[Needless to say, this is a very significant development. The big question now becomes "what next"?]
Vladimir Putin ordered the Russian state energy giant Gazprom to cut supplies to and through Ukraine amid accusations, according to The Daily Mail, that its neighbor has been siphoning off and stealing Russian gas. Due to these "transit risks for European consumers in the territory of Ukraine," Gazprom cut gas exports to Europe by 60%, plunging the continent into an energy crisis "within hours." Perhaps explaining the explosion higher in NatGas prices (and oil) today, gas companies in Ukraine confirmed that Russia had cut off supply; and six countries reported a complete shut-off of Russian gas. The EU raged that the sudden cut-off to some of its member countries was "completely unacceptable," but Gazprom CEO Alexey Miller later added that Russia plans to shift all its natural gas flows crossing Ukraine to a route via Turkey; and Russian Energy Minister Alexander Novak stated unequivocally, "the decision has been made."
Russia plans to shift all its natural gas flows crossing Ukraine to a route via Turkey, a surprise move that the European Union’s energy chief said would hurt its reputation as a supplier.
The decision makes no economic sense,Maros Sefcovic, the European Commission’s vice president for energy union, told reporters today after talks with Russian government officials and the head of gas exporter, OAO Gazprom, in Moscow.
Gazprom, the world’s biggest natural gas supplier, plans to send 63 billion cubic meters through a proposed link under the Black Sea to Turkey, fully replacing shipments via Ukraine, Chief Executive Officer Alexey Miller said during the discussions. About 40 percent of Russia’s gas exports to Europe and Turkey travel through Ukraine’s Soviet-era network.
Sefcovic said he was “very surprised” by Miller’s comment, adding that relying on a Turkish route, without Ukraine, won’t fit with the EU’s gas system.
Gazprom plans to deliver the fuel to Turkey’s border with Greece and “it’s up to the EU to decide what to do” with it further, according to Sefcovic.
“Transit risks for European consumers on the territory of Ukraine remain,” Miller said in an e-mailed statement. “There are no other options” except for the planned Turkish Stream link, he said.
“We have informed our European partners, and now it is up to them to put in place the necessary infrastructure starting from the Turkish-Greek border,” Miller said.
Russia won’t hurt its image with a shift to Turkey because it has always been a reliable gas supplier and never violated its obligations, Russian Energy Minister Alexander Novak told reporters today in Moscow after meeting Sefcovic.
“The decision has been made,” Novak said. “We are diversifying and eliminating the risks of unreliable countries that caused problems in past years, including for European consumers.”
"They [the Russians] have reduced deliveries to 92million cubic metres per 24 hours compared to the promised 221million cubic metres without explanation," said Valentin Zemlyansky of the Ukrainian gas company Naftogaz.
"We do not understand how we will deliver gas to Europe. This means that in a few hours problems with supplies to Europe will begin."
Back in November, before most grasped just how serious the collapse in crude was (and would become, as well as its massive implications), we wrote "How The Petrodollar Quietly Died, And Nobody Noticed", because for the first time in almost two decades, energy-exporting countries would pull their "petrodollars" out of world markets in 2015.
As Bloomberg reports Russia "may unseal its $88 billion Reserve Fund and convert some of its foreign-currency holdings into rubles, the latest government effort to prop up an economy veering into its worst slump since 2009."
These are dollars which Russia would have otherwise recycled into US denominated assets. Instead, Russia will purchase even more Rubles and use the proceeds for FX and economic stabilization purposes.
"Together with the central bank, we are selling a part of our foreign-currency reserves,” Finance Minister Anton Siluanov said in Moscow today. “We’ll get rubles and place them in deposits for banks, giving liquidity to the economy."
Call it less than amicable divorce, call it what you will: what it is, is Russia violently leaving the ranks of countries that exchange crude for US paper.
And now, we await to see which other country will follow Russia out of the Petrodollar next, and what impact that will have not only on the world's reserve currency, on US Treasury rates, and on the most financialized commodity as this chart demonstrates...