The critical cog in Putin’s machine and how British firms help to keep Russian gas flowing into Europe
This is the story of how an obscure company based in an office block on a quiet street in Glasgow became an accessory in Vladimir Putin’s war on Ukraine. It is the story of how Europe and Russia remain locked in a tense relationship of economic dependence, even as they supposedly cut their ties. It is the story of the uncomfortable truth behind why the cost of living crisis came to an end.
But before all of that, it is the story of a ship – a very unusual ship indeed.
If you ever spot the Yakov Gakkel as it sails through the English Channel or the Irish Sea (I first set eyes on it in the Channel but at the time of writing it was sailing northwards, about 20 miles off the coast of Anglesey) you might not find it all that remarkable.
At first glance it looks like many of the other large, nondescript tankers and cargo vessels passing these shores. Its profile is dominated by an enormous blue prow which reaches high out of the water and ends, 50 metres further back, at its unexpectedly angular stern.
Yet the ship’s slightly odd shape – all hull and barely any deck – is the first clue about what makes the Yakov Gakkel so special. Because this is one of the world’s most advanced liquefied natural gas (LNG) tankers, with an unusual trick up its sleeve.
The Yakov Gakkel tanker
LNG tankers are extraordinary ships, with insides so cleverly engineered they are capable of holding vast amounts of natural gas at temperatures of approximately −163C.
For all that the world is embracing renewable energy, natural gas remains one of the most important energy sources, essential for much of Europe’s heating and power, not to mention its industries. For the time being, there is no cheap way of making many industrial products, from glass and paper to critical chemicals and fertilisers, without gas.
Once upon a time, moving natural gas from one part of the world to another necessitated sending it down long, expensive, vulnerable pipelines, meaning only countries with a physical connection to gas producers could receive this vital fuel. But LNG tankers like the Yakov Gakkel are part of the answer to this problem, since they allow gas producers to send it by sea to anywhere with a terminal capable of turning their supercooled methane back into the gas we use to heat our homes and power our grids.
Politicians in Europe promised to end the continent’s reliance on Russian gas
But the Yakov Gakkel can also do something most other LNG tankers cannot, for that enormous blue double hull allows it to carve through ice, enabling it to travel up into the Arctic Circle and back even in the depths of winter.
And that is precisely what this ship does, more or less constantly: travelling back and forth between Siberia and Europe, through winter and summer, bringing copious volumes of gas from Russia to Europe. It is part of the explanation for how Europe never ran out of gas, even after the Russian invasion of Ukraine.
This is not, it’s worth saying, the conventional wisdom. Back when Russia invaded Ukraine, European policymakers declared they planned to eliminate the continent’s reliance on Russian gas – which accounted for roughly a third of their supplies before 2022.
And many assumed that had already happened – especially after the Nord Stream pipeline, the single biggest source of European gas imports, was sabotaged in late 2022. But while volumes of Russian pipeline gas into Europe have dropped dramatically, the amount of Russian LNG coming into Europe has risen to record levels.
LNG tankers sail between Siberia and various ports in Europe, including Zeebrugge
Russia helps Europe replenish gas stores
Today, Europe still depends on Russia for around 15% of its gas, an ever-growing proportion of which now comes in via the sealanes, on tankers like the Yakov Gakkel. And while the US has stepped in to make up some of the volumes lost when those pipelines stopped, only last month Russia overtook the US to become the second biggest provider of gas to the continent. It’s further evidence that those LNG volumes carried on ships through the North Sea, the Irish Sea and the English Channel, are increasing, rather than falling.
This Russian gas has helped Europe replenish its gas stores, it has helped keep the continent’s heavy industry going throughout the Ukraine war. And this dependence has not come cheap: the total amount Europe has paid Russia for LNG since 2022 comes to around €10bn.
The continued presence of Russian gas running through European grids is at least part of the explanation for why European energy prices have fallen so sharply since those post-invasion highs. Back then, many in the market were pricing in a complete end of Russian gas supply to Europe – something that would have had disastrous consequences. But it never actually happened.
Perhaps this explains why the continent’s politicians have, so far, stopped short of banning imports of Russian gas: they are aware that their economy would struggle to withstand another sharp spike in inflation – which would almost certainly eventuate if it stopped taking Russian gas altogether.
Russian gas has helped keep Europe’s heavy industry going throughout the Ukraine war
This week, European leaders agreed to stop allowing Russia to use its ports to “trans-ship” its LNG – essentially acting as a stop-off point towards other destinations. However, those transshipments account for only a fraction – at most a quarter – of the Russian gas coming in on tankers to Europe. The vast majority ends up in Belgium, France and Spain, heating European homes, fuelling power stations and powering machinery in factories.
While European leaders have imposed wide-ranging sanctions and price caps on shipments of oil, no such controls exist for liquefied natural gas. So the Yakov Gakkel and a fleet of LNG tankers carry on sailing between Siberia and various ports in Europe – Zeebrugge, Dunkirk, Montoir and Bilbao – keeping the continent supplied with the Russian hydrocarbons it still cannot live without.
British firm’s role in lucrative trade
But there is another reason why this ship is particularly unique, for the Yakov Gakkel – this critical cog in the financial machine that helps finance the Russian regime – is actually part-owned and operated by a British company.
That brings us back to a street overlooking the Clyde in Glasgow, where, in a glass-fronted office block, you will find the operational headquarters of a company called Seapeak. The chances are you haven’t heard of Seapeak before, but this business owns and operates a fleet of LNG tankers all across the world.
That fleet includes the Yakov Gakkel and four other LNG icebreakers that ply this Siberian trade. That a British company might be facilitating this lucrative trade for Russia might come as a surprise, but there is nothing illegal about this: the sanctions regime on Russia just turns out to be significantly more porous than you might have thought.
We tried repeatedly to speak to Seapeak – to ask them about the Yakov Gakkel and whether they felt it was appropriate – given the UK has forsworn LNG imports – that a British company and British workers are helping administer this Russian trade. We sent emails with questions. However, they did not respond to our calls or our emails.
When, after weeks of efforts to get a response, I visited their offices in Glasgow, I was met by a security guard who told me Seapeak would not see me without an appointment (which they were refusing to give me). Eventually I was told that if I would not leave they would call the police.
A security guard at Seapeak’s offices in Glasgow said no one was available to speak to Sky News
Seapeak is not the only British company helping keep Russian gas flowing. While British insurers are banned from protecting oil tankers carrying Russian crude, there’s no equivalent sanction on Russian LNG ships, with the upshot that many of these tankers are insured by British companies operating out of the Square Mile.
We spent some time tracking another icebreaking tanker, the Vladimir Rusanov, as it approached Zeebrugge. It is insured by the UK P&I Club, which also insures a number of other LNG carriers.
In a statement, it said: “The UK Club takes great care to observe all applicable sanctions regulations in relation to Russian energy cargoes, but the direct carriage of LNG from Yamal to Zeebrugge, and provision of insurance services for such carriage, is not presently sanctioned. If the EU and G7 nations were to change their policy… the Club would of course comply by adjusting or withdrawing its services, as necessary.”
The Vladimir Rusanov off the coast of Zeebrugge
The transport of Russian gas into Europe – its dependence on British operators and insurers – is only one small example of the loopholes and omissions in the UK sanctions regime. But while government ministers have expressed concern about the effectiveness of the broader sanctions regime, there is still scant evidence they intend to tighten up this corner of it.
Before the election was called the Treasury Select Committee was in the middle of collecting evidence for its own inquiry into the regime, which was expected to focus on insurers of vessels taking Russian goods. However, the inquiry was wound up prematurely when the election was called in May.
Read more on Sky News:
EU sanctions target Russian gas for first time
Russian oil still seeping into the UK
In the meantime, ships like the Yakov Gakkel carry on taking billions of cubic metres of gas from the gas fields of Yamal in Siberia down to Europe, in exchange for billions of euros. And those and other hydrocarbon revenues are one of the main explanations for how Russia is able to produce more missiles and weapons than the Ukrainians.
So Europe carries on fuelling its industry and its power and heating grids with molecules of gas coming from Siberian gasfields, while assuring itself it’s doing everything it can to fight Vladimir Putin.
It is, in short, a discomforting situation. But given the alternative is to induce another cost of living crisis, there is little appetite in Europe to change things.
Talk to economists and they will tell you that the cost of living crisis is over.
They will point towards charts showing that while inflation is still above the Bank of England’s 2% target, it has come down considerably in recent years, and is now “only” hovering between 3% and 4%.
So why does the cost of living still feel like such a pressing issue for so many households? The short answer is because, depending on how you define it, it never ended.
Economists like to focus on the change in prices over the past year, and certainly on that measure inflation is down sharply, from double-digit levels in recent years.
But if you look over the past four years then the rate of change is at its highest since the early 1990s.
But even that understates the complexity of economic circumstances facing households around the country.
For if you want a sense of how current financial conditions really feel in people’s pockets, you really ought to offset inflation against wages, and then also take account of the impact of taxes.
That is a complex exercise – in part because no two households’ experience is alike.
But recent research from the Resolution Foundation illustrates some of the dynamics going on beneath the surface, and underlines that for many households the cost of living crisis is still very real indeed.
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UK inflation slows to 3.4%
The place to begin here is to recall that perhaps the best measure of economic “feelgood factor” is to subtract inflation and taxes from people’s nominal pay.
You end up with a statistic showing your real household disposable income.
Consider the projected pattern over the coming years. For a household earning £50,000, earnings are expected to increase by 10% between 2024/25 and 2027/28.
Subtract inflation projected over that period and all of a sudden that 10% drops to 2.5%.
Now subtract the real increase in payments of National Insurance and taxes and it’s down to 0.2%.
Now subtract projected council tax increases and all of a sudden what began as a 10% increase is actually a 0.1% decrease.
Read more:
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More options than ever for savers to beat inflation
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Will we see tax rises in next budget?
Of course, the degree of change in your circumstances can differ depending on all sorts of factors. Some earners (especially those close to tax thresholds, which in this case includes those on £50,000) feel the impact of tax changes more than others.
Pensioners and those who own their homes outright benefit from a comparatively lower increase in housing costs in the coming years than those paying mortgages and (especially) rent.
Nor is everyone’s experience of inflation the same. In general, lower-income households pay considerably more of their earnings on essentials, like housing costs, food and energy. Some of those costs are going up rapidly – indeed, the UK faces higher power costs than any other developed economy.
But the ultimate verdict provides some clear patterns. Pensioners can expect further increases in their take-home pay in the coming years. Those who own their homes outright and with mortgages can likely expect earnings to outpace extra costs. But others are less fortunate. Those who rent their homes privately are projected to see sharp falls in their household income – and children are likely to see further falls in their economic welfare too.
The UK economy unexpectedly shrank in May, even after the worst of Donald Trump’s tariffs were paused, official figures showed.
A standard measure of economic growth, gross domestic product (GDP), contracted 0.1% in May, according to the Office for National Statistics (ONS).
Rather than a fall being anticipated, growth of 0.1% was forecast by economists polled by Reuters as big falls in production and construction were seen.
It followed a 0.3% contraction in April, when Mr Trump announced his country-specific tariffs and sparked a global trade war.
A 90-day pause on these import taxes, which has been extended, allowed more normality to resume.
This was borne out by other figures released by the ONS on Friday.
Exports to the United States rose £300m but “remained relatively low” following a “substantial decrease” in April, the data said.
Overall, there was a “large rise in goods imports and a fall in goods exports”.
A ‘disappointing’ but mixed picture
It’s “disappointing” news, Chancellor Rachel Reeves said. She and the government as a whole have repeatedly said growing the economy was their number one priority.
“I am determined to kickstart economic growth and deliver on that promise”, she added.
But the picture was not all bad.
Growth recorded in March was revised upwards, further indicating that companies invested to prepare for tariffs. Rather than GDP of 0.2%, the ONS said on Friday the figure was actually 0.4%.
It showed businesses moved forward activity to be ready for the extra taxes. Businesses were hit with higher employer national insurance contributions in April.
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The expansion in March means the economy still grew when the three months are looked at together.
While an interest rate cut in August had already been expected, investors upped their bets of a 0.25 percentage point fall in the Bank of England’s base interest rate.
Such a cut would bring down the rate to 4% and make borrowing cheaper.
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Is Britain going bankrupt?
Analysts from economic research firm Pantheon Macro said the data was not as bad as it looked.
“The size of the manufacturing drop looks erratic to us and should partly unwind… There are signs that GDP growth can rebound in June”, said Pantheon’s chief UK economist, Rob Wood.
Why did the economy shrink?
The drops in manufacturing came mostly due to slowed car-making, less oil and gas extraction and the pharmaceutical industry.
The fall was not larger because the services industry – the largest part of the economy – expanded, with law firms and computer programmers having a good month.
It made up for a “very weak” month for retailers, the ONS said.
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