IMF warns of consequences of Russian gas shutoff — Analysis

The International Monetary Fund stated in a Tuesday blog post that a total shut down of Russian gas supply to the EU could result in the EU’s GDP being reduced by as much as 6%, and even send the member countries into recession.

This comes as a result of fears that Russian Gas deliveries to Europe via Nord Stream 1 may cease after routine annual maintenance finishes on Thursday.

Wall Street Journal earlier in the week reported, citing Johannes Hahn (European Budget Commissioner), that the European Commission had not anticipated the restart of the pipeline. On Tuesday, the commission’s spokesperson said it was planning for all scenarios regarding Russian gas flows to Europe through the Nord Stream 1 pipeline. According to Reuters’ sources, the gas flows will restart as scheduled “but at lower than its full capacity.”

IMF pointed out that Europe does not have a plan for dealing with gas shortages. This could result in higher energy prices and slow growth. Washington-based Fund stated that the Czech Republic, Slovakia, Hungary and Slovakia are likely to be most affected in the event of an abrupt shutoff. 

“The prospect of an unprecedented total shutoff is fueling concern about gas shortages, still higher prices, and economic impacts. While policymakers are moving swiftly, they lack a blueprint to manage and minimize impact,”The IMF wrote.

The fund warns that Central and Eastern Europe may experience shortages up to 40% in gas consumption, and that their GDP could fall by as high as 6%. These countries need to be protected “alternative supplies and energy sources”Promote energy saving and increase solidarity to share gas between countries.

The IMF notes that Europe’s energy infrastructure and global supply have so far coped with a 60% drop in Russian gas deliveries since June last year, and could potentially handle a reduction of up to 70% by accessing alternative supplies and energy sources.

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But, the fund warned that total shutoff could make diversification more difficult as potential bottlenecks may reduce European gas routing capacity due to insufficient import capacity.

In addition, IMF stated that the EU might experience a decrease in its economic output by nearly 3% if the government is forced to shut down. The IMF notes that although some countries, such as Sweden and Denmark, would see little or no effect on growth, Italy could suffer a decline of more than 5% due to its dependence on natural gas for electricity production.

“The effects on Austria and Germany would be less severe but still significant, depending on the availability of alternative sources and the ability to lower household gas consumption,”According to the fund.

Six packages of sanctions were passed by the EU to sanction Russia after it launched its military operations in Ukraine late February. The bloc, which receives roughly 40% of its gas from Russia, has been trying to rapidly reduce its reliance on the country’s energy as part of restrictive measures.

Russian President Vladimir Putin observed Tuesday that Brussels had imposed sanctions against Moscow and blocked supply routes. But, now Russia blames its gas shortages for Gazprom and Russia.

Russia is willing to supply the EU with as much gas and oil as they need, provided the EU doesn’t stop. “stepping on rakes,”While visiting Tehran, he spoke to a press conference.

“Gazprom has always honored, and will continue to honor its commitments,”He stated.

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