Putin’s new gas squeeze condemns Europe to recession and a hard winter of rationing - Financespiders

Putin’s new gas squeeze condemns Europe to recession and a hard winter of rationing - Financespiders

Europe’s descent into an economic contraction looks to have been confirmed with Russia squeezing natural gas supplies to the bloc and heavy industry facing tough rationing in the coming months.

Just days after Europeans breathed a sigh of relief as Russian gas giant Gazprom announced that it would resume supplies through the Nord Stream 1 pipeline, it then announced Monday that flows would be reduced yet again.The announcement, with Gazprom saying it would be for the maintenance of a turbine along the pipeline, was greeted with incredulity and condemnation in Europe.

Ukraine’s President Volodymyr Zelenskyy said the move — which will see flows to Germany fall to 20% of its capacity from an already low level of 40% — was tantamount to a “gas war” with Europe. Germany’s Economy Minister Robert Habeck said the excuse that maintenance was the reason for the supply cut was a “farce.”

It puts Europe in a tricky situation as it contends with rampant inflation, the war in Ukraine, and an already troubled supply chain following the Covid-19 pandemic.

Germany, the region’s largest economy and traditional growth driver, has a particular reason to worry. It’s largely reliant on Russian gas and is sliding toward a recession.

The government is particularly worried about how it will keep the lights on over winter: Habeck said Monday evening that “we have a serious situation. It is time for everyone to understand that,” during an interview with broadcaster ARD.

He also said that Germany must reduce its gas consumption, noting “we’re working on that.” He said that in a scenario of low supplies, gas for industries will be reduced before private residences or critical infrastructure such as hospitals.

“Of course, it’s a big concern, which I also share, that this can happen. Then certain production chains in Germany or Europe would simply no longer be manufactured. We have to avoid that with all the strength we have,” he said. 

Reliance on Russia

With Russia under a raft of international sanctions in response to its war on Ukraine, gas is one weapon it can use against Europe. 

The region has previously received around 45% of its annual supplies from Russia and while it desperately tries to seek alternatives, such as U.S. liquefied natural gas, it cannot replace its Russian hydrocarbons fast enough.

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Unless the situation dramatically changes, analysts are predicting a difficult winter ahead for the continent. “High energy costs are pushing Western Europe toward recession,” S&P Global Market Intelligence said in a report Sunday. Source: CNBC


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