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Russia is On the Verge of Shutting Off its Gas to Europe

The energy behemoth of Russia has threatened to cut down on gas shipments to Europe, but Germany, one of its largest consumers, has rejected the proposal.

The majority-state-owned Gazprom said on Monday that it is unable to fulfill its obligations under gas contracts with Europe as a result of unforeseen circumstances.

Uniper, a German energy company, confirmed to CNBC that Gazprom had used “force majeure” as an excuse for their supply shortage. A party is theoretically exempt from penalties when force majeure, a legal phrase, prevents them from performing their contractual obligations due to unanticipated events.

“It is correct that a letter from Gazprom Export in which the business retrospectively invokes force majeure for both past and present gas delivery deficits. According to Lucas Wintgens, a representative for Uniper, “We see this as unwarranted and have publicly rejected the force majeure claim.” Annette Weisbach of CNBC.

Another German energy business, RWE, told CNBC that it had also received a Gazprom warning of force majeure.

Officials in Germany and other parts of Europe are becoming more worried about the likelihood of a total suspension of Russian gas imports. These worries grew after Nord Stream 1, a crucial gas pipeline connecting Russia with Germany, was shut down earlier this month for maintenance. Some people now question whether or not flows will be fully restored once the work is finished on July 21.

Before it invaded Ukraine, Russia supplied around 40% of the gas imported by European countries. European politicians have been frantically trying to reduce this reliance, but doing so is expensive and difficult to do quickly.

In order to find new suppliers of fossil fuels, the European Commission, the executive branch of the EU, has announced new gas agreements with countries including the United States and Azerbaijan.

According to Andreas Schroeder, head of energy analytics at research firm ICIS, “this is obviously new ground and unusual in this form,” he told CNBC’s Squawk Box Europe on Tuesday.

“While the European Union has succeeded in lowering the quantity of hydrocarbon imports into Russia, they have not been successful in lowering the price they pay.”

Lower supplies from Russia have caused gas prices in Europe to surge. However, because of these increased rates, Russia can now send less gas to Europe while still making the same amount of money, if not more. This was the “offsetting impact,” according to Schroeder.

The front-month gas price at the Dutch TTF hub, a benchmark for natural gas trading in Europe, was slightly higher on Tuesday morning at 159 euros ($1.02) per megawatt-hour. Over the previous year, prices increased by more than 600%.