With Russia’s ruble payment for natural gas taking effect on Friday, time is running out for Europe to tackle the looming threat of a gas cut that would not only expose the bloc to an unprecedented energy crisis , but could also create a ripple effect throughout its manufacturing, logistics and other service sectors, reducing European GDP by around 1-2% and even leading to a political crisis, have analysts predict.
Moscow has said gas will continue to flow, with payments for supplies from April 1 to be paid by the end of the month or early May, giving a breather to Europe whose leaders insist will not comply with Russian President Vladimir Putin’s ruble payment decree. Analysts said the choices left to the bloc are limited, as alternative LNG shipping from the United States cannot cover near-term demand and Europe also has a severe shortage of LNG-responsive infrastructure.
These disastrous consequences seem highly ironic, as Washington stands to reap huge profits from the Russian-Ukrainian conflict, while the interests of its European allies are compromised or even sacrificed, observers said, pointing out that Europe could become one of the biggest victims. of the United States advancing its global hegemony.
Putin announced that ruble payment for natural gas purchases for “unfriendly” countries took effect on Friday. Under the new rule, foreign buyers will need to open special ruble and foreign currency accounts with Russia’s Gazprombank JSC to handle payments.
If account payments are not made, Russia will consider this a default on the buyers’ part and cut off supplies, Reuters reported.
European leaders have rejected payment with the ruble, which they say violates existing contracts. While the Baltic country Lithuania said on Saturday it had completely abandoned imports of Russian gas, other European countries have yet to say what their position or relief plans are.
According to a Bloomberg report, European buyers are “seeking clarification on how the new system will work.” The German government is said to have studied the details, Denmark has condemned the decision and French Ecology Minister Barbara Pompili said she does not consider the request a breach of contract, as the companies would still be able to pay in euros.
As the political struggle persists and European leaders may align to bolster their tough political stance against Russia, analysts predicted there could be some bondage over actual practices.
For example, some European countries may apply for exemptions through the EU mechanism, or there may be “some difference” between governments’ strong stance and how EU energy companies handle payment, Cui Hongjian, director of the European studies department at the China Institute of International Studies, told the Global Times on Sunday.
Looming energy crisis
Russia accounts for more than 40% of Europe’s total natural gas supply and 50% of Europe’s used coal supply. The European price of natural gas would have jumped by 34% after the decree on the payment of the ruble.
Analysts have warned that a further rise in natural gas prices could drive up the cost of living for ordinary Europeans, further aggravating inflationary pressure and even intensifying political crises.
According to Investec Bank, the UK energy price cap could rise another 50% in October to more than 3,000 pounds per household, driven by fears of disruptions to European gas supplies.
Germany, an economic heavyweight in the EU, which is heavily dependent on Russian energy imports, saw its energy prices in March rise by 129.5% compared to February. In March, German consumer spending on home energy and fuels rose 22.5% year-on-year, according to data released by Germany’s Federal Statistical Office.
Germany declared an early warning in its national gas emergency plan on Wednesday, urging its people to reduce their energy consumption. The country’s energy-intensive sectors, including steel, papermaking and logistics, would have felt the pinch. Some operations have had to be suspended because they cannot afford soaring energy prices.
According to the media, the German emergency plan has three stages, and the last stage is only activated when there is “unusually high gas demand or a significant disruption of gas supply, all measures based on the market being implemented and supply remaining insufficient”.
“When the final stage is triggered as the energy crisis snowballs, energy consumption will prioritize civilian use, and supply for industrial use could be totally interrupted in this case, exerting a devastating effect not only on Germany but also on the European economy – which has been battered by the pandemic,” Cui warned, while estimating that such energy crises could wipe out Europe’s GDP expansion of around 1 2 percentage points.
The EU economy is expected to grow by 4% in 2022, according to a report published by the European Commission on February 10, before signs of an energy crisis emerge.
Cui said a curb on industrial production also strains government tax revenue, which is important for social welfare, leading to a vicious cycle that could even threaten the political stability of the European bloc.
A possible alternative to Russian natural gas is to import LNG from the United States. Lin Boqiang, director of the China Energy Economics Research Center at Xiamen University, told the Global Times on Sunday that shipping LNG to the United States is not “an immediate solution” because the plan cannot be implemented in the coming months due to soaring gas prices and limited facilities to accommodate the expedition.
In March, the United States and Europe reached a major LNG deal, under which the United States will supply the EU with at least an additional 15 billion cubic meters of LNG by the end of the year. year. “Realistically, US LNG shipments are also unable to fully fill the gap left by natural gas imports from Russia, let alone higher logistics costs,” Lin said.
U.S. exporters shipped record volumes of LNG to Europe for three consecutive months, with prices rising 10 times more than a year ago, according to another Reuters report.
According to a study by the energy research institute Aurora Energy Research, it would cost between 60 and 100 billion euros to fill the shortage of gas from non-Russian sources.