Russia cuts gas to Europe, exacerbates inflation shock and risks rationing, “We must have a good laugh in the Kremlin,” market news

Europe’s dependence on Russian energy was fully revealed with the war in Ukraine. Once in the wallet, no one can ignore the inflationary shock caused by sanctions. Unless it is difficult for the European Union to wean itself off oil from the Urals, replacing Russian gas, on the other hand, is a real headache. Prior to the onset, about 45% of EU gas imports came from Russia.

“I know how to replace it [l]Russian oil »explained in March the head of TotalEnergies Patrick Puyanne at the RTL microphone, but “If I decide to stop importing Russian gas, I don’t know how to replace it, I don’t have it. » These statements are clear. They provide information on why the Twenty-Seven has not yet imposed a joint embargo on Russian gas when, in late May, they finally agreed not to buy oil from the aggressor. By the end of the year, Europeans will reduce imports by 90%.

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Energy crisis “from bad to worse”

The EU, like the United States, Canada or Britain, is waging an economic war against the Kremlin, which, taking advantage of Europeans’ energy dependence, is hesitantly retaliating. “We are imposing sanctions on Russia to stifle it financially. In turn, he shuts off the gas, knowing that it is not easy to compensate for the fall in its supplies.summarizes Bruno Cavalier, chief economist of the private bank Oddo BHF. “It follows that Europe will have to pay more for alternative suppliers (increased inflation shock), pollute more (revival of coal-fired power plants) and may soon have to normalize its consumption (risk of recession). In the Kremlin, we must have a good laugh. »

The economist notes that the energy crisis in Europe will be “Worse and worse.” Last week, finding that Russia had cut gas supplies by 60% through the Nord Stream-1 pipeline through so-called repairs, Germany stepped up an “alarm level” of its plan to secure gas supplies, bringing Europe’s largest economy closer to possible action. regarding rationing. The complete cessation of supplies from Russia will lead to a “The effect of Lehman Brothers in the energy system”, warned German Economy Minister Robert Habeck. Russia has already cut off gas supplies to Poland and Bulgaria, which have refused to pay in rubles, as Moscow demands.

Gas, regional market

The war in Ukraine “affects Europe asymmetrically vis-à-vis the United States”explains Daniel Vernazza, an economist at UniCredit in London. “While the oil market is an international integration, the natural gas market is segmented by region, as gas must be transported through physical infrastructure such as pipelines. » What Bruno Cavalier also insists on: “The gas market is very segmented, as most trade is through pipelines. » Although liquefied natural gas (LNG), which can be transported by LNG, is booming, its market share remains relatively low in world gas trade (10%). The degree of dependence on Russian gas depends on geography: “Russia was [jusqu’à récemment] in a quasi-monopoly on the supply of Eastern countries. Its share was about 50% in Germany and Italy, less than 15% in France and Spain. » Yesterday, Lithuania passed a law banning the import of Russian gas.

Today, Russian gas imports by the European Union are 40% of the norm, which, says Bruno Cavalier, “It gives a boost to gas prices, which are no longer related to their historical level. This is one of the main causes of the inflationary shock experienced by Europeans. » According to economist Oddo BHF, in the event that Russia will further reduce its supplies “In the short term and at best [à supposer que les pays producteurs de GNL, comme les Etats-Unis, le Qatar et l’Afrique du Nord puissent répondre à la demande]using all unused import capacity [terminaux de regazéification],, we estimate that the EU could find substitutes to limit the gas deficit to about 10% of its total consumption. »

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Nutrition plans

When asked whether rationing will be needed, Bruno Cavalier does not rule out such a scenario. A complete shutdown of Russian supplies is required ” no doubt “ managed supply management, “Supplemented by aid mechanisms to prevent excessive electricity costs from leading companies to bankruptcy. Various countries are working on contingency plans of this type to determine the criteria by which rationing could be distributed between types of economic agents or between sectors. »

In Germany, it is estimated that in the case of rationing, GDP will fall by 0.5-3 points compared to the baseline scenario without rationing. “This range is so wide that it covers very different scenarios, ranging from stagnation to a severe recession.”, deciphers Bruno Cavalier. If you listen to the German business community, which claims a much greater impact, perhaps in double digits, rationing will certainly lead to a recession. In France, the Conseil d’Analyse Economique led to a minimal drop, by about 0.15 and 0.3 percentage points of GDP.