“We must cut Russian revenues that Putin is using to finance this brutal war in Ukraine,” European Commission President Ursula von der Leyen told reporters on Wednesday.

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The European Union has proposed capping Russian gas prices just as Russian President Vladimir Putin warned that such a move would force Moscow to cut off all energy supplies.

Europe is in the midst of a escalating standoff with Russia that could further push up already high gas prices in Europe ahead of colder months.

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Brussels accuses Moscow of using energy as a weapon in response to Western sanctions imposed on Moscow in connection with its invasion of Ukraine.

Russia continues to insist that the sanctions are causing supply problems, which it attributes to pipeline malfunctions.

Russia’s Gazprom on Friday completely halted gas supplies via the Nord Stream 1 gas pipeline to Germany after it said it had discovered a motor oil leak during maintenance work.

Growing tension

Putin warned that contracts could be terminated if prices were capped.

“We will not supply anything at all if it is contrary to our interests,” Putin said Wednesday at an economic forum in Vladivostok.

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

Europe typically imports about 40 percent of its gas and 30 percent of its oil from Russia.

Despite warnings, the EU plans to achieve a price cap on Russian gas, as well as a price ceiling on electricity from non-gas-fired generators.

“We will offer a ceiling price on Russian gas… We must cut Russian revenues that Putin is using to finance this brutal war in Ukraine,” European Commission President Ursula von der Leyen told reporters.

EU energy ministers are due to hold an emergency meeting on Friday.

The Netherlands, which has consistently opposed capping gas prices, will support a proposal targeting Russian gas, a source with knowledge of the matter told Reuters on Wednesday.

However, the Czech minister said earlier that this issue should be removed from the agenda of Friday’s meeting. The Czechs are helping to guide discussions as holders of a rotating presidency of the EU.

Cutting production and wasting billions

On Wednesday, Ukrainian President Volodymyr Zelensky thanked the EU for confirming five billion euros ($4.97 billion) in macro-financial assistance. He also added that the country needs a “full-fledged” financing program from the International Monetary Fund.

Zelenskiy made the comment on Twitter after speaking with German Chancellor Olaf Scholz, who he said discussed plans to further strengthen Ukraine’s defense capability.

Europe is also spending billions of dollars on consumer support to cushion the impact of rising energy prices.

New UK Prime Minister Liz Truss is expected to unveil her plans on Thursday, with the price freeze bill projected to rise to £100bn ($115bn).

Many European companies have already been forced to cut production.

Eurelectric, an organization representing the European electricity industry, has criticized EU plans to cap the price of electricity from generators that do not run on gas at 200 euros per MWh.

“The root cause of the problem is the shortage of gas and our dependence on imported fossil fuels,” said Christian Ruby, general secretary of Eurelectric. “Governments should seek to address this issue rather than resort to distorting, ad-hoc interventions in the electricity market.”

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