Russia completely shut off the natural has flowing through the Nord Stream pipeline last week and now it is threatening to do the same to the oil supply if Europe goes through with a plan to cap prices.

Speaking at an annual economic forum in the far-eastern port city of Vladivostok, Putin scoffed at the EU plans for a cap on Russian oil and gas prices as a “stupid” idea that “will only lead to a hike in prices.”

“An attempt to limit prices by administrative means is just ravings, it’s sheer nonsense,” Putin said. “If they try to implement that dumb decision, it will entail nothing good for those who will make it.”

He warned that such a move by the EU would represent a clear breach of the existing conracts, saying that Russia could respond by turning off the faucets.

“Will they make political decisions violating the contracts?” he said. “In that case, we will just halt supplies if it contradicts our economic interests. We won’t supply any gas, oil, diesel oil or coal.”

The Russian leader charged that Russia will easily find enough customers in Asia to shift its energy exports away from Europe. “The demand is so high on global markets that we won’t have any problem selling it,” he said.

The plan to cap oil prices was announced last week and has been criticized by some who, like Putin, argue that Russia will simply be able to sell the oil to other countries who don’t sign on to the cap, i.e. China, India and Turkey. But Foreign Policy reports that Russia’s alternative buyers may not be willing to pay today’s inflated prices.

While it’s true that many countries likely won’t officially sign on to the cap, they don’t need to for the plan to work. That’s because the critics ignore the fact that nonparticipating countries’ goal is to get the lowest price for buying oil, and the price cap will give them additional leverage in their negotiations with Russia. Already, India, China, and other developing nations are buying Russian oil at an unprecedented discount of as much as $30 per barrel. Russia is so desperate to find buyers of its oil that it is offering long-term, fixed-price contracts at a massive discount to try to lock in at least some future revenue. But one Asian economic minister told us confidentially that he is convinced he can negotiate a significantly better deal than even Russia’s initial offer of a $30-a-barrel discount—especially since financing, insuring, and shipping Russian oil will also be restricted under the G-7 plan. That will give him additional leverage to push these expenses onto Russia’s dime, further eating away at Putin’s profit margin. And as for China, former U.S. official Robert Hormats rightly pointed out to us that Beijing has a long-standing policy of diversifying its energy sources, from which it never diverges. That puts a ceiling on how much oil China can purchase from Russia in practice.

The EU may not be able to control the market but it can impact the market pretty dramatically. Russia will still be able to sell the oil but not for top dollar. And that’s really the goal of the cap, to limit the income stream Russia has to feed back into the war in Ukraine.

The NY Times reports that after months of work to shore up alternative energy sources, Europe is starting to feel more confident it can survive the winter even without Putin’s gas. But Russia is clearly counting on the EU’s resolve to weaken as the weather gets colder and energy prices soar.

In some corners, even as Europe’s leaders scramble to blunt the blow from lower gas supplies and higher prices, there is a growing sense that perhaps Russia’s weaponizing of gas exports is a strategy of diminishing returns — and that Mr. Putin may have overplayed his hand.

“It would have been surprising the other way around,” Robert Habeck, Germany’s economy minister, said this week of Russia’s announcement that Nord Stream 1 would remain shut. “The only thing from Russia that is reliable is the lies.”…

Russian officials are watching and waiting for what they believe is the inevitable collapse of European resolve as the economic pain bites.

“I think that the coming winter will show how real their belief is in the possibility of refusing Russian gas,” the Russian energy minister, Nikolai Shulginov, said in an interview with the Russian state-run news agency Tass. “This will be a completely new life for the Europeans. I think that, most likely, they will not be able to refuse.”

Russian state news outlets are full of reports of protests in Europe. Italians, Russian state media reported, are being told to boil their pasta for just two minutes before turning off the heat, while Germans are forgoing showers.

The message: Sooner or later, the Europeans’ unity against Russia will crumble under the weight of high gas prices, while Russia’s standing has been elevated.

I’d love to think that Putin’s calculations about how the west will respond are wrong but we don’t actually know that yet. As you may notice in this clip on a recent protest in England, the people who are protesting so far seem likely to have been critics of capitalism prior to the invasion of Ukraine. It remains to be seen how widespread this will get. Ironically, Putin is relying on the noise generated by western anti-capitalists to protect his bottom line.