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On Friday, after months of tensions over the war in Ukraine, Russia’s state-owned energy giant Gazprom shut Nord Stream 1, the key pipeline supplying gas to Europe, without indicating a date for resuming flows. Mint takes a look at the development and its impact.

What is Nord Stream 1? Why does it matter?

Nord Stream 1 refers to a pair of pipelines transporting natural gas from Russia to Europe. The pipelines, which became operational in 2011 and 2012 respectively and run under the Baltic Sea, supplies an equivalent of one-third of the European Union’s natural gas imports from Russia. Last year, around 40% of EU natural gas imports came from Russia. While Russia has cited technical difficulties for the shutdown, European leaders have cried foul, accusing Moscow of weaponizing energy supplies. European gas prices rose sharply on Monday in the aftermath of Gazprom’s announcement.

What is the latest controversy about?

Ever since the Russian invasion of Ukraine in February this year, the Nord Stream 1 pipeline has been at the centre of attention. In June, Russia reduced supplies to 40% of the pipeline’s capacity before closing Nord Stream 1 down for a short period. While the pipeline restarted, supplies were reduced to 20% of capacity. With the latest closure announced on Friday, European officials and leaders have taken a dim view of Russia’s actions. Matters were made murkier still as Russia’s move came shortly after a G7 finance ministers’ meeting where major powers agreed to cap the price of Russian oil.

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How did Europe react to the closure of Nord Stream 1?

Eric Mamer, chief spokesman of the European Commission, tweeted that Gazprom’s Nord Stream 1 shutdown “under fallacious pretences" is another confirmation of its unreliability as a supplier." President of the European Council Charles Michel struck a defiant note. “Use of gas as a weapon will not change the resolve of the EU," he said.

What is the impact on European countries?

The latest development comes on top of energy prices which are already high. Some countries like Germany have raced to install natural gas terminals, diversify import sources and fill up storage. Europe has been eyeing nuclear power as well as thermal power, says Prashant Vashisht, vice-president and group head at ICRA. In an attempt to stem the crisis, energy ministers from across Europe are slated to meet on 9 September to coordinate their response to high energy prices.

Will India be impacted by the developments?

The closure will drive up prices of both gas and crude oil, as European countries are expected to shift to oil amid low gas availability. India imports around 85% of its energy requirement, and the global disruption may keep energy markets tight. This means that India’s spot purchases of natural gas could decline. A surge in the price of gas, a key feedstock in fertilizer production and fuel for power generation and other industrial sectors, would raise operational costs in these industries.

Elsewhere in Mint

In Opinion, Kaushik Basu writes on the US Fed’s error of misreading the labour market. Montek S. Ahluwalia & Utkarsh Patel say India needs a 10-year plan on the strategy for managing climate change. Biju Dominic on how employers could persuade employees back to office. Long Story narrates the existential crisis of a premier PSU.

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