The indefinite closing of the natural gas tap announced today by Gazprom may not have been a surprise for the European governments that for months have announced energy independence plans from Moscow, but it does not cease to be a real threat to the Old Continent.
Gazprom announced the suspension of Nord Stream citing technical problems, but it is difficult to separate the move from previous announcements by both the Commission to cap the price of Russian natural gas and the G7 to cap the price of Russian oil .
Besides, Moscow has declared in all tones that if the West proceeds with the imposition of a ceiling, it will stop selling. It is possible that Gazprom will announce the operation of the natural gas pipeline to Europe again, but in any case, Russia and the West are taking a battle position for an energy war with unpredictable consequences for the economy internationally and certainly with adverse consequences for citizens.
Restriction of consumption
Germany’s initial reaction to Gazprom’s announcement was cool but indicative of the difficulties facing the EU’s biggest power. The country is now better prepared for a Russian supply cut, Germany’s natural gas regulator said. gas, but urged citizens and companies to limit consumption.
The proposal for energy with the card – which has been on the table since June as an inevitable and at the same time realistic scenario – now seems more likely.
Germany’s natural gas storage tanks are 85% full. Berlin estimates that the target of being 95% full by November 1 will be difficult to achieve unless companies and households cut fuel consumption.
The EU as a whole has already exceeded the target of filling tanks by 80% by October 1 and is moving ahead with plans to source liquefied natural gas from other countries. However, it also has to deal with the explosion in the price of fuel that has triggered jumps in the price of electricity and other products.
The cap on natural gas and the challenges for Europe
Commission chief Ursula von der Leyen said the EU should impose a price cap on Russian natural gas to thwart what she said were attempts by Russian President Vladimir Putin to manipulate the market.
The explosion in natural gas prices hitting European industry and households was initially triggered by the recovery in demand after the pandemic and then further fueled by the war in Ukraine. Now Europe must find a way out at a time when margins are narrowing as it seeks to make it difficult for Putin in the war in Ukraine, while at the same time facing the risk of recession and social unrest.
The Commission’s statements were followed by the green light of the G7 summit for the ceiling on the price of Russian oil. At first, the G7 finance ministers did not give details on the level of the price, stating only that the initial ceiling will be based on a series of technical elements and its level will be reviewed, whenever necessary.
The goal of the decision, which still has many hurdles to jump before it takes effect, is to keep Russian oil flowing to global markets that depend on those supplies — while significantly reducing the profit Moscow makes from its sales. .
The G7 must find common ground with China and India
The G7 wants to activate the new mechanism along with the activation of the EU embargo. against Russian oil imports in December to try to limit the economic fallout from new EU sanctions. which are about to enter into force.
The Biden administration fears the embargo could send energy prices skyrocketing and potentially send the global economy into recession if millions of barrels of Russian oil are suddenly withdrawn from the world market, drastically reducing the global supply of crude oil. US government officials have estimated that oil could soar to $200 a barrel or higher unless efforts to impose a price ceiling are successful.
For its part, Moscow has already responded to the threat of such a move by declaring, through the mouth of Vice President Alexander Novak, that it will suspend supplies of oil and petroleum products to states that apply any ceiling.
In order for the West’s plan to proceed, it will be necessary to overcome a series of obstacles, the first of which is the consent of China and India to this proposal, at a time when Beijing-Washington relations are particularly tense after the Taiwan crisis.
Analysts and officials agree that the stance taken by those countries that buy significant or even increased quantities of Russian oil will play a key role in the cap’s effectiveness.
Ideally, Europe and the G7 would like these countries to participate in the initiative, noting that the height of the ceiling will be determined jointly and with their participation, although this seems quite difficult.
“It will only work if (the cap) is organized internationally. It cannot be done unilaterally, but only in close cooperation with others. Otherwise, it won’t work” German Chancellor Olaf Scholtz had characteristically commented last month, as Russia can continue to sell oil in large markets and even at higher prices.