I Bet on Russia Standing Strong on Sanctions and the Transatlantic Nations (EU, U.K. and US) to Collapse
30 Mar, 2022 09:11HomeBusiness News
What happens if Russia turns off the gas taps to Europe
Deadline approaches for switching payments to rubles
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Russia has given “hostile” countries a March 31 deadline to begin payments for natural gas imports in rubles. The new currency-switch rule will affect countries that imposed economic sanctions on the nation and froze its foreign currency reserves. This particularly concerns some EU countries that rely heavily on Russian energy supplies.
- What will happen after March 31?
Russia says Europe will not get free gas if countries refuse to pay in rubles. “We are not going to supply gas for free, this is clear,” Kremlin spokesman Dmitry Peskov said on Tuesday. When asked whether gas would be turned off for non-payers, Peskov replied: “No payment, no gas.” He added, however, that Russia is yet to make a final decision on how to respond should European countries refuse to pay in the Russian currency. - How much does Europe depend on Russian gas?
Europe depends heavily on Russian gas for heating and power generation. Russian gas accounts for some 40% of Europe’s total consumption. The EU’s gas imports from Russia this year stood between €200 million and €800 million a day. - What happens in Europe without Russian gas?
The European Commission has said it plans to cut EU dependency on Russian gas by two-thirds this year and end its reliance on Russian supplies “well before 2030.” However, economists say it’s not easy to replace the 1,550 terawatt-hours of Russian gas delivered to the EU in 2021. Europe cannot replace the supply shortfall quickly; it will need to curb demand. Meanwhile, increased liquefied natural gas (LNG) imports in an already tight global LNG market would place immense upside pressure on prices. This would be a major hit to the European economy, which is already suffering from sky-high energy prices. A prolonged halt in supply of Russian gas would come at a cost for the EU and might even result in some countries that are more exposed to Russian gas fluctuations, like Italy and Germany, having to take emergency measures. German chancellor Olaf Scholz has warned that a ban on Russian energy imports would trigger an economic recession across Europe. - What are the wider implications?
There is a risk of a global energy crisis. Russia is the largest natural gas exporter in the world and the second-largest exporter of crude oil behind Saudi Arabia, according to the International Energy Agency. Replacing Russian gas will not be easy. Europe will have to buy gas on the open market, which means if they buy from countries like Qatar or the US they will have to pay more. It also means that the gas they buy will not go somewhere else. The result will be higher gas prices everywhere as countries outbid each other for limited supplies. - Will oil prices be affected?
Russia supplies around four million barrels of oil per day to the European Union. Unlike gas, the supply of which to a greater extent is still regulated by long-term contracts, the price of oil is volatile and is determined by supply and demand. If Europe still decides to abandon Russian oil, then crude prices could soar to $200 per barrel, or even higher, analysts warn. - Will Russia sell other commodities in rubles?
President Vladimir Putin has hinted during his payment plan announcement that natural gas could be the first Russian commodity to be sold in rubles. If the West imposes further sanctions, it raises the possibility that other Russian export commodities could be priced in rubles, including crude oil, coal, metals, rare earths, minerals, precious stones, noble gases, timber, fertilizers, food oil and grain. - Who will blink first as the payment deadline approaches?
So far, the EU and G7 nations have rejected Russia’s demand to switch their payments for gas to rubles. Russia said it will not provide free gas supplies, suggesting that it is ready to shut off the taps. If that happens Moscow would lose between €200 million to €800 million each day of the embargo. However, Russia could redirect some of the gas to Asia. Europe would likely face an economic crisis not seen since WWII, as soaring energy prices would send the region’s economies into recession. So, who will blink first? Place your bets.
Sweeping Financial Sanctions Against Russia Threaten US Dollar Dominance, Warns IMF
© AFP 2022 / SAUL LOEBSubscribe
Rishikesh KumarAll materialsWrite to the authorThe US and its allies have announced a series of financial measures against Russian banks and leaders in response to Moscow’s military action in Ukraine. India, China, and others have ignored western sanctions and started taking steps to avert what the Kremlin calls the West’s “economic war” against Russia.The financial sanctions imposed on Russia by the US and its allies will gradually dilute the dominance of the greenback, resulting in other currencies playing a more prominent role in the international monetary system, the International Monetary Fund (IMF) has warned.In an interview with British daily newspaper, the Financial Times, Gita Gopinath, the IMF’s first deputy managing director, predicted the emergence of small currency blocks based on trade between separate groups of countries in response to measures taken by western nations against Russia.”The dollar would remain the major global currency even in that landscape, but fragmentation at a smaller level is certainly quite possible. We are already seeing that with some countries renegotiating the currency in which they get paid for trade,” Gopinath said.Western countries have imposed severe sanctions on Russian financial institutions, including the central bank, and frozen forex reserves worth around $300 billion stashed in US dollars.”Countries tend to accumulate reserves in the currencies which they use to trade with the rest of the world, and in which they borrow from the rest of the world, so you might see some slow-moving trends towards other currencies playing a bigger role [in reserve assets],” she observed.Gopinath’s observations come days after the Reserve Bank of India voiced similar concerns, saying countries may choose to diversify their forex reserves away from US dollars in the wake of the US decision to freeze Russia’s reserves.The IMF’s economist noted a 10 percent reduction in the dollar’s share of international reserves over the past two decades.The India-born economist also added that digital currency will get even “greater attention since the recent episodes, which draws us to the question of international regulation”.Several experts also forecast increasing interest rates on US Treasury bonds, indicating a weakening inclination to store their reserves in US currency.Ten-year bond yields jumped to 2.35 percent from 1.7 percent since Russia began a special military operation in Ukraine to demilitarise and de-Nazify the eastern European nation.
