EU says bloc’s GDP could fall 1.5% over ‘likely scenario’ of Russian gas supply cut


A complete cut of Russian gas supplies to Europe, combined with a cold winter, could reduce the European Union’s average gross domestic product by up to 1.5% if countries do not prepare in advance, the European Commission said on Wednesday.

The EU executive has proposed a voluntary target for member states to reduce their gas consumption by 15% until March to prepare for possible further gas cuts from Russia. He said a complete cut off from Russia in an average winter could reduce average EU GDP by up to 1% if countries are not prepared.

Europe is rushing to fill its gas storage before winter and build a buffer in case Moscow further restricts supplies in retaliation for European support for Ukraine after the Russian invasion.

Since Russia invaded Ukraine, the EU has approved bans on Russian coal and most oil that will come into effect later this year, but that hasn’t included natural gas as the 27 bloc nations depend on gas to power factories, generate electricity and heat homes. Now he fears that Russian President Vladimir Putin will cut off the gas anyway in an attempt to wreak economic and political mayhem in Europe this winter.

“So far savings at EU level have been 5% and that is clearly not enough. So we need to start, coordinate, savings programs now, if we don’t want to do facing the worst-case scenario in the middle of winter,” EU energy policy chief Kadri Simson told a press conference in Brussels.

The International Monetary Fund recently warned that a gas cut in Russia could push European economies into recession, worsening a gas crisis that has driven up consumer bills.

“The partial shutdown of gas deliveries is already affecting European growth, and a complete shutdown could be much more severe,” warned the IMFBlog. He added that the gross domestic product of member countries like Hungary, Slovakia and the Czech Republic could decrease by up to 6%.

Italy, a country already facing serious economic problems, “would also face significant impacts”, he said.

“Russia makes us sing”

The European Commission proposed on Wednesday a voluntary target for all EU countries to reduce their gas consumption by 15% from August to March, compared to their average consumption during the same period from 2016 to 2021.

The proposal would also allow Brussels to make the target mandatory in the event of a supply emergency – if the EU declares a substantial risk of severe gas shortages. While the EU has acquired centralized authority over monetary, trade, antitrust and agricultural policies, national governments have jealously guarded their powers over energy issues.

“Russia is blackmailing us. Russia is using energy as a weapon,” said European Commission President Ursula von der Leyen.

“And so, in any event, whether it’s a partial major Russian gas cut or a total Russian gas cut, Europe has to be ready.”

The regulation must be approved by a reinforced majority of EU countries. Diplomats from EU countries are expected to discuss it on Friday, with a view to approving it at an emergency meeting of the countries’ energy ministers on July 26.

The plan has already met resistance from some countries, who believe their emergency plans do not need a boost from the EU. Countries would be required to update their emergency gas plans by the end of September to show how they will meet the EU target.

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Among those opposing mandatory EU targets is Poland, which filled its gas storage to 98% capacity after Russia cut its gas supply in April. Others’ storage is less full—Hungary’s, for example, is at 47 percent.

But EU officials say it is crucial to ensure that all countries act now, rather than waiting to react if Russia cuts supplies.

“We have to be proactive. We have to prepare for a possible complete Russian gas disruption. And that’s a likely scenario. That’s what we’ve seen in the past,” von der Leyen said.

Households exempt from curbs

Moscow supplied 40% of the EU’s gas before its invasion of Ukraine, but flows to Europe from Russia have since fallen below 30% of the 2016-2021 average.

Brussels has suggested steps governments can take to reduce gas consumption, including auctions to compensate industries that reduce gas consumption and limits on heating and cooling temperatures in public buildings. Governments should also decide the order in which they would force industries to close in the event of a supply emergency.

Households are classed as “protected consumers” under EU rules and would be immune to such restrictions.

Meanwhile, gas deliveries are set to resume on Thursday via Russia’s Nord Stream 1 gas pipeline to Germany, after an annual maintenance that thrust Canada into the midst of controversy.

The pipeline turbines remained in Montreal at Siemens Energy for repairs, but the Canadian government announced a temporary and revocable suspension of sanctions against Russia so they could be shipped back to Europe.

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“We had to withdraw President Putin’s apology as to why the Nord Stream pipeline might be shut down,” Natural Resources Minister Jonathan Wilkinson said of Canada’s decision to make Russian turbines sanctioned, insisting on the fact that the decision is not a bet.

Federal government ministers defended the decision, saying it was necessary to meet Germany’s energy needs. Ukrainian President Volodymyr Zelenskyy criticized Ottawa over the move, warning that Putin would view it as a sign of weakness.

The arrival of the turbines cannot be used as an excuse not to resume deliveries when pipeline maintenance ends, von der Leyen said.

“It’s already in transit, so there’s no excuse not to deliver gas. Besides, there are potentially suitable alternative turbines as well. It’s not the one and only turbine in the world that fits. There are identical turbines,” she said. .