Europe’s Ban On Russian Energy Will Only Trigger More Inflation Pain In The West
Europe’s extreme dependency on Russian energy products from oil to natural gas is made clear recently from the manner in which they have approached sanctions – with incrementalism, slowly sinking back into the bushes.
The latest agreement among member nations on export bans targeting Russia is largely oil focused, not natural gas focused, with the union demanding an immediate 70% decrease in Russian oil transferred BY SHIP. Oil transferred by pipeline will continue to flow into the EU for now. The ban is intended to expand to 90% of all shipborne Russian oil by the end of this year. Natural gas imports from Russia will also continue.
While some European nations are more dependent on Russian energy than others, overall 40% of the EU’s needs are supplied by the country’s industry. It is not surprising that they are seeking an incremental approach to sanctions, they simply would not be able to survive another winter if they were to go cold turkey and block Russian imports completely. Of course, this does not mean that Russia has to operate on Europe’s timetable.
Russia is already reducing exports of natural gas to multiple EU countries, with Denmark, Netherlands and Germany being the latest to see losses. The EU’s ban was oil and ship focused because they cannot find an alternative source for natural gas that would resolve shortages if they banned everything. Germany in particular would be destroyed by the loss of natural gas supplies from Russia with its 42% dependency.
The solutions offered by governments and in the mainstream media neglect certain realities. Namely, they claim that output can be increased or diverted to Europe to fill the gap. Joe Biden has suggested that the US is a “net exporter” of oil (this advantage has swiftly declined since he entered the White House according to the IEA) and that the US could help alleviate European demand. The IEA and OPEC members like Saudi Arabia have offered to increase market availability and output of oil if Russian exports are hit with sanctions.
The problem is that increased production is a fantasy stifled by the realities of labor shortages, increased drilling costs due to inflation and shortages in raw materials caused by supply chain disruptions. There is little chance that production capacity will ever be able to match EU demands, according to experts in the drilling industry.
So what does this mean?
It means that in order for Europe to fulfill its energy needs while banning its primary import source, the union will have to leach existing supplies from the global market. In other words, supplies will be greatly reduced in the West and prices are about to spike exponentially in order to feed the EU.
Despite all of this economic bluster, Russia has shown considerable resilience to sanctions on oil as both China and India have increased purchases in tandem with Europe’s bans. The wider implication of this being that Europe and the West will be facing reduced global oil supplies and paying a premium while countries like China and India will be enjoying increased supplies and lower prices from Russia. The East grows stronger while the West gets weaker
Fri, 06/03/2022 – 02:45