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Ukraine Latest: Kremlin Likely to Keep Cap on Gas Flow to Europe
(Bloomberg) -- The Kremlin is likely to keep vital gas flows to Europe at minimal levels as long as the standoff over Ukraine continues, ratcheting up the pressure on the European Union over its tough stance on Russia’s invasion, according to people familiar with the leadership’s thinking in Moscow.
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Gazprom PJSC earlier this week announced it will reduce supply through a key pipeline to Germany to around 20% of normal capacity from Wednesday. The Russian gas giant said one more turbine is due for maintenance, an explanation dismissed by German Economy Minister Robert Habeck as a “farcical story” that “simply isn’t true.”
EU energy ministers in Brussels agreed on a voluntary reduction in gas consumption by 15% through next winter to prepare for any further disruption in supplies from Russia.
(See RSAN on the Bloomberg Terminal for the Russian Sanctions Dashboard.)
Key Developments
Kremlin to Keep Up Its Gas Squeeze on Europe, Insiders Say
EU Nations Back 15% Gas-Cut Target as Russia Set to Reduce Flows
First Hurdle for Ukraine Grain Deal Is Clearing Stuck Ships
Gas Extends Surge in Europe as New Russian Cuts Deal Fresh Blow
Ukraine Debt Relief Plans May Cause Payout on $2.4 Billion Swaps
Germany’s Uniper Getting Less Russian Gas After Gazprom Cuts
On the Ground
With the war now into a sixth month, a Ukrainian offensive is underway in the south, according to Nalaliya Humenuik, a spokesperson for the military’s southern front. Russian missiles struck the Odesa region and the city of Mykolayiv, she said. Kremlin forces shelled Ukraine’s second-largest city of Kharkiv overnight, local authorities said on Telegram. In the Donetsk region, Russian troops are attempting to bolster their positions ahead of a possible assault on the cities of Siversk and Soledar, Ukraine’s General Staff said in a statement.
(All times CET)
Ukraine’s Naftogaz Says a Default Is Inevitable (8:56 p.m.)
Ukraine’s state-owned energy company said it’s on track to default on its foreign bonds after the government issued a decree last week compelling it to pursue a debt moratorium that creditors have so far rejected.
A grace period for NJSC Naftogaz Ukrainy to redeem $335 million of international bonds is due to expire on Tuesday. Without the consent of bondholders for a moratorium, or permission from the government for Naftogaz to make the payment, the missed transfer could trigger a cross default event on at least $1.4 billion of its foreign notes.
“It is acknowledged that certain Events of Default have or will occur as a result of the Resolution and the resulting failure to pay,” the company said in a statement, referring to the Kyiv government’s decree on Friday.
Russia Plans War Games Aug. 30 to Sept. 5 (4:35 p.m.)
Russia plans to hold war games in the country’s eastern military district that will include troops from other countries on Aug. 30 to Sept. 5, the Defense Ministry said in a statement that also denied plans for a general mobilization.
“Several foreign media outlets are spreading false information about alleged an mobilization,” the ministry said, without identifying the sources.
The statement also sought to tamp down reports that the military was stretched thin due to the war in Ukraine, claiming that no planned training exercises have been canceled.
Ukraine’s Top Court Upholds Privatbank’s Nationalization (4:25 p.m.)
Ukraine’s Supreme Court rejected an appeal by the former owners of Ukraine’s largest bank to overturn its 2016 nationalization amid allegations of fraud.
The decision is final and can’t be contested in other courts, Privatbank’s press-office said Tuesday. It is one of a string of lawsuits filed by the lender’s former controlling shareholders, Igor Kolomoisky and Gennady Bogolyubov, seeking to reverse the government takeover after Ukraine seized the bank amid insolvency risks. Other cases are pending in domestic courts, with some due to be ruled upon this week.
Prior to Russia’s invasion, Privatbank’s nationalization was a condition for Ukraine to continue to receive foreign aid, including from the International Monetary Fund, and was seen as a crucial step in the government’s fight against the country’s most influential tycoons.
Kremlin Said to Plan to Keep Up Gas Squeeze on Europe (3:15 p.m.)
The Kremlin is using disruptions to Nord Stream, its main remaining pipeline supplying Europe, to raise the political heat on EU leaders to reconsider their support for Kyiv, people familiar with the leadership’s thinking said, speaking on condition of anonymity to discuss internal deliberations.
They expect the Kremlin and Gazprom, the state-run gas giant, to continue to find reasons to keep flows limited, preventing European customers from building up the supplies they need to meet demand in the winter.
Russia denies politicizing its fuel exports. Kremlin spokesman Dmitry Peskov Monday suggested that the problems at Nord Stream are linked to Europe’s imposition of sanctions over the war, warning Monday that while Russia is at the moment “not interested” in cutting off the gas this winter, “the situation may change.”
Russia to Pull Out of Space Station After 2024 (2:30 p.m.)
Russia will quit the International Space Station after 2024, the newly-appointed head of the country’s space program said.
Yuri Borisov, who took over Roscosmos earlier this month, told President Vladimir Putin in a televised meeting that Russia will fulfill its obligations to its other partners in the orbital station before it leaves. His comments confirm previous statements by his predecessor, Dmitry Rogozin.
The ISS is one of the last remaining symbols of cooperation between Russia and the US since the relationship deteriorated following the invasion of Ukraine. NASA and Roscosmos reached a deal this month for astronauts to fly on Russian spacecraft to the space station in exchange for cosmonauts riding on US-built rockets.
Turkey to Open Grain Corridor Coordination Center Wednesday (1:15 p.m.)
Turkish Defense Minister Hulusi Akar will attend a ceremony to open a grain corridor coordination center in Istanbul on Wednesday as part of an agreement reached last week to allow grain exports from Ukraine, according to a statement from the ministry.
A Russian missile strike on the port city of Odesa after the deal was reached raised doubts about Moscow’s commitment to the accord. However, the UN later said all sides have reconfirmed their commitment to the effort and that the first shipment may move within a few days.
EU Gas Plan Includes Emergency Clause (12:30 p.m.)
The EU’s gas plan makes the 15% target mandatory under an emergency situation -- such as a severe disruption to flows from Russia. It also envisages a number of opt-outs, including for countries whose electricity grids are not synchronized with the European system and are heavily reliant on gas for electricity production.
“Today’s decision has clearly shown the member states will stand tall against any Russian attempt to divide the EU by using energy supplies as a weapon,” Jozef Sikela, the Czech industry minister, said in a statement.
Russian GDP Seen Shrinking 3.5% in 2022 (11:15 a.m.)
Sanctions have roiled Russia’s economy, but an updated forecast from Bloomberg Economics predicts that gross domestic product will shrink by just 3.5% this year.
That would be much less than the consensus projection of a decline of 9.1% or the International Monetary Fund’s forecast of an 8.5% contraction. The Bloomberg analysis partly reflects the shortcomings of GDP as a measure of economic health, but the loss of output has also been limited by the porousness of the energy sanctions and the effectiveness of the central bank’s actions, according to Russia economist Alexander Isakov.
Baerbock Warns War Could Drag on For Months (11 a.m.)
German Foreign Minister Annalena Baerbock warned that Russia’s war in Ukraine could drag on “for months” and pledged to continue supplying the government in Kyiv with ammunition, equipment and heavy weapons as well as providing more financial support.
“It’s clear that we need a great deal of endurance,” Baerbock told reporters after meeting her Czech counterpart in Prague. “We must be prepared that this war, which Russia is conducting with utter brutality, and which it carries out in a way which nobody else would, could go on for months more.”
Simson Expects EU Agreement on Gas (9 a.m.)
Despite “different starting positions” among member states, EU Energy Commissioner Kadri Simson expects an agreement to preemptively reduce gas use to be better prepared for a possible supply cut during the winter.
While Gazprom’s announcement “has underlined once again that we have to be ready for possible supply cuts from Russia at any moment,” it does not change the Commission’s outlook, Simson told reporters before the meeting in Brussels. “We know that there is no technical reason to do so, this is a politically motivated step. And we have to be ready for that,” he added.
Habeck Warns of ‘Serious’ Gas Situation (8:30 a.m.)
Habeck said that if Europe’s biggest economy can cut gas consumption by between 15% and 20% it has a good chance of avoiding a crisis situation for the country’s industrial companies.
“We’re in a serious situation and it’s about time everyone understood this,” Habeck said late Monday in an interview with public broadcaster ARD. “We need to bring down gas consumption, that’s what we’re working on.”
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