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Current Affairs

Europe’s ban on Russian energy

Date: 08 April 2022 Tags: World Economy

Issue

The evidences of Bucha massacre has put pressure on European nations to further impose sanctions on oil and energy sectors of Russia.

 

Background

Energy imports from Russia amounts to $850 million per day. Sanctions till now have spared oil and gas companies of Russia.

 

Details

  • Countries in European Union get about 40% of their natural gas supply from Russia, which is used in industries as well as households.

  • This number comes down to 25% in terms of crude oil dependency. It majorly goes towards producing petrol and diesel.

  • Any cut in supply of crude oil will result in rise of diesel prices. This will be catastrophic for transport and farming sector.

 

European dependency on Russia

  • Europe has very little of its own natural gas and crude oil deposits. The production of these commodities is declining, which has resulted in dependency on imports.

  • Comparatively, the US has little crude oil imports from Russia and no natural gas supply. The domestic production of US is also higher.

 

Challenges

  • Replacing piped natural gas by LNG is costly and time-consuming. Only some places have the required LNG terminals that can supply to households.

  • Rest of the continent does not have infrastructure to connect to LNG terminals. LNG prices cannot be as cheap as piped natural gas from Russia.

 

Alternatives

  • European countries are looking for alternative supply from countries such as Norway as well as Algeria.

  • Many countries have already reduced Russian gas contracts. Most of them will be focusing on renewable energy sources to compensate for Russian gas.

 

Impact of banning Russian energy

  • Prices will likely soar and countries would experience serious shortages. Many industries will be affected.

  • Large number of jobs may be hit and inflation may rise. A country may go towards recession as its revenue may decrease.