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The EU’s wrangling over how to impose sanctions on Russian oil offers a warning about how much harder a gas embargo will be.
Once the sixth sanctions package is adopted, the EU is running out of sectors to punish without causing significant pain to its own core industries and economic needs. Once the EU agrees on sanctioning oil, cutting Russia’s gas supply is the toughest option left.
Gas has always loomed over the sanctions discussions. More hawkish countries such as Poland and the Baltics have been pushing to cut Russian deliveries since the beginning of the war in February, and they are now upping the pressure.
As ever, Berlin will prove the decisive factor on how fast things can go. Germany is already reducing its reliance on Russian gas supplies, but its target for a full phase-out only by the end of 2024 looks likely to offer cover to countries such as Hungary that are hostile to energy sanctions.
Putting an embargo on gas is “of course the next step,” according to Adam Guibourgé-Czetwertyński, Poland’s deputy minister of climate and environment. “This is the necessary step if we want to end this war.”
Several EU diplomats said Putin’s decision to cut off two EU countries from Russian gas over their refusal to settle payments in rubles had been a turning point, especially as Moscow explicitly warned that other EU countries could be next.
“The question is not if we’ll do it,” said one EU diplomat. “The question is when.”
Brussels has already announced plans to reduce its reliance on Russian gas by two-thirds by the end of the year, and end deliveries completely within five years. Sanctioning Russian gas could make this plan more enforceable — and would likely impose an even faster timeline.
But the further the EU goes in trying to hit Putin, the more it risks hurting itself. Sanctions are now hitting core sectors of national economies, leading to carve-outs, exemptions and posturing to water down sanctions proposals.
The EU is far more reliant on Russia for gas — 40 percent of its gas supply — compared to coal or oil, making it more difficult for the bloc to stay united. A number of countries, including powerhouses like Germany and Italy, have warned over the risks of an EU-wide recession if Brussels were to suddenly end Russian gas imports.
There is a fear that cutting Russian gas would hurt Europe more than Russia, given that the vast majority of Moscow’s energy export earnings come from oil, not gas.
“It would be devastating within weeks for Europe, as opposed to maybe in one or two years for Russia, and the benefit that Putin has is that he can always use this as a ‘Fortress Russia’ narrative,” said Jonathan Stern, founder of the gas research program at the Oxford Institute for Energy Studies. “What will be the narrative in Europe … for people who may be losing their jobs in the hundreds and the thousands?”
Voluntarily phasing out Russian gas purchases is also legally perilous, as all the EU-based companies importing from the state-backed export monopoly Gazprom do so under long-term contracts requiring them to take-or-pay — take the gas or pay anyway.
Brussels hopes to replace the 155 billion cubic meters (bcm) of gas coming from Russia annually, but according to existing contracts with EU-based companies “even in 2030 the take-or-pay obligations are not much below 90 bcm,” said Stern. “These contracts sit above national law, that’s how they were drafted, so governments could not suddenly say, ‘We changed our minds.'” He said governments would then have to compensate companies for breaking their contracts.
“A lot of companies have said, ‘We will honor our contracts until 2030’ because of course they’re terribly afraid of litigation when this conflict is over, which would quickly bankrupt them,” Stern added.
Hiding behind Germany
As in previous packages, Germany is likely to set the pace on when and how to hit Russian gas imports. It’s no coincidence the European Commission moved forward on coal and oil only after Berlin was on board, and then adopted the timeline Germany had set out for its own national phaseout.
Germany’s dependence on Russian gas is significant and cannot be fixed as easily as oil and coal, in part because of the scale: before Russia’s invasion of Ukraine, more than half of Germany’s gas supply came from Russia.
Germany’s fears — politicians, analysts and the central bank have all warned of a recession in the event of a gas ban — aren’t unwarranted. Heavy industry remains the backbone of the country’s economy, and sectors like steel are dependent on gas for production purposes. About half of all households also heat with gas.
But Berlin hasn’t been idle. As of late April, it reduced that reliance to 35 percent by importing liquefied natural gas and implementing other measures, and it aims to be completely independent by 2024. A faster pace would not be “realistic” for Germany, Climate and Economy Minister Robert Habeck said, but added: “we will have to attempt [to achieve] the unrealistic in some form.”
Convincing Italy, the EU’s third largest economy, will also be key. Around 40 percent of Italy’s natural gas imports come from Russia, and Rome has no nuclear or coal and barely any oil. But so far Italy appears on board. This week, Prime Minister Mario Draghi told the European Parliament: “We have supported the sanctions that the European Union has decided to impose on Russia, including those in the energy sector. We will continue to do so in the future, with the same conviction.”
As with the debate around coal and oil sanctions, some EU countries are hiding behind the Germany’s broad shoulders, happy to be out of the spotlight in their refusal to go further in sanctioning Russia. Austria sources around 80 percent of natural gas from Russia, and other landlocked countries like the Czech Republic, Hungary and Slovakia would also quickly run into trouble.
Of course, Moscow turning off the tap first, as it did to Poland and Bulgaria, could make gas sanctions moot. More payments are coming due in mid-May, and countries are desperate for clarity on a way to pay for their gas while not running afoul of sanctions. The EU has proposed a workaround, but it remains untested, and Sofia has warned it may not work.
When Brussels might sanction gas is still unclear. One EU diplomat was optimistic, saying he hoped it will happen within weeks. Others suggested an announcement at an EU leaders’ summit at the end of this month is also possible.
“It has to be done,” said another diplomat. “But it won’t be pretty.”
Jacopo Barigazzi, Leonie Kijewski, Paola Tamma and Zosia Wanat contributed reporting.
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