The Russian president is trying to build a fortress country. Europeans are increasingly dependent on Moscow for energy.
A year after Moscow’s 2014 attack on Ukraine, the European Union cut Russian gas imports to 37% of the total. It was an act of homeopathic caution, but the lesson was quickly forgotten: last year, Russia’s share in the European supply portfolio reached its all-time high, nearly half of total imports from outside the EU. In other words, as Moscow’s approach to its neighbors grew more and more threatening, The Europeans ended up increasing their energy dependence on Russia more and more.. Unsurprisingly, a shadow of mystery remains today around the sanctions package that would be triggered if Vladimir Putin decided to attack Ukraine again. Europeans and Americans do not give details on the subject also because they do not agree, Brussels being much more undecided than Washington on what to do.
A European negotiator explains: “Sanctions are not only used to deter, but to manifest a form of political dissent”. In other words, they might end up having an essentially symbolic value, from the perspective of European capitals. It is not difficult for Americans to understand why. “The more the sanctions are harmful for Russia, the more they will also cost the Europeans,” explains Jeff Schott, an expert at the Peterson Institute for International Economics, in Washington.
The first hypothesis studied in the United States concerns North Flow 2, the second gas pipeline linking Russia to Germany via the Baltic, cutting off Ukraine and Poland. Its launch remains to be authorized, so apparently a block would change little because methane already passes through other routes today. In essence, however, a Washington-enforced shutdown of Nord Stream 2 could do further increase the cost of energy in Europe, as this pipeline alone can transport 12% of the continent’s annual needs. If war scenarios were to become concrete, Europe could no longer rely on supply via Ukraine as before (they now represent 30% of the continent’s needs). Hence the first front of friction between diplomacy on both sides of the Atlantic in recent days.
Of course there are other whys the Russian market is much more important for German or Italian companies, in proportion to those of any other country outside of Belarus. In 2019, the “made in Italy” achieved a turnover in Russia of almost 11 billion dollars, the “made in Germany” 25 and, in relation to the size of the economies, these are the two countries most exposed to reprisals from Moscow after a Western embargo on supplies such as semiconductors, smartphones or aircraft components.
The fact remains that hitting Vladimir Putin’s regime economically would be complicated even if these dilemmas were resolved. The Kremlin in recent years has worked for increase their military power and resistance to sanctions, even to the detriment of the Russian people themselves. Health expenditure relative to the country’s gross product is about half that of Europe, and even lower than that of Belarus and Ukraine. Average per capita income in Russia has fallen by a third since 2013, according to the World Bank. But the country wants to become something of a sanctions-proof fortress: military spending has soared to become the third highest as a proportion of gross product among the world’s major powers, after Saudi Arabia and Israel. during this time Moscow has reduced the public debt in the hands of foreigners and increased sovereign reserves to a record $620 billion, minimizing the US currency’s share. Russia has also built a parallel payment system for its banks in Swift, the global financial communications network that the White House could block in response to an attack on Kiev. Washington would only have to target individual Russian banks, again imposing costs on their European counterparts. In addition, China has also built a network parallel to Swift e is now following events with attention. On Ukraine, we will see if the West is capable of paralyzing the economy of a great adversary. Or. maybe not anymore.
January 21, 2022 (change January 21, 2022 | 22:43)
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