Russia may cut off gas to Europe entirely as it seeks to bolster its political leverage amid the Ukraine crisis, the head of the International Energy Agency (IEA) says, adding that Europe needs to prepare now.

"I wouldn't rule out Russia continuing to find different issues here and there and continuing to find excuses to further reduce gas deliveries to Europe and maybe even cut it off completely," IEA executive director Fatih Birol said in a statement.

"This is the reason Europe needs contingency plans," Mr Birol added, saying a recent reduction in flows may be an attempt to gain political leverage ahead of higher-demand winter months.

However, the IEA did not see a full cut-off as the most likely scenario, he added.

The European Union has sanctioned Russian oil and coal, but has held off from banning gas imports, due in part to its heavy reliance on supplies from Moscow.

In terms of total energy investment for 2022, the IEA said in a report that $2.4 trillion was set to be invested in the sector this year, including record spending on renewables.

However, it added that fell short of plugging a supply gap and tackling climate change.

Loading

Rising 8 per cent from the previous year, when the pandemic was more severe, the investment includes big increases in the electricity sector and efforts to bolster energy efficiency, it said in its annual investment report.

Investment in oil and gas, on top of setting back efforts to reach climate goals, could not meet rising demand if energy systems were not retooled towards cleaner technology, it said.

"Today's oil and gas spending is caught between two visions of the future: It is too high for a pathway aligned with limiting global warming to 1.5 degrees C but not enough to satisfy rising demand in a scenario where governments stick with today's policy settings and fail to deliver on their climate pledges," the agency said.

Rerouting Russian trade and oil

With Western countries cutting ties with Russian trade and oil, Russia is said to be in the process of rerouting its enegy exports towards countries from the BRICS group of emerging economies. 

The BRICS countries comprise Brazil, Russia, India, China and South Africa. 

In order to weather the sanctions, Russia is trying to forge closer ties with Asia, seeking to supplant the markets it lost in the row with the European Union and the United States.

In a video address to BRICS Business Forum participants, President Vladimir Putin said Russia was discussing increasing the presence of Chinese cars in the Russian market as well as the opening of Indian supermarket chains.

"In its turn, Russia's presence in the BRICS countries is growing.­­ There has been a noticeable increase in exports of Russian oil to China and India," Mr Putin said.

According to data from the Chinese General Administration of Customs, China's crude oil imports from Russia were up 55 per cent from a year earlier to a record level in May, displacing Saudi Arabia as China's top supplier, as refiners cashed-in on discounted supplies.

Mr Putin also said Russia was developing alternative mechanisms for international financial settlements jointly with its BRICS partners.

"The Russian Financial Messaging System is open for connection with the banks of the BRICS countries. The Russian MIR payment system is expanding its presence. We are exploring the possibility of creating an international reserve currency based on the basket of BRICS currencies," he said.

Reuters/ABC