Why the strongest sanctions against Russia are the hardest to implement for Europe

The punitive sanctions announced by the United States and the European Union so far against Russia for its invasion of Ukraine include shutting down the government and banks from global financial markets, and restricting exports. technology importation and asset freezes of influential Russians. Notably absent from that list is a retaliation that could hurt Russia most: cutting off Russian fuel exports.

The omission is not surprising. In recent years, the European Union has received almost 40% of its gas and more than a quarter of its oil from Russia. That energy heating the homes of Europe, powering factories and fueling their vehicles, and pumping huge amounts of money into the Russian economy.

Losing those revenues would be difficult for Russia, which relies heavily on energy exports to fund government operations and support its economy. Oil and gas exports provide more one third of the national budget. But the severance would also hurt Europe.

“You want sanctions that hurt the perpetrators rather than the victims,” said David L. Goldwyn, who served as the State Department’s special envoy for energy during the Obama administration.

The situation will surprise some of the cold warriors of the last century. During the post-World War II era of superpower rivalry, many analysts believed that the more closely the Soviet Union and the West were economically intertwined, the less likely they were to clash. Arguments made arguments about trade and economics.

Now, the European Union is Russia’s largest trading partner, accounting for 37 percent its global trade in 2020. Introduction 70% of Russian gas exports and half of the country’s oil exports go to Europe.

The flip side of mutual concern is mutual pain.

European leaders are caught between wanting to punish Russia for its aggressive behavior and protecting their own economies.

So far, Germany’s decision on Tuesday to pause Nord Stream 2 – the completed gas pipeline connecting Russia and northeastern Germany directly – is one of the biggest consequences that Europe has made, said Mathieu SavaryChief European Investment Strategist at BCA . Research.

As for the amount of gas already flowing to Europe, Western leaders do not want to reduce it further because in the last three months of 2021, Russia shrinks pipeline exports nearly 25% more than a year earlier, according to the International Energy Agency. Europe’s reserves are only 30%, and Europeans have paid exorbitant prices for energy.

Conflict is brewing as supplies of oil and natural gas have been scarce for months, sending prices soaring.

“There are serious concerns that Moscow will tighten exports further and push prices higher,” said Helima Croft, head of commodities at RBC Capital Markets, an investment bank.

Germany, Russia’s largest trading partner in Europe, receives 55% of its supply from Russia. Italy, the second largest trading partner, received 41%. At a forum in Milan last week, the Russian ambassador Sergey Razov reported that President Vladimir V. Putin had told Italian Prime Minister Mario Draghi that “if Italy needs more gas, we are ready to provide it”.

Putin also emphasized that there are about 500 Italian businesses operating in Russia and bilateral investments worth $8 billion.

Austria, Turkey and France are major consumers of Russian natural gas. In Central and Eastern Europe, Hungary, Poland, the Czech Republic and Slovakia are the biggest customers, said Russian energy giant Gazprom.

On Thursday, the International Energy Agency, which will likely coordinate any response to global energy disruptions, said oil supplies are “at greatest immediate risk.” 250,000 barrels one day from Russia moving through Ukraine to Hungary, Slovakia and the Czech Republic. That amount is relatively small in a global market that consumes 100 million bpd, but its loss could cause severe shortages in those countries.

The West is not without tools. Goldwyn, a former State Department special envoy, said Russian energy sales will likely remain affected by sanctions on Russian financial institutions and other measures, even if the Oil and gas exports are not directly targeted.

The amount Russia earns from energy exports could also fall if shippers, wary of the growing complexity of transporting Russian crude and supplies, increase the fees they charge, Goldwyn said. calculated for Moscow.

He added that it is possible that the White House will ban imports of Russian crude oil into the United States. Such a move would force US refineries to depend on other suppliers and Moscow to find other buyers for around 700,000 bpd, experts say. China will most likely be one, after the two countries pledged to “strongly support each other”.

Eurasia Group, a political risk consulting firm, indicated in a note on Thursday that while the United States and Europe would try to avoid targeting Russia’s fuel exports directly, “the storm” of the new restrictions will force many traders to exercise extreme caution in handling Russian barrels. . ”

Sanctions may also be aimed at clouding Russia’s future prospects. “If the US is targeting energy, I expect it to pass technology controls,” said Scott Modell, chief executive officer of Rapidan Energy Group, a Washington-based consulting firm. aimed at Russian liquefied natural gas and hydrogen in the future.

If Russia cuts gas exports, Europe will try to differentiate itself from already strained supplies stored in storage, and by scouring the world for more naturalized gas. more liquid. LNG flow from elsewhere, mainly the United States, has exceeded the amount of Russian gas reaching Europe in recent weeks. Such measures are likely to benefit Western European countries such as Germany and Italy more than those in Southern and Eastern Europe with fewer alternatives to Russian gas.

Even without Moscow’s obvious fuel cuts or as a result of war disruptions, there is a significant risk that unusually high gas and electricity prices will continue, force the fastidious consumers and can prompt many businesses to downsize their operations. In recent months, some enterprises use a lot of energy, including fertilizer manufacturers, announced closure because of high gas costs.

https://www.nytimes.com/2022/02/25/business/economy/russia-europe-sanctions-gas-oil.html Why the strongest sanctions against Russia are the hardest to implement for Europe

Fry Electronics Team

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