EXPLAINER: Why is Europe reluctant to ban Russian energy?

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Shocking images of the Ukrainian town of Bucha and Russian war crimes accusations are pushing for more sanctions against Moscow. A key potential target: Russian oil and natural gas, and the $850 million that European importers pay every day for these supplies.

But it’s not that easy, given Europe’s dependence on Russian energy.

Western sanctions so far have targeted Russian banks and companies, but spared oil and gas payments – a US concession to keep European allies on board and present a united front.

Here are the key facts about Europe’s energy imports from Russia and whether a boycott is possible:

WHICH OFFER IS IN PLAY?

Europe gets 40% of its natural gas from Russia, which is used to heat homes, generate electricity and supply industry with both power and a key raw material for products such as fertilizer.

For petroleum, it’s about 25%, most of which goes to gasoline and diesel for vehicles. Russia supplies around 14% of diesel, S&P Global analysts say, and a cut could send prices already high for fuel for trucks and tractors through the roof.

WHY CAN’T EUROPE CUT RUSSIAN ENERGY LIKE THE US HAS DONE?

The United States has imported little oil and no natural gas from Russia because it has become a major oil and gas producer and exporter through hydraulic fracturing. Europe had some oil and gas deposits, but production declined, leaving the 27 EU countries dependent on imports to fuel its advanced industrial economy.

Of the 155 billion cubic meters of gas that Europe imports from Russia each year, 140 billion passes through gas pipelines crossing Ukraine, Poland and under the Baltic Sea. Europe is scrambling to secure additional supplies by ship in the form of liquefied natural gas, or LNG, but that still cannot fully offset the loss of Russian gas by pipeline.

LNG is also much more expensive and suppliers are exhausted. And while some European countries are well connected to LNG terminals, such as Spain, and new projects are underway or soon to open in places like Greece and Poland, there is no infrastructure to getting these supplies to high demand locations. dependent on gas, from Germany to Eastern European countries. Building new LNG import terminals and pipelines to connect gas to the places that need it most can take years.

Because dependence on Russia varies, agreement on an EU boycott is harder to come by. Lithuania says it has stopped imports of Russian gas after the construction of an LNG import terminal launched in 2014, and Poland, which has spent years looking for alternatives, said it would not renew a Russian gas contract at the end of this year in addition to take steps to ban Russian coal and oil.

Germany, the continent’s largest economy, still gets 40% of its gas from Russia, even after reducing its dependence. It aims to end Russian coal imports this summer, oil imports by the end of the year and be largely gas-independent by 2024, German Economy Minister Robert Habeck has said. .

WHERE COULD EUROPE FIND ENERGY?

Europe is working to phase out Russian gas as quickly as possible over the next few years by finding new sources, conserving and accelerating wind and solar power. The EU’s plan is to cut Russian gas use by two-thirds a year and get out well before 2030.

In addition to getting LNG from places like the United States and Qatar, Europe is pushing for more gas from non-Russian pipelines from Norway and Algeria.

The oil is different in that it comes mainly by boat. Still, it would not be easy to replace Russian supply with tight global markets. Removing the more than 2 million barrels a day from Russia to Europe from the market would drive up oil prices around the world. And Russia might try to sell the oil to India and China, although it might earn less.

WHAT IF EUROPE BANS RUSSIAN ENERGY?

Estimates vary, but a threshold implies a blow to the economy. Oxford Economics estimates that a six-month Russian gas cut would reduce the economic output of the 19 countries that use the euro by 1.5%.

A ban could mean governments would have to ration gas between businesses to protect homes and hospitals. Manufacturers of metals, fertilizers, chemicals and glass would be hard hit. Even a partial cut in gas supplies to industry could cost “hundreds of thousands” of jobs, said Michael Vassiliadis, head of Germany’s BCE union representing workers in the chemical and mining industries.

“We will likely continue to see resistance from Germany and a few others, as they are just much more dependent on Russian imports of oil, gas and coal,” said UK senior market analyst Craig Erlam. United, Europe, the Middle East and Africa at currency broker Oanda. “Predictions for the impact of an embargo vary, but it would almost certainly tip the country into recession.”

However, a group of economists, including University of Notre Dame professor Ruediger Bachmann, said an embargo would keep economic costs to Germany below 3% of output, likely closer to 2 %. Although “these are substantial economic costs”, the economists said, they are “clearly manageable in the sense that the German economy has withstood deeper crises in recent years and recovered quickly” – following of the 2009 global financial crisis and the coronavirus pandemic.

“Public alarmism about the catastrophic consequences of an energy embargo from affiliated lobby groups and think tanks does not meet academic standards,” they said in a report on the Politics website. from the Center for Economic Policy Research.

WHAT COULD EUROPE DO OTHER THAN A CUTOFF?

Economists Simone Tagliapietra and Guntram Wolff of the Bruegel think tank in Brussels are proposing an EU import tariff on Russian oil and gas. This would reduce Russia’s revenue while avoiding a blow to Europe’s growth, with the legal benefit of leaving contracts intact. Last week, European leaders insisted that those same contracts shielded them from Russia’s demand to pay for gas in rubles. The tariff money could be used to protect vulnerable households against rising energy prices.

While the army that invaded Ukraine is already paid, the tariff would put the Kremlin in “a more difficult economic position, in which it could eventually begin to have difficulty buying things from the outside world, including armaments , and to pay the salaries of the public”. sector,” Tagliapietra said. “All of this will happen in months, but may have significant effects on the sustainability of Russian domestic politics.”

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