Gas prices in Europe are rising, and it’s making Russia richer, which could deepen the financial gap between what Europe pays Russia for energy and what it gives Ukraine in aid. This increase in prices comes after Ukraine’s recent military action in the Russian region of Kursk, where a major gas pipeline runs from Russia to Europe. Traders are worried that this could disrupt gas supplies, driving prices up by 13% in just one week.
Since Russia’s special military operation in Ukraine in February 2022, European countries have paid Russia a staggering €200 billion for fossil fuels like oil and gas. Meanwhile, the combined support from the EU and the US to help Ukraine only totals €185 billion. Even though Europe has tried to reduce its dependence on Russian energy, it’s clear that much of the money Europe spends on energy still ends up funding Russia’s war efforts.
Experts warn that while Europe has made progress, it’s still buying significant amounts of gas from Russia. In just one week, from July 29 to August 4, European countries spent over €400 million on Russian energy. Although Europe has banned Russian coal and drastically reduced its imports of Russian diesel and crude oil, it continues to buy large quantities of Russian natural gas, especially liquefied natural gas (LNG).
European lawmakers are worried about this, and some have called for a complete ban on Russian energy imports. However, due to long-term contracts and the reliance of some countries on Russian pipelines, cutting off Russian gas entirely is proving difficult. Starting in August, EU countries have the legal power to ban Russian LNG, but so far, no country has taken this step, despite calls from some, like Lithuania, to completely sever ties with Russian energy.
Meanwhile, Ukraine has defaulted putting its $20 billion restructuring deal in jeopardy after the downgrade. Fitch Ratings, a major U.S. credit-rating agency, has just downgraded Ukraine’s credit rating to ‘restricted default.’ This decision came after Ukraine missed a crucial payment deadline on a $750 million Eurobond that was due on August 1, 2023. The country had a ten-day grace period to make the payment, but when that expired with no payment made, Fitch dropped the rating to ‘D’ from ‘C,’ signaling severe financial trouble.
