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Russian President Vladimir Putin attends a meeting in Moscow, on Jan. 19.SPUTNIK/Reuters

In the midst of the fast-spreading Omicron wave, it’s hard to forecast when continuing global supply chain disruptions and shortages of key materials, components and labour will be resolved. But here’s a safe prediction about one product whose lack of supply and soaring cost has triggered a deepening crisis across Europe: It’s only going to get worse.

We’re talking here about natural gas. And despite what some European Union officials would have us believe, Russian President Vladimir Putin and his machinations aren’t the sole reason for their energy woes this winter.

There’s no doubt that Mr. Putin is playing politics with gas supply – one of his old tricks – amid threats from Russia’s European customers to impose severe sanctions if he has the temerity to invade Ukraine. State-controlled Gazprom, which normally accounts for about 40 per cent of Europe’s natural gas imports, has reduced the flow substantially despite surging demand.

While other suppliers boosted exports in the fourth quarter to capitalize on higher prices in the spot market, Gazprom shipped 25 per cent less, International Energy Agency chief Fatih Birol said. “We believe there are strong elements of the tightness in European gas markets due to Russia’s behaviour.”

Some Kremlin watchers say Mr. Putin is just giving the EU a taste of what it can expect if it responds to Russian aggression with harsh penalties. In their assessment, Mr. Putin regards the United States and its European NATO allies as particularly weak just now and unlikely to respond to any fresh incursions into Ukraine with strong countermeasures.

But analysts who have concluded that the Russian leader feels free to pursue his long-sought goals of rebuilding a buffer zone of friendly – and preferably undemocratic – governments on his borders underestimate the constraints he faces. Their mistake is focusing on what Mr. Putin would prefer doing, rather than what he can afford to pursue without causing enormous damage to an already sluggish domestic economy.

State-controlled Gazprom and other major Russian companies are required to pay out no less than half of their profits in dividends, which ensures a steady stream of cash to government coffers. It has also attracted risk-tolerant foreign investors willing to trust that the Kremlin’s own financial needs would keep the fat dividends coming and the ruble out of trouble.

But all of that has been thrown into doubt. The ruble has fallen to its lowest level in months against the U.S. dollar and the euro, while Gazprom and other Russian blue chips have taken a pummelling. Gazprom posted record profit last year, but its outlook is decidedly darker if it can’t keep piping gas to the EU, which accounts for the bulk of its export revenues. China is buying more Russian gas, but it’s also developing its own offshore resources and snapping up all the liquefied natural gas it can get its hands on. Excluding former Soviet states, Gazprom’s fourth-biggest customer, after Germany, the Netherlands and Italy, is Turkey, whose currency has collapsed and where the company already has trouble collecting payments.

The plain truth is that Mr. Putin needs Europe, with its ever expanding energy needs and its steady supply of euros, even more than Europe needs his gas. But even if he settles for something less sanction-provoking than a military assault on Ukraine, Europe’s energy woes aren’t going away any time soon. The problems stem from poor policy decisions over the past couple of decades related to the region’s shift away from fossil fuels toward renewable energy sources.

European policy makers concluded that natural gas was their best option for keeping the lights on during the difficult transition. A slew of countries elsewhere came up with a similar solution at a time when Europe’s own gas resources were dwindling, heightening competition for imports and boosting costs.

Making matters worse, Europe liberalized electricity pricing as an incentive for power companies to make the switch to expensive gas. Long-term delivery contracts were replaced in many cases with prices set daily in the more turbulent spot market, driving up costs and destabilizing supply.

The Russians insist this is the real reason for the current shortfall. Deputy prime minister Alexander Novak blamed Europe’s “short-sighted policy” for discouraging further Russian investment in production. Sure, Gazprom could boost deliveries, he said in a domestic TV interview, but only with firm contracts and guaranteed prices that would justify the necessary investments to add capacity.

The crisis has prompted EU policy makers to consider putting natural gas and nuclear projects on the same footing as green energy initiatives when it comes to eligibility for public and private investment during the transition to solely renewable sources, infuriating environmentalists.

But desperate times require desperate measures, as Mr. Putin may be about to discover.

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