EU Gives Up on Russian Natural Gas Price Cap Amid Fears of Moscow’s Retaliation

Wednesday, September 14, 2022

Drago Bosnic, independent geopolitical and military analyst

The European Union has decided to scrap its plan of imposing a price cap on Russian natural gas as part of a proposed package designed to both tackle the energy crisis which is ravaging its member states (particularly Germany) and hurt Russia’s revenues in the process, the Guardian reported on Tuesday, citing a leaked draft document of the proposal. The document has been provided by unnamed sources. According to the Guardian, the draft, scheduled to be unveiled today, contains no reference to any price cap on gas, be it Russian or anyone else’s.

Just last week, the EU Commission said it would propose a mandatory target for its member states to cut power consumption at peak hours, a revenue cap on electricity producers, oil and natural gas companies, as well as a price cap on Russian natural gas. These actions were supposed to be immediate measures to prevent the collapse of the EU’s natural gas and electricity markets which are now under tremendous pressure as a result of anti-Russian sanctions and policies.

“We will propose a cap on Russian [natural] gas. The objective here is very clear. We must cut Russia’s revenues which Putin uses to finance this atrocious war against Ukraine,” European Commission President Ursula von der Leyen said last Wednesday.  

Yet, Ursula von der Leyen’s threats remain empty talking points as EU member states are deeply divided over any sort of a price cap on Russian natural gas. At least ten out of 27 member states are opposed to such a move. Their main concern is that Moscow will likely retaliate with a complete stop of natural gas deliveries to anyone who would try it, including the whole of EU, which could destroy many European economies in mere months, if not weeks.

In all likelihood, this would also result in an all-out political crisis which would then topple down governments across the EU, as the citizens would be under tremendous pressure to pay for heating, while entire industries would be affected and forced to shut down, leaving millions out of work. Germany, as the EU’s biggest and most important economy, and the most affected EU member, especially since the Nord Stream pipeline halted natural gas deliveries, is also against the price cap.

Other EU member states, such as France and Poland, supported the idea of a price cap on all imported natural gas. Still, the European Commission is not very fond of this proposal as an all-out price cap could jeopardize the EU’s options to import larger quantities of LNG if gas prices elsewhere were higher. In addition, this proposal would also affect US LNG companies, which Washington is highly unlikely to take too kindly. Thus, the natural gas price cap most probably will not be in today’s proposal from the European Commission, although the draft document is still subject to changes, the Guardian claims. However, the EU bureaucrats are supposedly still aiming to impose a cap on revenues for nuclear and renewable energy producers and a tax on the extra profits of oil and natural gas companies, including the refining sector, informed sources told Bloomberg on Tuesday.

The idea of a price cap on Russian natural gas, oil and other essential commodities has been “on the table” of policymakers in Washington and Brussels for months. Back in late June, US Treasury Secretary Janet Yellen said that the US and other NATO/EU countries are continuing talks to “restrict Russia’s energy revenues” by “imposing a price cap” on the country’s oil. Still, had the political West been able to limit or halt Russian revenues from oil, gas, food and numerous other commodities which are as essential as they could possibly be, they would’ve done it long ago.

Many in the political West now realize that any serious disruptions to Russian commodities reaching their own markets would have a disastrous effect on the stability of Western economies. At the same time, the political West is frustrated that it needs to pay for those commodities. This results in a series of schizophrenic moves or comically arrogant proclamations of future moves which never really happen.

Anyone with even a basic knowledge of how economies work is well aware that these price caps are empty threats. Russia can simply cut the delivery of natural gas, oil and other commodities to anyone trying to impose the price cap. This would push EU (and global) markets into yet another frenzy, sending fossil fuel prices into orbit once again.

For months, OPEC members have been warning that they cannot replace Russia’s share in the oil and natural gas market and that this would cause a cascading effect of price hikes in every other industry, exponentially increasing inflation, while stagnation would turn into recession in most countries. Consequently, any attempt to impose price caps isn’t just illegal, but would simply backfire and destroy Western economies. If the report by the Guardian is true and Brussels does decide to scrap its gas price cap proposal, it could be a positive signal that the EU learned at least something from its failed economic siege of Russia.

Source: InfoBrics