Apr 8, 2022 - Economy

Pressure mounts on Europe for total Russian energy embargo

Illustration of stars from the European Union flag squeezing an oil drum.

Illustration: Shoshana Gordon/Axios

Pressure is mounting for the European Union to do the unthinkable: cut off imports of Russian oil and gas, which have been flowing to the West through all manner of crises for decades.

Why it matters: No one quite knows what happens economically if the EU is cut off from its supply. "It's not something that's been in the models because it was never considered an option," said Antoine Halff, senior research scholar at the Center on Global Energy Policy, Columbia University.

  • While specific predictions are hard to nail down, there is consensus that a full energy embargo would throw the EU into recession and have ramifications geopolitically, as well.
  • "Regionally devastating and globally impactful," write the authors of one February paper that lays out options for handling an energy cut off.

Germany, which is deeply dependent on Russian energy, would likely take it the hardest.

  • German GDP could decline somewhere between .5% and 3%, according to an estimate from a paper published last year by German economists. (The pandemic caused a 4.5% GDP decline in the country).
  • Without Russian energy, European companies — from makers of chocolates and candies, to chemical manufacturers — could be forced to shutter production, according to a recent NYT report.
  • Citizens could also be forced to ration heat and electricity.

This week the U.S and its allies ratcheted up the intensity of sanctions, targeting two the country's largest financial institutions and banning new U.S. investments there.

More is coming: The EU said yesterday that it would ban imports of coal, and that's fueling chatter about the prospects of a total energy ban. Some countries are pushing for oil to be next, Bloomberg reported.

  • "The needle has moved on the scale, away from 'totally out of the question,'" Halff said. He's working with colleagues on a model to determine what happens if we "turn down the tap."

State of play: As long as Russia can sell energy, it can maintain a cash reserve to prop up its currency — and fund a war.

  • "Each day, roughly, we are paying €1 billion to import Russian energy, and that's, obviously, a source of income that's used to finance the war,” the EU's top diplomat, Josep Borrell, said earlier this week. It was the first time he'd spoken "candidly" about the issue, noted energy columnist Javier Blas at Bloomberg.
  • Cutting off coal and oil, experts said, is relatively doable. Those can be imported from elsewhere. Natural gas, however, requires a level of infrastructure — pipeline, transport and storage — that can't easily be replicated.

Flashback: Germany and the EU were warned for years that their reliance on Russian energy would be a liability, said Anna Mikulska, a nonresident fellow in Energy Studies at Rice University's Baker Institute for Public Policy. They should've prepared but "were asleep at the wheel," she added.

  • Being prepared would've have meant diversifying away from Russian energy sources, as some neighboring countries have — Poland and Lithuania both built terminals to import liquified natural gas. Germany has no LNG terminal, and only now is in process of building them.

What's next: Lithuania announced a total ban on Russian energy this week. "Dear EU friends, pull the plug," tweeted Lithuanian minister Gabrielius Landsbergis, urging other nations to follow. "Don't be an accomplice."

  • Other countries may fall in line — eventually. The EU has said it will ween itself off Russian gas "well before 2030."
  • That sure feels like a long time from now.
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