Russia-Ukraine: Division on Russia EU Energy Sanctions & Their Impact

As the conflict between Russia and Ukraine continues, questions arise about the sanctions to be placed on Russia if they decide to invade the Ukraine. 

A big concern for nations in the EU is whether energy supply will be interrupted, and if so how badly. 

It seems as if there is still some divide between countries on the appropriate sanctions to be imposed on Russia, due to them having a potentially disruptive impact on the whole worlds Energy Supply. 

Italian Prime Minister Mario Draghi said on Friday, “We are discussing sanctions with the EU and in the course of these discussions we have made our position known, that they should be concentrated on narrow sectors without including energy. ”

Italy imports 90% of its gas requirements, with Russia a key supplier.

With tensions over Ukraine intensifying, Draghi stated that Russian President Vladimir Putin had requested a meeting with him, and that he planned to arrange a meeting between Putin and Ukrainian President Volodymyr Zelenskiy.

However this is in contrary to what the European Commission President Ursula von der Leyen told CNBC at the Munich Security Conference in Germany. 

When asked about the possibility of imposing sanctions on Russian gas giant Gazprom, von der Leyen said Saturday, “Everything is on the table.”

This is significant since Europe receives almost 40% of its gas supply from Gazprom, according to the EU leader, who told CNBC’s Hadley Gamble at the Munich Security Conference that this is a “unsustainable dependency.”

Von der Leyen said she had reassured Draghi that Europe would source gas from elsewhere and that there was a pipeline network through the continent to “bring the necessary gas to Italy so that Italy is also on the safe side.”

Alternate Supplies 

The general consensus from all countries however seems to be that the EU should diversify its energy supply. 

Russia is the biggest supplier of natural gas to Europe, which depends on the former for nearly 40% of its natural gas requirements.

As mentioned above, Germany, Europe’s largest economy depends on Russia for 65% of its natural gas needs, while Italy gets 43% of its gas from Russia, and France, a little over 16%. Other smaller countries however, such as Czech Republic, Hungary and Slovakia are almost fully dependent on Russia for their requirements of natural gas, while Poland gets 50% of its gas from the latter. 

A couple of proposed options to diversify supply have been put on the table, with one being the introduction of LNG. 

”Even in case of full disruption of gas supply from Russia, we are on the safe side for this winter,” said the EU Commission President. 

”For the time being we would be able to replace the Russian gas with LNG [liquefied natural gas] deliveries that we get from our friends all over the world.” “In the middle to long-term, we are doubling on renewables. sun, wind and hydropower will increase European independence on energy.” 

Nord Stream Pipeline 

Another big question currently up in the air is the future of the Nord Stream 2 Pipeline, which is an underwater twin pipeline that would transport natural gas from Russia directly to Germany.

At the same conference, Mateusz Morawiecki, Poland’s prime minister, said that he agreed with Yury Vitrenko, the executive chairman of Ukraine’s gas importer, that the existing Nord Stream pipeline could be sanctioned as well. 

The Nord Stream pipeline, which is owned by Gazprom and runs over the Baltic Sea along a similar route to the future Nord Stream 2, was completed in 2012. 

After Gazprom dramatically reduced deliveries via Ukraine and Poland, Nord Stream is now the primary provider of Russian gas to Germany and other European markets.

Meanwhile in the US, President Biden has warned that that the Nord Stream 2 gas pipeline would be halted if Russia invades Ukraine. 

“If Russia invades, that means tanks or troops crossing the … border of Ukraine again, then there will be … no longer a Nord Stream 2. We, we will bring an end to it,” Biden said. 

Despite the fact that the project is under German authority, when asked Biden said: “I promise you, we’ll be able to do it.”

The Impact on the UK

The impact of these sanctions in the UK is being questioned also, with the country already facing an energy crisis. If Russia restricts gas supplies to Europe, wholesale energy costs could rise even further, resulting in higher household bills. 

“We think that if Russia invades Ukraine, and let’s suppose there was a sanctions system that blocked Russian gas to Europe, that would drive price increases and yes, it would eventually flow through to customers,” Jonathan Brearley, chief executive of energy regulator Ofgem, told MPs last week. 

A number of energy providers have already gone out of business as a result of pre-existing pricing difficulties, with customers expecting annual increases of up to £700 beginning in April. Price pressure is expected to increase as a result of Russian tensions, according to experts.

Thankfully Mr Nixey believes this is an unlikely outcome, given that Europe and Russia are interdependent on each other when it comes to energy. “Russia needs revenues. Russia is doing quite well now, economically speaking. Its coffers and its reserves have been bloated by the rise in energy prices and the demand from the cold winter but if you start withholding the energy, you start withholding the income,” he said.