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Putin weaponizes energy ahead of winter

Yahoo Finance’s Rick Newman joins the Live show to discuss Russian President Vladimir Putin still withholding natural gas from the EU ahead of winter and the expectations for energy markets and Putin’s meeting with Chinese President Xi Jinping.

Video Transcript

- Well, this week, Russian President Vladimir Putin plans to meet with Chinese leader Xi Jinping during a summit in Uzbekistan. This as Western sanctions continue to beat down the Russian economy. But as the stalemate wears on, so does the energy crisis in Europe after Russia turned off the Nord Stream 1 natural gas pipeline. We heard from European Commission President Ursula Devon der Leyen earlier today addressing the energy crisis. Take a listen.

URSULA VON DER LEYEN: Russian gas accounted for 40% of our imported gas. Today, it's down to 9%. But we also see that Russia keeps actively manipulating our energy market. I mean, they prefer to flare the gas instead of sending it to Europe according to the contracts that are existing. So this market is not functioning anymore.

- Joining us on this now is Yahoo Finance's Rick Newman, who is looking at what's ahead for Putin's energy war. So where should we start with this? What's the first thing we need to know?

RICK NEWMAN: I mean, let's start with Europe. They have a much worse problem than we have here in the United States. I mean, luckily, we have plenty of natural gas here in the United States. Prices here are double what they were a year ago. And those are futures prices going into the winter. So we're going to have higher heating costs here in the United States, but nowhere near as bad as they're going to be in Russia, where gas prices are around six times higher than they were at this time last year.

And when you just heard Ursula Von der Leyen say Russian gas imports are down from 40% to 9%. That's partly because Europe has been weaning itself off of Russian gas. But it's also because Russia just stopped sending gas through that pipeline. Gas comes from Russia through other means. And they could shut those down as well. And the Russian gas company has actually been running commercials, advertisements, saying we are going to freeze Europe this winter.

So, I mean, the gas supplier that does have contracts to deliver-- I mean, these are business contracts to deliver this energy-- is now threatening hostile action basically against European businesses and European consumers. So Putin has completely weaponized energy, which is something a lot of people thought would not necessarily happen. It has happened. And this is going to be a wild winter in energy markets.

- Who's going to blink? I mean, you have a story up on the Yahoo Finance platform right now looking at that issue. And there seems to be some debate here about weather, A, this is the right strategy for Putin and whether, indeed, he's going to back off at some point.

RICK NEWMAN: So Putin can cause pain without a doubt. He already is. That's higher prices. Some analysts think it's possible that in addition to shutting off gas, he could shut off oil supplies. Now, he gets most of his energy revenue from oil sales, much more than he gets from gas. So if Putin were to say we're going to stop delivering some oil to Europe and to global markets, then he would be forfeiting a lot of energy revenue. But that could also push oil and gasoline prices up everywhere. Not by a ton. We're talking maybe 2% of world supply that might affect.

But oil moves on the margins. And that could push gasoline and oil prices up everywhere. So that's one thing he could do. There's a lot more going on. Europe is supposed to ban most imports of Russian oil starting in December. Some people think that's not going to happen because it would just be too difficult to pull off. But like I said, it's going to be a wild winter for energy markets.

- And let's talk about the other constituent on the other side of Russia. China is what I'm talking about. And Xi Jinping and Vladimir Putin are meeting right now in Kazakhstan. This is the first time they've met since the pandemic, right. And China is incredibly important for Russia in this. I mean, Russia could not be doing all of this that you were just describing without China.

RICK NEWMAN: Right. So, I mean, this is a whole other subtext to what's going on in Ukraine. And I doubt Xi Jinping is saying, hey, great job on that war in Ukraine. Xi Jinping is in a bad position because just a couple of weeks before Russia invaded-- I mean, we think Xi Jinping did not know Putin had decided to invade Russia-- he said the relationship between China and Russia has no limits, implying that he would support Russia no matter what. Now, after the invasion, the fact is China has not really done anything to help Russia.

They have not substantially increased imports of technology and other things that Russia can no longer get from other countries because of the sanctions. They are buying Russian oil at a discount. So China is saving money on the war. But they have also not criticized the war. And the reason this is so important to China is Taiwan. So China is looking at the United States and Europe's reaction to the Russian invasion of Ukraine, wondering, is something similar going to happen if we would ever decide to invade Taiwan?

So this is one of the most important things about the Western reaction to the Russian invasion of Ukraine is what message it ultimately sends to China. So there's a great argument for that is one of the main reasons it is so important to stick with Ukraine no matter what and be allied with them until the end, until Russian forces are out of there or at a minimum back to the pre-invasion boundaries.