EU and UK sanctions to exacerbate energy crisis
Europe's energy crisis has been compounded by broad anti-Russian sanctions and economic experts are warning it is only the beginning.
- An Asda station puts up a sign indicating it is out of fuel in Wales (Getty)
Europe's current energy crisis is only in the beginning, according to financial experts.
On March 3, Brent crude oil prices increased to $120 a barrel. In the past 30 days, Brent crude prices have seen a 37% increase, as the six-month contract's spread hit an all-time-high record which indicates a shortage of supplies.
Rodney Atkinson, a British academic as well as political and economic commentator said the crisis was already a significant burden before the UK introduced its latest sanctions. "Any 'wartime boost' to [UK Prime Minister Boris] Johnson’s popularity will not survive the inevitable dramatic rises due to the new sanctions."
As a result of an exceptional 54 percent surge in worldwide gas prices, British industry regulator Ofgem said this month that the energy price ceiling will be hiked by $916.67 beginning in April 2022.
According to the London-based ICE market, European gas futures prices jumped by 30 percent on March 4, reaching a record high of $2,400 per 1,000 cubic meters. Despite the fact that the UK is less reliant on Russian gas than other EU countries, Europe-wide sanctions are raising British energy costs as a result of a knock-on impact.
Dr. Mamdouh G. Salameh, an international oil economist and visiting professor of energy economics in London, says "Whether Britain is inside or outside the EU, the energy prices it pays are indeed linked to the EU since it gets a lot of its gas needs from the EU."
UK Foreign Secretary Liz Truss told the BBC on February 27 that "fighting for freedom" came with a hefty price but it was one worth paying.
According to Atkinson, Truss lost any of her credibility when she confused the Baltic Sea with the Black Sea and Russian regions with the Donbass. "The horrendous energy price rises will not be seen as a price worth paying by anyone. And the Government’s own finances post Covid cannot do a lot to help."
Meanwhile, he singled out the steel industry, which has been hurt by rising energy prices and carbon levies, as well as the Biden administration's refusal to ease tariffs on British steel exports.
According to the economic pundit, chemical businesses, which use a lot of energy, are also suffering.
A disaster for the economy
To make matters even more complicated, the Johnson administration announced a ban on Russian ships landing in the UK on March 1. Atkinson believes "this will have additional disastrous effects on the economy," who adds that all of this is taking place before Russia imposes prospective energy counter-sanctions.
According to Salameh, the EU and UK will continue to be dependent on Russian gas for the next decade at the least, unless Russia decides to switch its exports to China.
"The reason is that all alternative potential suppliers of gas and liquefied natural gas (LNG) can’t provide enough supplies to replace Russian gas supplies for the foreseeable future".
According to the energy expert, the combined LNG exports of the United States, Qatar, and Australia, as well as Norway's gas exports, can scarcely replace the 200 billion cubic meters (bcm) of Russian piped gas supplies yearly and 15-16 million tonnes of LNG today or even in 10 years. Furthermore, he points out that the EU has limited LNG import capacity.
According to Salameh, there will be no winner in this sanctions game since the limits may impact the economies of those who apply them more than those on whom they are imposed: the higher crude prices rise, the higher the inflation and the greater the damage done on European economies.
Atkinson says that before the current sanctions against Russia, sanctions cost the EU nations roughly $100 billion.
"This will have risen considerably in a community with a very serious banking crisis post COVID. Certainly, even the sanctions on the SWIFT payments system has turned out to be a failure with only 25% of Russian banks affected so that payments for Russian gas can continue."