Economic analysts: European energy prices are a major concern

Economic calculations threaten the US-European alliance to confront a possible Russian invasion of Ukraine

• Part of the US weapons sent by the Biden administration to Ukraine.

  AFP

• A Ukrainian soldier walks the line between government forces and Russian-backed rebel forces near Horlivka in the Donetsk border region.

  Reuters

• German Foreign Minister Annalena Birbock said, "Sanctions are effective when they are sufficient... It is about the necessity that the sanctions really affect Russia, not us."

  EPA

• Nord Stream 2 gas line threatened to stop.

  archival

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At a time when tensions are rising between Russia on the one hand, and both the United States and Western European countries on the other, against the backdrop of Western fears of an imminent Russian invasion of Ukraine, economic calculations pose severe difficulties for the United States and European countries to adopt a joint tough stance against Moscow.

Economic figures say that Russia is the fifth largest trading partner of the European Union, and its largest source of energy, while the United States occupies the 30th place in the list of countries exporting energy to the Union.

Russia has also become a major investment destination for major European companies, from Swedish furniture chain IKEA to German carmaker Volkswagen, to Anglo-Dutch oil giant Royal Dutch Shell.

In an analysis published by Bloomberg News Agency, economic analysts Ben Hollande and Anya Andrianova say that with high inflation and consumers in Europe suffering from high energy prices, European Union officials are moving cautiously towards imposing Western sanctions on Russia, as the Europeans want measures that hurt Russia more than it hurts their countries, with the aim of preventing a possible Russian invasion of Ukraine.

Europeans are also concerned that much-needed Russian natural gas will be cut off this winter in the event of a war.

Obsession

"European energy prices are a major concern" for decision makers on the continent, says Tim Ash, senior emerging markets analyst at Blue Bay Asset Management, a financial investment and asset management company.

He adds that Russian President Vladimir Putin wants "to scare the Europeans about gas supplies this winter, so that they will not make any move if he heads towards Ukraine."

At the same time, there is a prevailing feeling among Europeans that their economies, not the American economy, have paid the price of the Western sanctions that were imposed on Russia, after the invasion and annexation of the Ukrainian Crimea in 2014. While US President Joe Biden says that the Russian invasion of Ukraine is imminent, he is betting European Union leaders such as French President Emmanuel Macron are on the lookout for time in this crisis.

Last week, German Foreign Minister Annalina Bierbock said, "Sanctions are effective when they are sufficient... It is about the necessity that the sanctions really affect Russia, not us."

Moscow is ready for sanctions

In contrast, Victor Szabo, an investment fund manager at London-based Aberdeen Asset Management, says Russia is "well prepared" to deal with any sanctions, after the steps it has taken to isolate itself from any measures the United States can take.

He added that it will be difficult to impose sanctions that make Russia feel the pain that European countries will feel, and these sanctions will not force Russia to back down in the Ukraine crisis.

Europe stands alone when it comes to the price consumers pay for natural gas, says Jamie Roach, chief European economist at Bloomberg Economics.

According to our internal estimates, the eurozone economy will lose about 1% of GDP due to higher energy prices, if the crisis continues for a year.

The issue of energy is the biggest point of contention between the United States and the European Union when dealing with the Russian file. The United States is an energy exporter, while the European Union depends on imports, and Russia is the largest exporter of both oil and natural gas to the European Union.

Warnings

And last Friday, analysts at the US bank JPMorgan Chase warned that a rise in the oil price to $ 150 a barrel would destroy economic growth and ignite inflation in Europe, while analysts at the American investment bank Goldman Sachs Group expect the continuation of the crisis of natural gas supplies in Europe during next summer and until 2025.

The bank said in a report that the severe imbalance in natural gas supplies in Europe, which led to the rise in energy prices late last year to historic levels, and led to the destruction of industrial demand for energy, may recur over the next few years.

Therefore, an escalation of the confrontation with Russia over Ukraine will lead to a further deterioration of the situation, and European officials will find themselves in a very difficult predicament. While European domestic gas production is declining, Russia is expanding production, and in setting up the facilities necessary to pump additional quantities of gas to Europe, Russia's Gazprom and its European partners such as Royal Dutch Shell have completed the construction of the $10.8 billion Nord Stream 2 gas pipeline, which can transport about 55 billion cubic meters of Russian gas to Germany via the Baltic Sea without passing through Ukraine.

This line is now ready for operation, but the political differences between Russia and the West on the one hand, and some procedural problems on the other hand, are delaying its start-up.

"Whether Western sanctions are imposed on Russian energy exports, or Russia uses gas exports to respond to the sanctions, natural gas prices will rise ... we believe that prices will exceed the record levels recorded last year," said William Jackson, an economic analyst at Capital Economics. ».

On the other hand, such sanctions on Russia will benefit American LNG exporters who seek to increase their exports to Europe, and cannot compete with Russian exports under normal conditions.

Europe was hit hard by the sanctions it imposed with the United States on Russia, after its annexation of Crimea in 2014. According to a study conducted by the Kiel Institute for World Economics, three years after the imposition of those sanctions, while Russia was hard hit by the sanctions, it was not The damage done to Germany and other European countries is less, and the United States has not lost much as a result of these sanctions.

Finally, Tom Keating, head of the Center for the Study of Security and Financial Crime at the Royal United Services Institute in London, says that while politicians in the United States and Europe have touted the ability to inflict severe economic pain on Russia, they are silent when it comes to the pain it will cause in Europe and America as well.

• Sanctions on Russia will benefit US LNG exporters who seek to increase their exports to Europe.

• There is a prevailing feeling among Europeans that their economies, not the American economy, have borne the price of the Western sanctions that were imposed on Russia, after the invasion and annexation of the Ukrainian Crimea peninsula in 2014.

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