Russia Pressures European Gas By Investing.com
By Geoffrey Smith
Investing.com — The economic war between Europe and Russia over Ukraine has taken a brutal turn. It will take a miracle to keep it from deteriorating further – and to protect the rest of the world from the fallout.
Over the past week, Russia has been steadily shutting off gas taps to Europe, its biggest customer for 40 years. Germany saw its supplies reduced by 60%, Italy by 50%, France by 100%.
A relationship that has often been difficult but always mutually beneficial is now in tatters. Moscow does not hide the fact that it considers the militarization of energy supplies not only legitimate but expedient.
Indeed, Russia seems happy to take advantage of its position as a key exporter in many global commodity markets, confident that it can blame the suffering on others. Margarita Simonyan, editor of the RT news channel which was effectively shut down in Europe and the United States, joked at a conference last week that “everyone is pinning their hopes on famine now , because when the famine strikes, they will realize that they must be friends with us and the sanctions will be lifted.
For its part, Europe reports that it has given up all hope of economic relations with what had been its main energy supplier until March. The outlook for its economy is deteriorating as a result, and the exchange rate has started to reflect fears of stagflation. Europe has accepted that it will not only have to pay higher prices for its energy for the foreseeable future, but also effectively suspend its contribution to slowing global climate change, a serious image blow – admittedly narcissistic – of herself that she has cultivated for the past three decades.
Germany, Austria and the Netherlands have all announced they will restart coal-fired power plants this year to replace gas-fired generation. German Vice-Chancellor Robert Habeck – who owes his place in government largely to a successful pressure campaign to shut down coal-fired power stations in Germany – called the move “bitter”. The news has only just taken over this week, which remains at more than five times their level at the start of 2021.
As market reaction suggests, even that may not be enough to avoid outright gas rationing in Europe later this year. Gazprom’s action forced European utilities last week to burn gas they had stored for the winter, bringing the usual injection season to an abrupt end. According to data from European gas infrastructure, EU storage facilities were currently 54.7% full this weekend. That’s more or less in line with seasonal norms, but it still means plenty of gas needs to be found by September if Gazprom (MCX:) – which typically supplies 25% of the bloc’s needs – doesn’t play ball.
The escalation continued this week, as Lithuania – with explicit EU support – halted the transit of sanctioned goods by rail across its territory between the Baltic enclave of Kaliningrad and the rest of the Russian Federation, dealing a blow to a local economy already hard hit by the collapse of trade with its neighbours. The strength of this action will increase as the EU sanctions list expands to include goods such as coal and fuel later this year.
Many in the Kremlin – not to mention pundits on Russian state television’s toxic talk shows evoking childish bravado – would see this as a brazen challenge, an invitation to restore ties by force. Nikolay Patrushev, the former head of the FSB who now chairs the Russian Security Council, promised a response that would have “serious negative consequences for the Lithuanian people”.
However, Lithuania – unlike Ukraine – is both a member of the European Union and, more importantly, of NATO, with its sovereignty ultimately guaranteed by the nuclear arsenals of three permanent members of the Security Council. of ONU. For all the reckless miscalculations by Vladimir Putin’s regime over the past few years, an outright attack on NATO is still – at least for now – unthinkable.
Maybe we should be grateful for the little mercies. However, what happened last week has entrenched divisions. Both sides obviously remain committed to securing something they can call victory. This means months, if not years, of additional misery for the Ukrainian people and economic distress for Europe and all those in Africa and Asia who need grain from the Black Sea basin to feed their populations. Cool comfort indeed.