Rome, April 14, 2022 – “There is now no possibility of replacing Russian gas in Europe”. He has no doubts, Vladimir Putin. And he launches his challenge: he is convinced that a possible embargo by the European Union it would hurt the member countries very badly. The arm wrestling continues, a war of nerves that began with the decree for the gas payment in rubles. And continued to the sound of statements, gradually more threatening. Meanwhile, the collapses gas price on the Amsterdam market. Instead, that of petrolium: according to the New York Times, Brussels has plans to stop imports from Moscow. It will not be announced before April 24, date of ballot in France, to avoid repercussions on prices favoring Marine Le Pen in the race for the Elysée. On the political front, a possible gas embargo divides Europe. Italy is moving, but there is controversy over possible agreements with Egypt. Here is the point of the situation.
Summary
Even today, the Tsar reiterates how “the attacks of the European partners on the refusal of supplies of Russian energy resources destabilize the situation and raise prices”. Then he accuses the Western banks: “There have been no payments on the deliveries of Russian energy resources.” At the same time, the leader of the Kremlin is calling for a “new energy strategy by mid-September” for his country that goes up to 2050. A clear message: Moscow is ready to invest and ‘tie its hands’, putting its back to the wall who will decide to procure supplies elsewhere, or otherwise. Putin raises: “We must ensure the construction of new oil and gas pipelines from the fields of western and eastern Siberia“and” accelerate the implementation of infrastructure projects – railways, oil pipelines, ports – which will make it possible to redirect the oil and gas supplies from the West to the promising markets of the South and East already in the next few years “. We must” prepare together to oil and gas companies the plan to expand export infrastructures to Africa, Latin America and Asia-Pacific “. Translated: if the embargo from Europe arrives, we will find other partners. That are equivalent, it is all to be demonstrated. The speed with which Putin raises the tone could also hide a certain weakness. As it is true – words of the ECB President Christine Lagarde – that the sanctions on Russian gas and oil would have “a substantial impact on the European economy” , it is equally so that Russia would see an impressive volume of revenue disappear overnight. There is talk of 400 million euros per day of collections on methane sold in Europe. And while for Russia the stop to payments would be immediate, the EU countries – with the summer ahead – at least in the first 3-4 months could cushion the blow.
Despite Putin’s threats, the gas price has collapsed today. Futures on the Amsterdam market – European reference for methane – ended in sharp decline. Trading fell by 9.2% to 95.62 euros per megawatt hour, the lowest level since the war in Ukraine. The words of the Russian president according to the markets do not suggest an imminent shutdown of the taps. But above all, “the demand for energy is low, there is no rush to cover the calm of trading on the Easter weekend,” Tim Partridge, head of energy trading at Db Group Europe, told Bloomberg. Operators remain focused on the match between Russia and Europe, the point is that a season opens in which demand is inevitably destined to drop. In short, if an earthquake is, the heaviest consequences will probably not be seen for months.
The real game of the embargo, at the moment, seems to be played on petrolium. The European Commission is working on a draft to prevent supplies of Russian crude. Although the news is not yet official, the world‘s leading companies are already planning to reduce purchases of crude oil and fuel from Moscow-controlled oil companies, to avoid falling into foul when EU sanctions are announced. And the scenario already has important repercussions on the markets: the price of oil soars, with Wti crude oil gaining 1.2% at 105.5 dollars a barrel, Brent is back above 110 dollars a barrel at 110.35 (+ 1.42%).
According to the New York Times, which cites Brussels sources, the EU is moving towards adopting a phased ban designed to give Germany and other countries time to organize alternative suppliers. The approach would be the same as for the coal embargo, approved last week, which provides for a transition period of four months. The stop all‘oil import it will not be subject to negotiation between EU member states before the run-off of French elections on April 24 to ensure that the impact on gas prices does not help right-wing candidate, Marine Le Pen.
The total embargo requested by the EU Parliament a week ago does not seem to find much favor in Europe at the moment. Starting with the Germania, where the Ifo institute believes that, if a stop to Russian gas supplies are added to the current scenario, the country would enter a phase of “acute” recession next year. GDP, in fact, in 2022 would grow only by 1.9% (+ 2.7%, already revised downwards in the current estimate, with the bowls stopped) and would decrease by 2.2% in 2023 (instead of growing by 3, 1%). For Austria, a Russian gas embargo is currently “not possible”, said Chancellor Karl Nehammer, according to which Vienna would not be the only one not to agree with such a strategy. Among the opposing countries there is certainly the Netherlands of Mark Rutte.
Meanwhile, the European Commission is working on a technical indication for European companies on the Kremlin’s request to pay for gas in rubles. Nothing has yet been made official, but it seems that the line is to prohibit the companies involved from any circumvention of the sanctions imposed by Brussels, including payment in Russian currency.
The impact ofrussian gas embargo on Italy would be significant. Especially in the first year which “could be the most delicate”, said the minister for Ecological Transition a few days ago, Roberto Cingolani. And not so much “in the first 3-4 months”, he claimed, as – predictably – with the arrival of the cold season. January, February and March are months in which energy consumption “is about double” compared to the summer period.
According to Cingolani, it is “reasonable” to think that in 24-36 months total independence from Russian gas can be achieved (according to Chicco Testa it will take 5 years). The race against time is mainly about storage. It is necessary to create or adapt infrastructures capable of conserving 12 billion cubic meters (plus 4 for emergency). And it is not a trivial matter. Last year we imported 29 billion cubic meters from Moscow, about 38% of our needs. Draghi went on a mission to Algeria a few days ago, signing agreements for 9 million cubic meters. Three now and six in 2023. It will not be the only agreement that the Government intends to sign, while the Egypt case is mounting. It is no mystery that Italy looks to Al-Sisi to increase natural gas supplies. But a good part of the majority, Pd in the first place, does not look favorably on a dialogue with Cairo. “It would be like going from the frying pan to the grill”, declares the dem Laura Boldrini.
And even on the embargo itself, politics is divided: “Embargo immediately”, the Democratic Party invokes through the voice of the secretary Enrico Letta which is asking today for a “ceiling” on the price of gas at a European level. The 5 Star Movement is also in favor of stopping supplies from Moscow, as confirmed by Giuseppe Conte, who suggests to Draghi to “press for an Energy Recovery Fund”. In the background always the fears of a recession which, after Covid, would represent a blow that is difficult to overcome. According to the Northern League Maximilian Romeo, leader of the Northern League in the Senate, our economy would not be able to survive without Russian gas. “It takes at least 7-8 years” to reach autonomy, says to Rai Radio1, host of Un Giorno da Pecora, “to embargo Russian gas from tomorrow morning basically means to make our economy fail”.