City thinking, local knowledge

Will Russia Really Turn off Europe’s Gas?

By Questa Chartered

At the end of July, Gazprom – the largest publicly listed natural gas supplier in the world and majority-owned by the Russian state – stopped supplying gas to Latvia. It had earlier reduced its supplies to Germany, prompting many German cities and states to cut consumption. Turning off the hot water and heating in public buildings, Hanover mayor Belit Onay said the ‘imminent gas shortage’ meant he needed to cut energy consumption by 15%.

So is he right? Will there be an imminent gas shortage? Will Germany and the rest of Europe really face a long, cold winter as Russia turns off the gas supply?

It’s a question that people have been asking since Russia invaded Ukraine on 24th February – and with the war showing no sign of ending, the answer is increasingly appearing to be ‘yes’.

As most people now know, Germany – and the German economy is the engine which drives much of Europe – is heavily dependent on Russia for its gas imports. Depending on which estimate you read, anywhere between 30% and 40% of the country’s gas has come from Russia. Germany imported 142 billion cubic metres (bcm) in 2021, with domestic usage accounting for 100bcm. Russia supplied 32% of that gas, followed by Norway at 20% and the Netherlands at 12%. Most of the remainder came from gas that Germany had stored.

Clearly, therefore, any reduction in gas supply is going to have serious consequences: German leaders will be forced to choose between restricting supply to people’s homes, or restricting the supply to industry.

In May, Germany recorded its first trade deficit since 1991, and as far back as April, Martin Brudermüller, the CEO of BASF, the world’s largest chemical producer, warned of a “total collapse” if supplies of Russian gas were cut. At the same time Robert Habeck, the German Minister for Economic Affairs, said that an “immediate embargo on Russian natural gas would threaten social peace in Germany.”

Those two chickens are now coming home to roost. President Putin’s tactics are simple. He knows full well that whatever oil and gas he doesn’t sell to Europe will find a ready market in India and China. He can therefore afford to put pressure on Europe, hoping European countries will, in turn, persuade Ukraine to accept a ceasefire – and Russia’s effective annexation of the Donbas.

Writing on the website TippingPoint2020, defence analyst Michael Clarke said: ‘Russian gas supplies are now being explicitly manipulated to cause as much political distress as possible in western countries this winter.’

Vladimir Putin’s tactics could well pay off. If part of Europe’s persuasion of Ukraine is promising to foot the bill for rebuilding the country, Europe’s politicians may well consider that a cheaper option than the long term damage to their economies caused by a shortage of gas, and of course, the long term damage to their political careers caused by a winter of no heating and cold showers.

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