EU Energy Ministers Meeting

After Russia cut off gas supplies to Poland and Bulgaria, the European Union understands that Russia will take tough action if Europe does not accept Russia’s demand for payment in rubles.

Measures to handle all difficult problems

In a press conference after the conclusion of a meeting last night in Brussels, EU Energy Commissioner Kadri Simpson said that Europe still considers companies’ full compliance with the request from the Russian authorities that having to pay for gas to Russia in rubles would be a breach of EU sanctions against Russia. In other words, the EU still refuses to accept a request from Russia that European companies must open two accounts at Russia’s Gazprombank, transfer gas payments in euros or dollars into one account, and then change their numbers. money to Russian rubles in the other account. Of course, this position is not absolute because the EU only says that companies that comply with all of Russia’s requirements are considered infringing, while European companies can still “circle the law”. technically if it is declared to have completed the contract immediately after payment in euros to the Russian counterparty and before the amount is converted to rubles. However, the EU will have to issue more detailed guidance for this technical solution.

In general, the European Energy Ministers have not come up with a specific solution, but have also revealed some directions. In addition to the guidance on the gas payment mechanism for Russia that will be issued in detail in the near future, the EU ministers also agreed on May 5 in Sofia (Bulgaria) to meet the Response Group. regional rapid gas, ie the model of neighboring EU countries will help each other in gas if Russia cuts off supply. Europe believes that even if Russia immediately cuts off gas supplies to Europe now, Europe does not face a great risk immediately because the weather is already summer, the heating demand in the countries. decline, at the same time the EU has also increased its maximum reserves to be able to be self-sufficient within at least a few months. In the long run, of course, that would be a bad economic scenario.

Some of the more notable moves from a meeting of EU Energy Ministers were the first time that Germany said it had no objection if Europe banned Russian oil. German Economy Minister Robert Habeck said that Germany could manage if it cut oil from Russia, although it would cause economic damage. Even Austrian officials have said they will not oppose a ban on Russian oil if other countries accept it. This is a big change of opinion from two countries that are very dependent on Russian energy, but limited to banning oil, not to mention gas, which is more important to Europe.

Ambition to completely end dependence on Russian energy imports

In addition to solving the immediate problem of gas payment, European countries also set a longer goal of completely ending energy imports from Russia within the next five years.

Currently, Europe is very dependent on energy sources imported from Russia, specifically 40% of gas and 27% of oil that EU countries are consuming are supplied by Russia. Therefore, since the war in Ukraine broke out more than 2 months ago, Europe has talked a lot about the strategy of cutting off dependence on Russian energy because this dependence “binds the feet and hands” of Europe. Europe in geopolitical decisions, while providing Russia with about 1 billion euros a day, a very large number that Europe believes that Russia uses this money to conduct military operations in Ukraine. Therefore, Europe views the cessation of Russian energy imports as a political and moral choice. The bloc is also under great pressure from allies such as the US, UK and Ukraine itself to end energy trade with Russia.

The problem is that for such a grand strategy to be adopted, the EU always needs the consensus of all 27 member countries and this is the biggest difficulty. The 27 EU member states have varying degrees of dependence on Russian energy sources. There are a number of countries that do not depend, or very little, on Russian gas and oil such as France, Spain, Portugal, etc., so they can easily agree to the solution of cutting off supply from Russia. But some other countries, such as Germany, Austria, Slovakia, Hungary… are heavily dependent, even up to 100%, on Russian gas, so they cannot immediately cut off supply from Russia because by doing so, the economy The economic consequences of these countries will be more severe than that of Russia. The leaders of Germany, the number one power and the most influential voice in the EU, have repeatedly acknowledged that Germany may fall into a serious recession, GDP will drop immediately at least 3%, hundreds of thousands workers will be unemployed… if Russia cuts off gas. The Austrian energy minister said that even the European plan to stop importing Russian energy by 2027 is too ambitious. Slovakia reacted similarly. Hungary, besides resolutely protecting energy imports from Russia, also showed a certain political support for Russia in the Ukraine crisis, openly criticizing the demand that Hungary considered “unreasonable” from the Russian Federation. Ukrainian government.

With all these obstacles, the EU will not be able to act too quickly and decisively. In yesterday’s meeting, EU energy ministers discussed in detail the ban on oil imports from Russia because the EU’s dependence on Russian oil is lower than on gas, and alternative sources of supply are also easy to find. than. However, even if approved early, the ban on importing Russian oil can only be applied from next year. To avoid objections from some countries, the EU has also calculated that Hungary and Slovakia can enjoy an exception because these two countries import up to 95% and 58% of crude oil or petroleum products from Russia. In other words, the EU will design specialized sanctions packages with many levels, for each group of countries to apply at different levels. Tomorrow, May 4, EU Ambassadors can meet to discuss these ideas more carefully, before submitting them to EU heads for approval at the Summit. The key is that Germany, the leader of the EU, also seems to have changed its mind, no longer so opposed to banning Russian oil as before. In 2021, Germany imports 36% of its oil from Russia, but in the past few months it has decreased to 12%, and thinks that the country can solve the problem of oil supply if it cuts imports from Russia. However, gas from Russia will be a much more difficult area that the EU will certainly not have an alternative solution for in the next few months or even years.

Impact of the 6th package of sanctions on Russia

The escalating tension in the Russia-Ukraine conflict is proportional to the mutual sanctions between the EU and Russia. It is known that in the next 1-2 days, the EU will launch a sixth package of sanctions expected to target the oil sector – considered the “backbone” of the Russian economy.

Since the start of the war in Ukraine, Russia has benefited greatly from oil and gas, both of which have skyrocketed in price. Oil has always remained above $100/barrel and the price of gas that Russia sells to Europe has increased more than 10 times (compared to 2021) since the outbreak of the war in Ukraine. In the more than two months since Russia launched its special military operation in Ukraine, Europe has paid Russia up to 44 billion euros in gas and oil, which is twice the average in 2021. Therefore, harshly recognized, the longer Russia maintains the war in Ukraine, the higher fuel prices on the world market will be, the more Russia benefits from the sale of oil and gas, the more Europe suffers. more economically. In fact, the amount of money Russia earns from selling oil and gas to Europe accounts for 70% of Russia’s total energy export revenue.

Therefore, if Europe is determined to cut off energy imports from Russia, the economic consequences for both will be huge. Russia lost its most important customer and Europe lost its largest, most stable, cheapest supplier. Russia can partially offset the loss of the European market by redirecting and increasing exports to Asia, especially China and India. This is what Russia has been doing, since before launching a military operation in Ukraine. But the problem is that Russia sells oil and gas to India and China at a very favorable price, much lower than the price sold to Europe, so the revenue from these two markets in the short and medium term will not be able to. compensate for the loss of trade with Europe.

However, with Russia today, political and military priorities are being placed at the highest level, and Russia has found itself in a situation where it cannot stop the war in Ukraine until its political-military goals are fulfilled. Being mention. Russia has already accepted to pay a heavy economic price for its geopolitical choices, so the question is how resilient the Russian economy will be.

For Europe, ending Russian energy would also be a colossal challenge. Oil from Russia can be replaced by open oil from the Middle East, from Norway but gas is a different story. Due to its advantages in resources and geography, over the past decades, Russia has established a large, stable, quality and cheap gas transportation and distribution system for Europe through international routes. large-scale air ducts.

To gradually replace gas from Russia, Europe currently has to import liquefied natural gas (LNG) from the US and Qatar, and at the same time bet on clean energy production. These are expensive and unstable solutions because in order to receive LNG from the US or other countries, Europe also has to invest tens of billions of euros in building logistics facilities for receiving and storing. The price of LNG imported from the US is also much more expensive than Russian gas. Betting on green energy is also very risky because green energy production technology is still very expensive and not really ripe. In the long run, therefore, Europe needs not only strong political will, but also lasting economic damage.

In the current tit-for-tat confrontation between Russia and Europe, the Russian side has clearly shown that they accept to pay a very high price in terms of economic-political in order to accomplish a geopolitical goal that may be important. most important to Russia in the 21st century, and with its vast resources, Russia is likely to hold up in the long run. But Europe may not have as much time and resources as Russia.

Current European governments may be tough on Russia, but as the economy stagnates, future governments may change their mind in the face of pressure from a populace, who will inevitably at times question that why Europe has to sacrifice its own interests for another country.

This is what is happening in some countries such as Hungary and Bulgaria and has also sparked controversy in many other countries. Another possible scenario is that if Russia soon completes its goals and ends its military operation in Ukraine, then how will Europe react? Will it continue to resolutely cut off energy deals with Russia? These are all questions that are not easy to answer.