The natural gas market was searching for clarity on Wednesday about how Russia’s decision to cut off natural gas supplies to Bulgaria and Poland could impact larger buyers in Europe if they don’t fully comply with the Kremlin’s demands to change how they pay for imports.

Gazprom PJSC confirmed Wednesday that it had stopped delivering natural gas to both countries for their failure to comply with a complex order that requires them to pay in euros or dollars that are then converted by a Russian bank into rubles.

European natural gas prices surged by 25% to an intraday high of about $40/MMBtu as the market baked in the risk of further supply disruptions across the continent. 

“Poland and Bulgaria together losing access to Russian gas has not had a big impact on the total European market, but a more severe consequence is likely if other large countries or individual buyers are being cut off, such as Germany and Italy,” said Rystad Energy analysts. “Indeed this action by Russia should be viewed as a precedent.”

Bulgaria imports about 3 billion cubic meters (Bcm) annually from Russia, while Poland takes in roughly 9 Bcm. Both countries have diversified their supply sources in recent years, and the long-term contracts they have with Gazprom were already set to expire at the end of 2022. There are no plans to extend those agreements.

“It is easier for these countries to say to Russia that we don’t want your gas compared to others like Germany,” said Anna Mikulska, a nonresident fellow in energy studies at Rice University’s Baker Institute for Public Policy. “These countries are different from others because they are on the way to set up their systems not to use Russian gas.”

Of the 250 million cubic meters (MMcm) that Russia has been sending to the European Union (EU) in recent days, about 25 MMcm/d has been going to Poland and around 5 MMcm/d has been headed to Bulgaria, Tom Marzec-Manser, head of gas analytics at ICIS, told NGI. 

That raises broader concerns about other countries that are more reliant on Russia.

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Larger buyers like Germany, which imports about 50 Bcm of natural gas annually from Russia, are on course to limit Russian supplies completely before 2030 under a plan announced by the EU earlier this year. 

“It is quite unclear for me what this means” for the broader market, Mikulska told NGI, referring to Russia’s move against Poland and Bulgaria.

In a note on Wednesday, analysts at Goldman Sachs Commodities Research suggested the same, saying that the market is likely to remain volatile until a dispute between the EU and Russia over the payment mechanism for natural gas deliveries is resolved. 

Russia issued a decree last month requiring buyers to transfer dollars or euros into one bank account with Russia’s Gazprombank. The bank would then exchange the currency for rubles, which would be deposited into a second ruble-denominated account. In a final step, Gazprombank would transfer the ruble payment from the second account to state-owned gas supplier Gazprom to complete the transaction.

Bloomberg reported Wednesday that four European gas buyers have already completed payments through the process, while another 10 have opened accounts to do so with Gazprombank.

European Commission President Ursula von der Leyen on Wednesday called Russia’s move to halt supplies another “provocation,” warning European gas buyers that complying with Moscow’s demands would be a breach of sanctions imposed on Russia for its invasion of Ukraine. 

The EU’s lawyers drafted a preliminary finding last week that said complying with the decree would violate the bloc’s sanctions. But an EU advisory document instructed buyers to pay in euros as the decree allows to avoid such a breach. 

It’s also unclear if Russia has breached its gas supply agreements with Poland and Bulgaria. The decree requires a different payment method than those stipulated in the countries’ supply agreements with Gazprom.

Polish Oil and Gas Co. (PGNiG), Poland’s main importer, said Wednesday that it “considers the halt of natural gas supplies a breach” of the contract it holds with Russia. “PGNiG reserves the right to raise claims in connection with the halt and will use all of its contractual rights and rights under applicable law,” the company said.

Like PGNiG officials, Bulgaria’s Energy Minister Alexander Nikolov said importer Bulgargaz has not violated the terms of its agreement. Instead, he said Russia is using its natural gas supplies as a weapon.

As uncertainty reigned Wednesday, the global impacts of Russia’s decision were already evident. Asian liquefied natural gas spot prices jumped as did natural gas prices in the United States on expectations that Europe could need even more cargoes. Oil prices also were poised for support if Europe retaliated with further sanctions, and power prices on the continent were vulnerable as well, Rystad noted.

“We don’t know what to expect from Russia currently,” Mikulska said when asked if other supply disruptions are likely. “Cutting gas access is nothing compared to bombarding cities. We didn’t expect them to invade Ukraine, and they did.”