A complete cut-off of Russian gas supply[/B] to Europe would have an impact of around 3% for Germany, while for the average European economy 0.3% and for Cyprus around 0.5-1%, Professor of Macroeconomics at the University of Cyprus Marios Zachariadis told the Cyprus News Agency, who estimates that the consequences of a complete cut-off of Russian gas to Europe would be much worse for the Russian economy than for the European economy.
As he noted, "it would be painful, but it would not be catastrophic for Europe if there was a complete cut-off of Russian gas." Instead, he noted, this would have much greater consequences for Russia. Zacharias said that one reason Russia is able to cut off gas supplies to individual countries today is that over the past two months there have been continuous flows of foreign exchange to Russia from Europe. If there were not, it would be more difficult for Russia to have aggressive economic policies or even to continue the war, he noted.
Zacharias pointed out that studies have calculated that if the EU imposed a 40% tariff on Russian gas, this would limit its use in Europe by 80%, so that the economic impact on the European economy would be up to four times less than if there was a complete cut-off. On the contrary, the impact would be much more devastating for Russia in this case as well, due to the reduction in foreign exchange inflow, and Russia's ability to proceed with a complete cut-off of gas flows to Europe would be reduced.
In addition, Mr. Zacharias noted that the continuation of the war would have a higher economic cost for Europe than if Europe took tougher measures more directly, for example by imposing tariffs on imports of Russian gas to limit foreign transactions to Russia.
He noted that even in case of a complete cut-off of Russian gas, economists do not calculate zero substitution. "The economy is adjusting," he said, as there are options, such as reducing demand from those who do not absolutely need it, importing energy from different countries, or importing goods that would be produced at energy costs within the EU. There will be costs, he said, but according to many studies, this does not seem to be, at worst, more than 3% for Germany and for the average European economy around 0.3%.
Bulgaria is the country most vulnerable to such a gas disruption, he noted, so its economy would be severely affected by it. "But it is a small economy that will not have a major impact on Europe," he said, and what poses a bigger problem is the uncertainty that Russia could cut off gas to other countries.
DBRS Morningstar said in a note today that a full gas substitution would be impossible immediately and would impact Eurozone GDP. "In the event of a disruption of Russian gas, a full substitution of other sources of supply would not be possible in the short term. In such a situation, assuming that Eurozone GDP would fall by another 2.51 percentage points on top of the latest IMF projections, GDP growth could be just 0.3% instead of 2.8% in 2022," it says.
The possibility of a full replacement of Russian gas with other energy sources was discussed by the Dean of the Faculty of Engineering and Technology of the Technical University of Cyprus, Professor Sotiris Kalogirou, who believes that Europe has no readily viable alternative in case of a cut-off of Russian gas.
As he noted, speaking to CNA, the alternative is either renewable energy sources or the import of liquefied natural gas from the US. However, both solutions seem to require long-term planning and infrastructure and are not immediately feasible to replace Russian gas in Europe.
Specifically, Kalogerou said that the LNG solution does not seem to be immediately feasible, as there needs to be infrastructure for its dehydration, while solutions for its transportation are needed. These require several months to be implemented, it is not a solution that can yield results before 2 years, he said. Moreover, this solution is much more expensive, as it involves extracting gas from shale, he noted, and the investments and transport costs that will be needed are much higher.
On the other hand, the renewable energy solution also needs long-term planning and preparation, as well as solving their technical problems, as the production of all RES is intermittent (affected by sunshine, weather conditions, etc.). "While there is an EU policy of zero carbon emissions by 2050, renewables are not a solution that can deliver results immediately," he said, adding that, in addition, there is the issue of energy storage to avoid disrupting the grid to the point of creating a black-out from sudden fluctuations in energy demand.
Source: CNA
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