This is how Russian gas cut will put the EU on the defensive
What does the sanctions on Russia mean for the European Union in particular since the region imports a large quantity of gas from Moscow?
Ukraine was hit by a barrage of missiles, artillery, and airstrikes, as Russian soldiers advanced from bases in Belarus onto Kyiv, the country’s capital.
Ukraine’s border guard said that the nation was being attacked from five different directions and that Russian tank convoys were entering the country.
Hundreds of Ukrainian soldiers were killed in the initial hours of conflict, according to official counts.
Photos showed lengthy lineups at bus stops, petrol stations, and cash machines as locals tried to leave Kyiv.
The conflict in Ukraine is real, and Russia is perceived as the aggressor. As a response, the US and the EU have imposed a variety of sanctions on Moscow.
The European Union, on the other hand, has a more difficult dilemma. The EU is reliant on Russian oil and gas, both of which are in limited supply.
Will Europeans (particularly Germans) sleep well now that the EU has decided to join the Americans in using sanctions as a political and military tool? Or will it be expensive cold nights?
The invasion sent shockwaves through the world’s financial markets.
Oil prices soared beyond $105 per barrel, while natural gas costs in Europe increased by more than 41%.
Price increases were also seen in gold, aluminium, copper, nickel, and food.
BTC is back
The currency market fell to a new low, and Russia’s stock market plummeted by up to 45 percent, wiping away more than $250 billion in value in one fell swoop.
Bitcoin and other altcoins also fell, cutting large chunks in their recent gains.
According to CoinMarketCap, Bitcoin slipped below $35,000 and was trading at $34,969 on Thursday. This is a drop of more than 8% from the day before.
Over the weekend, the world’s most valuable cryptocurrency slipped below $40,000, and the trend has persisted as the Ukraine situation worsens.
Due to global concerns, the likelihood of interest rate rises by the US Federal Reserve, and limits on digital assets by certain major governments, the currency has lost about half of its value from its November peak of $68,990.
However, on Friday, cryptocurrencies had recovered, with BTC exceeding $39000. The conflict in Ukraine is now a truth, and sanctions against Russia will begin to bite. The penalties may have prompted a market reversal, with indications returning to green.
Empty gas tanks
Sanctions on Russia, particularly its energy exports, will be a difficult decision for the EU. Despite the fact that Russia’s GDP is smaller than that of Italy, the catch is that Europe will be unable to exist without Russian oil and gas.
Europe imports roughly 40% of its natural gas and 25% of its crude oil from Russia, which is Europe’s major energy exporter.
Sanctioning Russia’s energy exports would be comparable to blocking energy flow into Europe, given that the northern hemisphere is still in the coldest part of the year.
The West has called for sanctions on Russia, but they also need additional natural gas supplies from Russia for the winter. Russian crude oil is likewise in high demand in the United States.
While the US is one of the top three oil producers in the world, it also uses 17 million barrels of oil each day. The United States had to buy roughly 600,000 barrels of crude oil per day from Russia by the end of 2021.
The international energy markets have been impacted by the ongoing geopolitical instability. Brent crude oil reached a high of USD 97 per barrel on February 21, just one step away from USD 100.
On February 22, the oil sector opened substantially higher in early trade. As tensions between NATO, Ukraine, and Russia escalated, Brent oil hit a new high of USD 97 per barrel, the most since September 2014.
Germany has the biggest need for Russian energy in Europe, importing the bulk of its natural gas and relying on Russia for half of its natural gas supplies.
From January to October 2021, Germany imported a total of 119 billion cubic metres of natural gas, accounting for 15.3% of the country’s energy output.
Natural gas is used to heat half of Germany’s 41.5 million households.
Russia’s role as a gas provider will undoubtedly be irreplaceable in the next years, while Germany’s energy demands for Russia extend beyond natural gas.
Between January and October 2021, Russia supplied 34 percent of Germany’s crude oil and 53 percent of the hard coal used by German power plants and steelmakers.
No immediate replacement
The clearance procedure for the Nord Stream-2 natural gas pipeline project has been halted by the German government. However, the Russians appear to be more enthusiastic about the choice than the Germans.
There are no immediate replacements for Russian gas. Note that Germany did not sanction the supply of Russian gas into the country. What they did so far is put the Nord Stream-2 deal on hold.
Russia looks to have found a method to sell its extra gas, while Germany will have to work hard with other suppliers to ensure long-term gas supply into its reserve banks.
The loss of 55 billion cubic metres per year from the Nord Stream-2 projects, which would have boosted the Baltic Sea pipeline’s overall capacity to 110 billion cubic metres per year, is enormous.
This quantity exceeds the Ukraine pipeline’s yearly transport capacity of 95 billion cubic metres.
At the same time, once Nord Stream-2 is operational, Gazprom’s overall capacity for delivery to Europe will be 297.5 billion cubic metres per year, enough to cover all of Europe’s outsourced demands.
While the EU is being dragged in the politics of a war foretold, both Russia and Germany should reconsider their position on the gas issue.
The former Russian president Dmitry Medvedev said this is an exciting new world where Europeans will soon be paying 2.000 euros for 1,000 cubic metres of natural gas.
Several top Russian officials also stated that Russia is unconcerned about being sanctioned by the West, which might include the cancellation of the North Stream-2 project.
It appears that Russia is well prepared for the long-haul over its recognition of the two “states” in Ukraine. It is already looking forward to continue gas exportation to other export markets.
Russian Energy Minister Nikolay Shulginov stated that Russia is dedicated to completely honouring current natural gas supply contracts.
It will continue to export natural gas without interruption in order to achieve a worldwide natural gas market balance between supply and demand.
Cry Germany?
Is Russia trying to put the Germans in a situation where they will cry for help, like the Ukrainians did in the recent past, over the upcoming high price of gas?
That is the matter here and this situation, if the Russians have full control indeed over gas production and supply (which they do for now) will put the Europeans on the defensive.