Russia threatened to cut off gas supplies to Europe and warned that oil prices could rise to $300 a barrel if the West bans energy imports from Russia.
“We absolutely have the right to take commensurate measures and cut off the gas source through the Nord Stream 1 pipeline system,” Russian Deputy Prime Minister Alexander Novak announced on March 7, referring to the Nord Stream 2 project. Gas from Russia to Germany was suspended by Berlin authorities last month.
After the Nord Stream 2 project was frozen by Germany, Nord Stream 1 became one of Russia’s main gas supplies to Europe.
“We have not made that decision yet,” Novak added. “But European politicians with statements and accusations against Russia are pushing us to such a situation.”
The statement was made by the Deputy Prime Minister of Russia in the context that European leaders will meet in Versailles, France on March 10 to discuss measures to reduce dependence on Russian oil and gas supplies.
Novak warned that Europe’s cessation of imports of Russian oil would have dire consequences for the global market. “It’s impossible to predict how much oil prices will rise, it will be $300/barrel, even more,” he said, adding that it would take Europe more than a year to replace oil imports from Russia at significantly higher prices tell.
“European politicians need to honestly warn their citizens and consumers what will happen. If you want to deny energy supplies from Russia, go ahead. We are. We’re ready for that, we know where we can redirect exports,” the deputy prime minister said.
Nord Stream 2 is a 1,230 km long pipeline leading gas from Russia to Germany through the Baltic Sea without going through Ukraine or Poland, started construction in 2018 and completed last year but has not been put into operation. Germany suspended the approval after Russia launched a special military operation in Ukraine.
Oil prices spiked on March 7 to $139 a barrel, their highest level since 2008, after US Secretary of State Antony Blinken said Washington and its European allies were considering banning Russian oil imports. Last week, world crude oil recorded its strongest weekly gain in two years as Russia’s military campaign in Ukraine raised concerns about a global supply shortage.
40% of EU gas comes from Russia and this share has gradually increased in recent years. As the West tries to make it difficult for Russia with sanctions, the EU last week had to pay about $722 million a day in gas to Moscow, according to the Bruegel think tank, three times more than before Russia launched the campaign military .
However, replacing Russian gas supplies is not easy. Much of the liquefied natural gas (LNG) storage that Europe buys from the US and Qatar is already full. Two new archives approved by the German government this week will be built in three years at the earliest.
Renewable energy will need more time to make a difference, according to analysts. Closer gas suppliers such as Norway, Algeria and Azerbaijan were not able to significantly scale up production. The gas pipeline networks in Europe are quite patchy, lack of links, making it difficult to distribute additional gas resources.
Any seaborne LNG shipments will cost much more than gas via the Russian pipeline, threatening a European economy already grappling with inflation. Filling Europe’s gas reserves before next winter would cost at least nearly $76.5 billion in current prices, compared with just over $13 billion in previous years.