Ukraine-Russia: Will the price of energy soar in the event of an invasion?

On Tuesday night, the conflict between Russia and Ukraine reached a new stage with Vladimir Putin’s recognition of the independence of the Russian-speaking republics of Donbas and the entry of Russian troops into these territories. A conflict that takes on a global dimension and which could have multiple consequences for Europeans, in particular on their gas bills. “The price of energy in Europe will necessarily increase with the conflict, as the continent is so dependent on Russian gas “, warns Raphaël Homayoun Boroumand, the doctor in economics and energy specialist., before listing our Russian dependency. Moscow accounts for 40% of gas imports from the European Union, far ahead of Norway (18%) or Algeria (12%). Because Russia is the first producer and the first exporter of natural gas in the world. This control is very heterogeneous: thus, Russian gas represents 55% of Germany’s imports, 80% of those of Austria against less than 20% for France. However, the price of gas has an impact on several bills, in particular, that of electricity

Good dependency on Moscow

“Natural gas is very rare in Europe and if the 27 want to maintain their climate objectives, they cannot use the most polluting extraction methods such as shale gas “, notes Hugues Poissonnier, professor of economics and strategy. at the University of Grenoble. A dependency that Moscow could well use. Europe has just started its economic sanctions against Russia, including suspending the authorization of the Nord Stream 2 gas pipeline linking Russia to Germany but has not shot down all these cards. Vladimir Putin said on Tuesday that he would maintain gas exports on his side, a “subtle” way to remind that he could decide to stop them at any time.

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“It is an important strategic lever. The price of gas is already very high, with serious consequences for purchasing power, of course, Russia will play on it to try to limit economic sanctions”, agrees Carole Mathieu, head of European policies at the Energy & Climate Center of the French Institute of International Relations (Ifri). Will Moscow cut off European gas?

Waiting for spring

“We must not overestimate the balance of power in favor of Russia, its room for maneuver is limited”, reassures Raphaël Homayoun Boroumand. The country of the tsars is dependent on gas exports to Europe, which represents 15% of its GDP, according to the doctor in economics. “It would be very dangerous and counter-productive for Russia to limit gas to Europe too much, or even to cut off the supply altogether. It would also damage its image as a trusted producer, even among non-Europeans. But with Vladimir Poutine, you should never swear to anything…”, warns Carole Mathieu.

According to these experts, the most likely scenario would be a drop in Russian gas supplies rather than a total cut. More than enough to inflate consumer bills. As for the good news, time is playing for Europe: “The situation is less tense than at the beginning of December. The more the weeks pass, the more the spring gets closer, the less the gas becomes vital”, develops the expert. And concerning France, the Minister of the Economy, Bruno Le Maire assured that the government would maintain “the freezing of the price of gas for individuals in all circumstances”. The blocking of gas prices for individuals was decided in October, as part of the “tariff shield” announced by the government against inflation, and should in principle end in June 2022.

Get out of addiction, yes, but how?

In addition, the winter was relatively mild, which made it possible not to pump too much into gas stocks, adds the member of Ifri. “Europe did not wait for the crisis in Ukraine to know that this energy dependence on Russia was problematic”, admits Carole Mathieu. Renewable energies, stock of liquefied gas, the extension of the partnership with other countries, solutions are being developed to leave Russian hegemony.

Russia

“The accumulated stocks will make it possible to hold out for a few weeks in the event of Russian deprivation, no more”, tempers Hugues Poissonnier. As for partnerships with other nations, “gas from other continents, such as that of Qatar or the United States, must be liquefied and therefore costs much more. A limited option, even beyond the price, the main exporting countries having announced on Tuesday their limited capacities to rapidly increase European supplies in the event of a conflict with Russia; “This crisis will relaunch the debate on nuclear power in Europe, which would allow much better energy independence,” according to the specialist.

A rising bill over the long term

Because for the moment, all the solutions found by Europe are no match for the importance of Russian gas. ” The bill is likely to be steep for Europeans and the crisis could lead to higher energy prices for months,” warns Carole Mathieu. Even if the dispute only lasted a few weeks, “a rise in gas now would have effects on the purchase of stock this summer, the stock which is used for next winter. The less inventory there is, the more expensive the price of gas will be in January 2023.”

What hopes that the Russians are pragmatic, they who also have a lot to lose in this story. “It’s a more resilient people, more used to deprivation,” worries Hugues Poissonnier. Just because a conflict results in two losers doesn’t mean it doesn’t happen.

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