G-7 countries deal with hazard of Russia closing down more gas

G-7 nations face threat of Russia shutting down more gas

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Russian President Vladimir Putin makes a toast as he participates in the XIV BRICS top in virtual format through a video call, in Moscow on June 23, 2022.

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The Group of 7 countries require to brace for a total shutdown of Russian gas pipelines in the near term, and it might have serious effects for Europe’s economy, one expert cautioned.

“The G-7 have to prepare for a shutdown of gas. The G-7 can deal with a cutback on oil. There are other supplies that could be gotten around the world, but the gas could be shut off and that would have consequences,” stated Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics, informed CNBC on Monday.

“Russia already has cut back substantially on gas flowing to Germany and through Ukraine, so shutting down the pipelines is not inconceivable. Russia also sells some LNG to Europe but not that much,” he stated in an e-mail after the interview.

“The total cut-off of Russian supplies would prompt gas rationing at least for the short term,” he stated. “Russian supplies would be partially offset by increased LNG imports, increased supplies from Norway and Algeria, fuel-switching to coal, and conservation measures.”

Gazprom, Russia’s state-backed energy provider, has actually lowered its gas streams to Europe by about 60% over the previous couple of weeks. The relocation triggered Germany, Italy, Austria and the Netherlands to all suggest they might reverse to coal as soon as again.

His remarks came as the leaders of the G-7 most affluent countries fulfilled in Munich, Germany, for their newest top.

As international pressure continues to overdo Russia over its attack on Ukraine, Europe is dealing with “a very tight situation,” Schott informed CNBC’s “Street Signs Asia” on Monday.

“They’re playing for time. The more there is a hostility against Russia, the more Putin threatens and perhaps acts to cut off more gas to Europe. I see that coming sooner rather than later,” he included.

Growing issues in Europe

European leaders have actually been growing progressively worried about the possibility of an overall shutdown of gas materials from Russia.

Germany stated just recently it is relocating to the so-called “alert level” of its emergency situation gas strategy, as lowered Russian streams worsen worries of a winter season supply scarcity.

On Thursday, Economy Minister Robert Habeck revealed that Germany would transfer to stage 2 of its three-stage strategy– an indicator that Europe’s biggest economy now sees a high danger of long-lasting gas supply scarcities.

The EU gets approximately 40% of its gas through Russian pipelines and is attempting to quickly lower its dependence on Russian hydrocarbons in action to the Kremlin’s months-long attack in Ukraine.

The action required to stop purchasing Russian gold is one little action in the best instructions.

Jeffrey Schott

Peterson Institute for International Economics

Germany, which is extremely based on Russian gas, had actually formerly looked for to keep robust energy ties with Moscow.

“The threat is that there would be a cut-off of gas before the European gas reserves are filled and that would be a threat to European growth and would cause rationing. So Putin is putting his cards on the table and whether he follows through with the threat, it remains to be seen,” Schott stated.

Banning Russian gold

In a transfer to reject the Kremlin profits it requires to money the war versus Ukraine, the G-7 leaders are anticipated to reveal more punitive sanctions versus Moscow throughout the top by enforcing a restriction on Russian gold imports.

“The action taken to stop buying Russian gold is one small step in the right direction,” Schott kept in mind, including it would assist starve the Russian economy of the important things that might be offered abroad.

The limitations on Russian exports of gold deserves about $15 billion a year to Moscow, Creon Butler, director of economy and financing program at Chatham House, informed CNBC on Monday.

“That’s potentially quite significant,” he stated, however highlighted that’s not something that will always get a buy-in from all the countries in the G-7.

“That illustrates the problem. There are a number of concrete things they can do, but whether they can pull off a unified G-7 approach — let alone bringing in other countries, I think this is going to be a challenge,” Butler included.

— CNBC’s Matt Clinch and Sam Meredith added to this report.