Drastic consequences for the economy Energy expert warns of gas embargo
09/04/2022, 08:10
Demands for a gas and oil embargo on Russia are getting louder as news of alleged war crimes in Ukraine mounts. But experts warn of drastic consequences for the German economy.
Energy experts have warned of serious economic consequences if Russian gas supplies are cut in response to the war in Ukraine. “A full embargo would trigger an immediate recession in Europe, inflation would continue to rise and domestic policy would become even more difficult,” said economist Simone Tagliapietra of Brussels-based think tank Bruegel. Instead, he proposes introducing tariffs on Russian energy to put further pressure on Russia.
Raphael Hanoteaux of the E3G organization said of a gas embargo: “German industry, for example, would lose its competitiveness.” The reason for this is industry closures and even higher prices.
Starting in early August, an embargo will apply to Russian coal, which EU countries agreed to this week. Tagliapietra estimates that the EU currently spends €15 million a day on Russian coal, but much more on Russian gas – around €400 million a day – and €450 million on Russian oil. That is why Poland and the Baltic countries, for example, are demanding more comprehensive measures.
According to experts, a stop in the supply of oil would have consequences for the world market. “It would affect the global price because much of the volume would simply be unavailable, but demand would not decrease,” Hanoteaux said. About half of the oil shipped from Russia to Europe comes via pipelines or ships across the North Sea, which would be difficult to divert, he said. A higher oil price due to lower supply would affect not only Europe but also developing countries that are already struggling, said Bruegel’s Tagliapietra.
“Instead of these embargoes, it would be better to immediately put a tariff on all these oil and gas imports,” suggests Tagliapietra. In his view, this would reduce Russia’s revenues while at the same time limiting the effects on the European economy. As Russia can only sell part of its oil and gas to Europe, companies like Gazprom would be forced to pay this tariff. According to Tagliapietra, the money could be used to cushion high energy prices for consumers or to finance Ukraine’s reconstruction.
“One benefit of tariffs is that we can put pressure on the Russians: if they stay as they are, you can raise tariffs over time,” Tagliapietra said. According to him, the EU Commission and EU countries are investigating how such tariffs could be designed.