A severe recession in Europe is a “near certainty” if Russia turns off supplies of gas, the Centre for Economics and Business Research (CEBR) says.
The economics consultancy said that, after a significant reduction in Russian gas exports to Germany, the European energy crisis had “reached another level of escalation” and the risk of recession had risen to 40 per cent.
The consequences were not limited to Germany. It said gas flowing through the TurkStream pipeline to Bulgaria was down by 50 per cent, while exports through the Yamal pipeline to Poland had stopped entirely, creating a pan-European crisis.
Gazprom, Russia’s state energy company, cut exports to the eurozone’s largest economy through the Nord Stream 1 pipeline by 60 per cent and planned maintenance downtime in July is widely considered a convenient opportunity for Vladimir Putin, the Russian president, to shut the pipeline entirely.
There are fears that the energy crisis could also get worse in the UK. Rising gas prices have been a big factor in the cost of living crisis, but the CEBR warned that a complete halt to Russian exports to Europe would also put the UK’s energy security at risk as winter demand for heating kicks in.
The UK receives the vast majority of its gas imports from Norway but is still exposed to swings in global market prices. “As increasing numbers of European countries are vying for a limited supply of gas from alternative sources, prices have shot up significantly,” the consultancy said.
“In addition, the UK has very limited storage capacity, meaning it is less able to sit out temporary price shocks — whether from Putin’s decision to turn off the gas taps or . . . a period of no wind and very little sunshine, preventing power generation from renewables.”
A report in The Sunday Telegraph said that factory owners could face energy rationing this winter. It said that National Grid might impose involuntary restrictions on energy supplies if other emergency measures failed to reduce demand to sustainable levels.
At the end of last month, the European Union agreed on an embargo of Russian oil — although there was little appetite to extend similar measures to the Russian supply of gas, given the difficulties in finding alternative suppliers at short notice.
Now, according to the CEBR, Putin seems intent on forcing the hand of European states, convinced that stopping gas exports will hurt the West more than it will cost Russia in terms of forgone foreign currency.
It estimated the risk of a recession in Europe this winter at about 40 per cent partly because of the reliance of most east and central European countries on Russian gas. “Italy and France are also on high alert as their energy supplies are equally at risk,” it added.