Russia's cutoff of natural gas supplies for Bulgaria and Poland sends a message to its rivals that Moscow is willing to halt natural gas supplies amid the Ukraine crisis, which would likely trigger a recession in Europe. Russian state-owned natural gas company Gazprom announced on April 27 that it suspended natural gas shipments to Bulgaria's state-owned Bulgargaz and Poland's state-owned PGNiG after both companies refused to comply with Moscow's demand to pay for natural gas in rubles. Gazprom also said the shipments would remain suspended until payments were made in rubles. Bulgaria and Poland will likely be able to withstand the cutoff, but a number of Russia's other European clients are now on notice ahead of payment dates for Russian natural gas due in May. Europe's main natural gas price benchmark surged 20% on the news, though pared its gains to 5%.

In March, Russian President Vladimir Putin said that all countries that were on the Kremlin's list of "unfriendly" countries — which includes Bulgaria, Poland and all other EU member states — would need to pay for natural gas using the Russian national currency effective April 1 or their supplies would be cut off.
Polish news site Onet, which initially broke the news that Russia was cutting off supplies to Poland, reported that PGNiG's payment deadline was April 22.
Under their respective contracts, PGNiG can receive up to 10.2 billion cubic meters (bcm) of natural gas from Gazprom annually, while Bulgargaz's contract allows for up to 2.9 bcm per year. Both contracts expire at the end of 2022 and neither company is negotiating with Gazprom for a new contract. Poland planned to cut all of its natural gas imports from Russia to zero after this year, while Bulgaria pledged not to negotiate during the ongoing war in Ukraine.
European Commission President Ursula von der Leyen labeled the move "blackmail" and promised the European Union would respond accordingly.
The immediate impact of the natural gas shipment suspensions to Bulgaria and Poland will likely be limited. Poland was due to import about 7 bcm more of Gazprom gas through the end of the year, though the country does appear to have ample alternatives. Poland has pipeline interconnections with Germany and Lithuania, as well as a small liquified natural gas (LNG) import facility. New interconnections with Czechia and Slovakia, the latter of which would have a capacity of about 5 bcm, are also due to start later this year. Most importantly, Baltic Pipe, which will have a capacity to deliver about 10 bcm of Norwegian gas to Poland per year, is slated to come online in October. This means that Poland really only needs to be concerned about making it through the summer without importing natural gas from Russia directly, which shouldn't too difficult given that Poland's 3.5 bcm of natural gas storage facilities are about 75% full, and the fact that domestic demand in the summer is relatively lower than in the winter, when increased heating needs cause natural gas usage to spike. Bulgaria has also substantially increased its options to take gas from other producers in recent years. Bulgaria has started to import about 0.5 bcm per year from the Southern Gas Corridor pipeline system, which delivers Azeri gas; these supplies are expected to rise to 1 bcm when a new Greece interconnection comes online later this year.

The Yamal pipeline, which delivers Russian gas to Poland, can also deliver gas to Germany. But flows have frequently flowed from Germany to Poland in recent months, which suggests the cut-off of exports to Poland will have limited (if any) knock-on effects on other consumers.

Bulgaria is also a transit country for Russian natural gas shipments to Hungary and Serbia, home to two governments that are closer to Moscow than most other European governments. Russia will probably not stop trying to deliver natural gas to either country and could still use the TurkStream and other pipeline systems to deliver gas to those countries even if they do not deliver gas to Bulgaria. Bulgaria would have to approve gas transiting its country, but as long as it's in the middle of a domestic natural gas crisis, Sofia may opt to do so to avoid pushing either country closer to Moscow. Hungary is perhaps the most important European country for Russia to keep supplying energy exports. This is because Budapest has said that it does not support European sanctions on Russian oil and natural gas, which means keeping Hungary happy is essential for the Kremlin if it hopes that Budapest will block further EU sanctions.
Serbia is not on Russia's list of unfriendly countries as it is not an EU member state and has not sanctioned Russia. Moreover, the Serbian natural gas distributor Yugorosgaz is co-owned by Russia's Gazprom.

The cutoffs put pressure on Russia's remaining European clients — including Italian and German buyers — to pay in rubles, lest risk sharing the same fate as Poland and Bulgaria, as the dispute between Europe and Russia over natural gas payments escalates. The next large round of payment deadlines for Gazprom's European customers is in late May. To facilitate transactions in rubles, Russia has set up a payment mechanism for European clients to deposit euros or other currencies into an account at Russia's Gazprombank, which would then convert them to rubles. Although the European Commission and a number of European governments have rejected the mechanism, the former published legal guidance on April 21 saying that it "appears possible" to use the machine without violating European sanctions on Russia. The European Commission added, however, that the details of the mechanism remain unclear. European Commission President von der Leyen contradicted the legal guidance on April 27 when she said the mechanism was "a breach of the sanctions, so a high risk for the companies," which highlights the legal uncertainty in the European Union on the issue. Regardless, many of Gazprom's clients are, unlike both PGNiG and Bulgargaz, private companies who will secure additional legal advice over U.S. and European sanctions risks when using the mechanism. It is possible that some of these companies will prove to be risk-averse and forgo using the mechanism. Others may find von der Leyen's public statements politically-motivated and that the European Commission's legal guidance supersedes her public remarks. This will likely lead some clients, but not all, of Gazprom's clients to use the mechanism — making some more natural gas cutoffs possible, although not until the second half of May, when the next round of payments are due.

Bloomberg reported on April 27 that four European clients had made payments using rubles and a total of ten European companies had set up accounts at Gazprombank needed to use the Russia-designed payment mechanism.
Germany and Italy's natural gas importers are private companies. Germany's Uniper, RWE, EnBW and VNG and Italy's Eni have all declined to comment on their intentions after Gazprom cut off supplies to Bulgargaz and PGNiG. But Uniper — Germany's top importer of Russian natural gas — previously said that it believed using the mechanism was possible without violating European sanctions. If the German or Italian government comes out with clear guidance assessing that the mechanism violates sanctions, companies operating in those countries like Uniper and Eni are less likely to use the payment system. On April 27, Germany's economy minister said that the country would "make its payments in euros and not in rubles," but Berlin has not explicitly opined whether this would violate sanctions.

Bloomberg reported on April 27 that Eni was preparing to open up accounts at Gazprombank to use the mechanism, but that the move was precautionary as the Italian firm seeks legal guidance on the matter.

Even if some European companies use the payment mechanism, Russia is sending a strong message to the European Union that its natural gas shipments could be disrupted if sanctions escalate. This will reinforce EU efforts to diversify the bloc's energy suppliers, though Russia hopes it will also drive a wedge between EU member states over sanctions. The European Union is considering fresh sanctions on Russian crude oil, which Brussels could announce possibly as early May. The European Union is considering putting into place a price ceiling for or tariff on Russian oil. A longer-term strategy that would see the bloc gradually phase out Russian oil imports altogether is also on the table. Some countries (notably Germany and Hungary) may seek to weaken such a strategy, though they may end up supporting it if the phasing out period is long enough. If the European Union approves a significant embargo on Russian oil, Russia's willingness to cut off natural gas supplies to Bulgaria and Poland signals that it may do the same in retaliation to oil-related sanctions, in addition to cutting off oil exports. Russia's willingness to cut off supplies to Bulgaria and Poland will only reinforce the prevailing notion in Europe that Russia is not a reliable energy supplier. This will, in turn, give more momentum to the European Union's plan to reduce imports of Russian natural gas by two-thirds this year and sign new contracts with alternative natural gas exporters, like Algeria, Angola, Qatar and the United States. Such diversification efforts may even may make the Kremlin even more willing to use natural gas as a tool of political coercion, perhaps viewing it as a "use it or lose it" weapon once more European countries follow Poland's lead and become less reliant on Russian imports.

Any broad natural gas supply cutoff for the European Union is likely to send the region into a recession. For example, on April 13, the Kiel Institute for the World Economy (which is one of Germany's leading economic institutes) said in a study that a full cutoff of Russian energy supplies to Germany would reduce economic growth to 1.9% this year and result in a 2.2% contraction in 2023. Earlier this month, the International Monetary Fund said a supply cutoff for Europe could cut growth for Germany by 1 to 6 percentage points in 2023.
Even if a broad supply shock is avoided, ongoing efforts to diversify away from Russian natural gas and limitations on current energy supply growth mean natural gas, electricity, diesel and gasoline prices will remain high, creating more economic challenges for Europe and the rest of the world. This could lead to more knock-on impacts including public demonstrations and labor strikes, similar to the March truckers protests in Spain over high fuel prices that lasted for three weeks.