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Russia’s Gas Problem

It has been almost two long months since Russia invaded Ukraine, starting in the Donbass region and slowly moving Westward. In these two months we have seen numerous consequences both for Ukraine and Russia, and consequences seen on a global scale. With the globalized effort in support of Ukraine with supplies being sent to the invaded country, and sanctions and condemnations being forced onto Russia, this war has started to exist more fronts than just the country side and urban Ukraine. With globalized efforts to stop Russia’s further advancement into Ukraine and other countries, comes more global impact than can be seen from lives lost, infrastructure damaged and tensions rising.

Starting with the economic sanctions and provisions that have been put on Russia, Russia has had to fight two simultaneous wars. A land war against Ukraine, and an economic war against the West and European countries. What started as freezing the assets of certain Russian oligarchs and members of state, and rejecting the Russian Central Bank’s liquidation of foreign assets and access to SWIFT, a global secure messaging system that allows banks and companies to communicate and move money, has turned into target campaigns that affect Russia’s GDP, inflation, value of the Ruble and other economic aspects.

With one of Russia’s biggest industries and exports being energy, in the forms of oil and natural gas, European countries like Germany have tried to limit their buying of Russian gas to hurt their economy. Europe as a whole have decided to cut off their buying of Russian gas by 66% by the end of the year. The stopping of the dependency of Russian gas by Europe will have major impact on the global economy. Europe currently gets about 40% of their imported energy from Russia and stopping their consumption now will allow for more production on their part, more importation from other countries like the US, and ramp up their investment in green energy sources. Additionally, Russia will have to adjust to sell their gas to other markets, like to China, although they currently do not have the infrastructure built to adjust to selling in other places.

This attacking of Russian natural gas and the falling of the Russian Ruble due to initial sanctions has forced Putin and Russia to take measures. One such measure is the demanding that all transactions buying Russian gas by denominated in Rubles.  Currently, a lot of large contracts with Russian companies are bought using Euros.  The switching of these contracts into Rubles would increase the values of that currency and try to ensure that foreign investment could stop any future drop in its’ value. Though currently, it is unclear whether Russia has the capacity to enforce unilateral changes to contracts. This may be true, but Russia is making it very clear that they will not be pushed down or step back from their role as a major supplier on the global stage, and that they are not afraid to push back and be antagonistic.