EU energy transition cements economic iron curtain with Russia Business News

JThe balance between economic self-harm and the need to intensify the pain for Russia to undermine its war effort in Ukraine is proving tricky for the European Union.

He moved quickly and brutally to sanction hundreds of individuals with ties to Putin’s regime. He has also, along with the US, UK and others, put in place significant financial barriers to broader trade with Russia.

Yet several of the bloc’s largest economies are particularly dependent on Russia for their energy needs.

Plans to cut those oil, coal and gas ties by 2027 will be presented in May, according to a statement from Ursula von der Leyen, president of the European Commission, after a summit of European leaders in Versailles on Friday.

Amid growing alarm over the humanitarian catastrophe orchestrated by Russian President Vladimir Putin, the pressure to turn off the energy taps is unlikely to ease any time soon. It’s about when, not if.

In terms of economic hurdles, there is a doubling on both sides that is so deep that it is difficult for economists to tackle.

However, given the scale and pace of the current decoupling, the impact will last at least a decade, likely longer, they warn. Simply put, Russia will now face a deep recession, and the EU, a higher cost of living.

Some of Russia’s most extreme measures against Western companies, such as allowing seizures of assets in foreign company operations, may not have an immediate calculable impact. However, Elina Ribakova, deputy chief economist at the Institute for International Finance, says The Independent that they kill foreign investment as much as the sanctions.

“Concretely, it is unlikely to offer any help to the Russian economy. This could allow some control over the amount of currency companies can withdraw [of Russia],” she says.

“For me, this is a very important sign that they are not planning to come back into the global economy anytime soon. The current regime, the current authorities, have no plan for reintegration. You make measurements, expensive measurements like this because you know you won’t come back.

Meanwhile, the EU has pledged to phase out Russian imports of oil and natural gas within five years.

That’s long enough to avert a major economic blow, but perhaps not long enough to stop the flow of large sums of money to Russia from energy exports.

There is also some skepticism about the short-term campaign announced by the EU in recent days – to cut imports of Russian gas by two-thirds this year.

“We believe that achieving a two-thirds reduction this year will require a greater focus on dirtier fuels and nuclear, which are conspicuously absent from the Commission’s proposal,” says Daniel Kral, senior economist at Oxford Economics, in a new Analysis.

If 2022 ambitions prove elusive, 2027 ambitions may prove just as elusive. But the idea of ​​a five-year plan is at least economically realistic, says Holger Schmieding, chief economist at Berenberg Bank.

“This is a phase-out, which I believe can be achieved without major disruption. This is a long-term marginal brake. This means that governments and the private sector will have to invest more in the production of alternative energy. It’s doable,” says Schmieding.

“If it was 2024, then I would say it’s a struggle, it’s something that ordinary people on the street will notice. If it was a commitment to do it this year, it would have been a risk of recession,” he adds.

One of the most difficult sticking points in moving ever faster on energy imports from Russia is that not all states are affected in the same way, not only in general terms of supply total economic or dependency, but also in terms of the political sensitivity of the areas concerned.

Russia accounts for between 80% and 100% of gas supplies in some Central and Eastern European (CEE) countries, but only around 5% in Spain, Portugal and the Netherlands, according to Oxford Economics’ Kral. The populations of these CEECs are also the most exposed to fuel poverty. Germany, Italy and Austria are among the most exposed large economies.

The place of use also matters in political considerations. In Finland, natural gas is little used for domestic heating but rather in industrial settings, according to Kral. However, in the Netherlands, gas is used to produce around half of the country’s electricity.

Ultimately, he believes the EU risks missing out on its ambition to cut gas imports by two-thirds by 2022. Green targets and infrastructure issues prevent the bloc from simply switching to coal or diesel. other sources of energy.

In the absence of alternatives, the goal would probably require energy rationing among households and industry, with serious consequences.

Breaking with the Russian economy is difficult to do, and the EU is, at present, not ready to take the pain of a…