Europe in deepening energy crisis as winter looms

Germany nationalised its gas importer on Wednesday and Britain capped the wholesale cost of electricity and gas for businesses as Europe scrambled to keep the lights on and heaters running this winter.

European gas and power prices have rocketed as Russia has cut fuel exports to retaliate for Western sanctions over its invasion of Ukraine, leaving consumers struggling with skyhigh bills and utilities grappling with a liquidity crunch.

“We have stepped in to stop businesses collapsing, protect jobs, and limit inflation,” Britain’s finance minister Kwasi Kwarteng said.

While many businesses are grappling with higher bills, more than 20 British power providers have collapsed, many crumbling because a government price cap prevented them passing on the full impact of surging fuel costs to households.

The European Union, which once relied on Russia for about 40% of its gas needs, has been racing to find other supplies.

“The (Russian) move could possibly lead to calls for more aggressive action against Russia in terms of sanctions from the West,” said Warren Patterson, head of commodities research at ING.

Germany’s gas importer Uniper, once heavily reliant on Russian gas imports, has been among the most high-profile casualties, facing a liquidity crunch as Russia turned off the tap and sent prices soaring.

Germany was more reliant than many others in Europe on Russian gas, mostly supplied via the Nord Stream 1 pipeline. Russia halted flows through the pipeline, blaming Western sanctions for hindering operations. European politicians call that a pretext and say Moscow is using energy as a weapon.

The German government has already put Gazprom Germania, a unit of Kremlin-controlled Gazprom, and a subsidiary of Russian oil company Rosneft under trusteeship - a de facto nationalisation. Smaller companies have also asked for help.

In the United States, Democratic and Republican senators on Tuesday proposed that U.S. President Joe Biden’s administration use secondary sanctions on international banks to strengthen plans for price cap by G7 countries on Russian oil.

Moscow has said it would cut all oil and gas flows to the West if such cap was implemented.

Several countries have banned imports of Russian crude and fuel, but Moscow has managed to maintain its revenues through increased crude sales to Asia.