EU Anticipates a Complete Shutdown of Russian Gas – IMF Details a Varying Impact Between Countries.

The EU can cope with up to a 70% drop in deliveries.

The Italian Mario Draghi was in Algeria on Monday 18 July 2022 to secure gas supplies. On the same day, we could discover a trip of the president of the European Commission, Ursula von der Leyen, to Azerbaijan to double in a few years the gas imports. Then it was the conclusion of an energy partnership between France and the United Arab Emirates.

The Europeans are making every effort to prepare for the worst: the total disruption of Russian gas supplies in the more or less near future.

Everyone can understand the degree of urgency. Especially when reading the three working papers published Tuesday by the International Monetary Fund (IMF) on the economic impact of such a halt in Russian gas deliveries to European Union (EU) countries.

The Fund notes that the EU's annual gas consumption is around 400 billion cubic meters. Of this total, about 285 billion are imports through pipelines. And 145 billion come from Russia. This shows the potentially destructive impact of a total cut-off.

The EU can cope with up to a 70% drop in deliveries

For the time being, European infrastructure and global supply have made it possible to overcome a 60% drop in Russian gas deliveries since June 2021, notably by resorting to liquefied natural gas (LNG) imports.

For the IMF, a reduction of up to 70% in Russian gas could be managed in the short term through alternative sources of supply and energy and the fact that rising energy prices would reduce demand. Overall, the EU could avoid shortages if Russian deliveries continue at current reduced levels or in the event of a temporary but complete disruption during the summer.

In contrast, a complete disruption during the coming winter would be catastrophic. It would lead to costly regional shortages, very high prices, and rationing in some countries, the IMF warns. The shortfall in gas supply would force a drop in winter consumption (from the beginning of November to the end of March) of about 12%, or 36 billion cubic meters.

A particularly harsh winter would even result in a forced saving of an additional 30 billion cubic meters.

The economic consequences vary greatly between the different European countries

Such a shock could lead governments to choose to protect households, essential services, and strategic industries at the expense of other unprotected industries.

In a total shutdown scenario, severe shortages would likely occur in some Central and Eastern European countries. For Hungary, the Slovak Republic, and the Czech Republic, shortages could affect 40% of their gas consumption. Their growth could be cut by 6%. The effect on Austria, Germany, and Italy would also be considerable. In Italy, the loss of GDP would be around 3.5%, while in Germany and Austria, the decline would be around 2%:

It would be more moderate elsewhere: the United Kingdom, Ireland, Spain, Portugal, Sweden, and Denmark are not very dependent on Russian gas and could adapt to such a disruption in supply. France, the Netherlands, and Belgium, which are slightly more dependent, also have direct access to LNG imports and other pipeline supply routes. They can therefore adapt. They will mainly face a price shock without a physical gas shortage. The impact on GDP would be limited to 1% for Spain and France.

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