LONDON/OSLO (Reuters) -- Europe’s gas prices surged, its share prices slid and the euro sank on Monday after Russia stopped pumping gas via a major supply route, sending another economic shock wave through the European Union as it struggles to recover from the pandemic.
EU governments are pushing through packages worth billions of dollars to prevent utilities being crushed by a liquidity crunch and to protect households from soaring energy bills, after Russia’s state-controlled Gazprom said it would stop pumping gas via the Nord Stream 1 pipeline due to a fault.
Europe has accused Russia of weaponizing energy supplies in retaliation for Western sanctions imposed on Moscow over its military operation in Ukraine. Russia blamed sanctions by “the collective West” for causing the gas supply problems.
A host of European power distributors have already collapsed and some major generators could be at risk, hit by caps that limit the prices rises they can pass to consumers or caught out by hedging bets, with gas prices now 400% more than a year ago.
“This has had the ingredients for a kind of a Lehman Brothers of energy industry,” Finnish Economic Affairs Minister Mika Lintila said on Sunday, referring to the U.S. bank that collapsed in 2008 and heralded the global financial crash.
Finland aims to offer 10 billion euros ($10 billion) and Sweden 250 billion Swedish crowns ($23 billion) in liquidity guarantees to their power companies.
“The government’s program is a last-resort financing option for companies that would otherwise be threatened with insolvency,” Finland’s Prime Minister Sanna Marin said.
Germany, more reliant than most EU states on Russian gas, has offered a multibillion-euro bailout to power utility Uniper. Berlin said it would spend at least 65 billion euros to shield customers and businesses from soaring inflation, stoked by surging energy prices.
The benchmark gas price rose as much as 35% Monday and was up more than 400% on the year, after Russia said on Friday a leak in Nord Stream 1 equipment meant it would stay shut beyond last week’s three-day maintenance halt.
European financial markets were reeling from the news. The euro sank to a 20-year low and European shares tumbled.
Nord Stream 1, which runs under the Baltic Sea to Germany, historically supplied about a third of the gas Russia exported to Europe, although it was already running at just 20% of capacity before last week’s maintenance outage.
“Problems with gas supply arose because of the sanctions imposed on our country by Western states, including Germany and Britain,” Kremlin spokesman Dmitry Peskov said on Monday. “There are no other reasons that lead to problems with supplies.”
Adding to the standoff over energy, he also said Russia would retaliate if G7 states imposed a price cap on Russian oil. “There can only be retaliatory measures,” he said.
Russia also sends gas to Europe via pipeline across Ukraine, another major route. But those supplies have also been reduced