President Vladimir Putin suggested that natural gas may be the first Russian resource to be supplied in rubles. But this proposal has been declined by several nations which prompts the question of what happens if Russia turns off the gas taps to Europe?
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Russia has set a March 31 ultimatum for “hostile” nations to start paying for natural gas imports in rubles. Countries that placed economic sanctions on the Russia and frozen its foreign currency reserves will be affected by the new currency-switch regulation. This is especially concerning for those EU countries that significantly depend on Russian energy imports.
What will happen after March 31?
Russia claims that if nations decline to pay in rubles, they would not receive free gas. On Tuesday, Kremlin spokesperson Dmitry Peskov declared, “We are not going to supply gas for free.” “No payment, no gas,” Peskov said when asked if non-payers’ gas will be switched off. However, he emphasized that Russia has not yet made a definitive judgment on how it will react if European countries decline to settle in Russian currency.
How much does Europe depend on Russian gas?
For heating and power generation, Europe is significantly reliant on Russian gas. Russian gas contributes for over 40% of total European gas usage. This year, the EU’s gas imports from Russia ranged from €200 million to €800 million per day.
What happens in Europe without Russian gas?
The European Commission has stated that it intends to reduce the EU’s dependence on Russian gas by two-thirds this year and eliminate it “well before 2030.” Economists, on the other hand, say it will be difficult to substitute the 1,550 terawatt-hours of Russian gas sent to the EU in 2021. Europe will have to reduce consumption in order to make up for the supply gap.
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Increased liquefied natural gas (LNG) imports, on the other hand, would put enormous upward pressure on prices in the already congested international LNG market. This would be a significant blow to the European economy, that is already reeling from exorbitant energy costs. A lengthy suspension in Russian gas supplies would be costly to the EU, and certain countries more vulnerable to Russian gas variations, such as Italy and Germany, would be forced to adopt urgent measures. Olaf Scholz, the German chancellor, has cautioned that a restriction on Russian energy imports will lead to a European economic downturn.
What are the wider implications?
A worldwide energy crisis is a possibility. According to the International Energy Agency, Russia is the world’s biggest natural gas supplier and the world’s second-largest crude oil exporter behind Saudi Arabia. It will be difficult to replace Russian gas. Europe would have to purchase gas on the free market, which indicates they will have to spend more if they import from nations like Qatar or the United States. It also signifies that the gas they purchase will not be diverted to another location. As countries compete for limited supply, the outcome will be increased gas prices worldwide.
Will oil prices be affected?
The European Union receives about four million barrels of oil each day from Russia. Unlike gas, whose supply is still largely governed by long-term contracts, the cost of oil is highly variable and driven by supply and demand. Analysts worry that if Europe continues to shun Russian oil, petroleum prices might skyrocket to $200 per barrel or perhaps even beyond.
Will Russia sell other commodities in rubles?
During his payment scheme presentation, President Vladimir Putin suggested that natural gas may be the first Russian resource to be supplied in rubles. If the West implements more sanctions, other Russian export goods, such as crude oil, coal, metals, rare earths, minerals, precious stones, noble gases, lumber, fertilizers, food oil, and grain, may be sold in rubles.
The EU and the G7 countries have thus far refused Russia’s proposal that they swap their gas payments to rubles. Russia has stated that it will not supply free gas, implying that it is prepared to turn off the taps. If this occurs, Moscow will lose between €200 million and €800 million per day the embargo is in effect. Russia, on the other hand, may be able to divert some of the gas to Asia. Increasing energy prices will undoubtedly plunge Europe’s economies into crisis, causing the region’s economies to decline for the first time since WWII. So, who will be the first to blink? Make your wagers.