Why is Europe reluctant to ban 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?

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

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

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.

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 cannot make up for the loss of gas by pipeline.

LNG is also much more expensive and suppliers are exhausted. While some European countries are well connected to LNG terminals, such as Spain, and new projects are underway in places like Greece and Poland, there is no infrastructure to supply the rest of Europe. Building LNG import terminals and pipelines to connect gas to places that need it can take years.

Because dependence on Russia varies, agreement on an EU boycott is harder to come by. Lithuania said on Saturday it was stopping imports of Russian gas and would only rely on an LNG terminal it launched in 2014. Poland, which has spent years looking for alternatives, said it would not renew a Russian gas contract at the end of the year, in addition to taking 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?

It is working to phase out Russian gas as quickly as possible by finding new sources, conserving and accelerating wind and solar power. The EU’s plan is to cut the use of Russian gas by two-thirds by the end of the year and to phase 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.

Oil is different in that it comes mainly by ship. 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 cut means a major blow to the European economy. 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.”

A group of economists, including Ruediger Bachmann, a professor at the University of Notre Dame, said an embargo would entail substantial economic costs for Germany, but would be “clearly manageable”. 2009 global financial crisis and pandemic recession, they said.

“Public alarmism about the catastrophic consequences of an energy embargo from lobby groups and affiliated think tanks does not meet academic standards,” they said in an analysis on the political portal of the Center for Economic Policy Research voxeu.org.

WHAT ELSE CAN EUROPE DO?

Economists Simone Tagliapietra and Guntram Wolff of the Bruegel think tank in Brussels have proposed 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 the gas in roubles. 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.

HOW DID EUROPE GET TO THIS POINT?

Germany relied on natural gas when it moved away from coal and after former Chancellor Angela Merkel shut down remaining nuclear power plants after Japan’s Fukushima disaster in 2011. Merkel put the emphasis on diplomatic dialogue with Russian President Vladimir Putin during his 16 years in power and stressed that even during the Cold War, energy supplies continued to come from Russia.

She also backed Russia’s Nord Stream 2 gas pipeline despite criticism that it would increase Germany’s dependence on Russia. Chancellor Olaf Scholz, who served as Merkel’s finance minister, froze the project after the invasion.

Italy, another major EU economy, has increased its reliance on Russian gas over the years by shifting away from coal. Italian officials say Russia supplies 38% of the natural gas used for electricity and for heavy industry, including steel mills and paper mills.

Foreign Minister Luigi Di Maio, who has traveled to energy-producing countries in search of alternatives, told the ANSA news agency on Monday that “Italy could not veto the Russian gas sanctions”. But Prime Minister Mario Draghi, who last week said gas payments were funding Russia’s war, did not address the energy when he condemned the images of bodies on Ukrainian streets.