Fortune magazine reports that the world is heading to a crisis point in the month of May, over Russia’s demand that “hostile nations” pay for their gas in rubles, and the European Commission’s continuing refusal to allow companies to do so, on the grounds that “this would be contrary to the sanctions in place” against Russia. “The game of geopolitical chicken could lead to Europe rationing energy,” Fortune wrote, followed by a deep industrial collapse.
The EU last Friday, April 22, made a proposal of how companies might dance around Russia’s demand (see separate slug), “but it’s up to Moscow to decide if that’s acceptable,” Fortune admitted. “Payments come due in May, and that’s when the moment of truth arrives.”
The Fortune article then presents the way that rigor mortis will set in to the European economies without Russian gas. They begin by quoting Katja Yafimava, a senior research fellow at the Oxford Institute for Energy Studies, who explained that by refusing Putin’s payment terms and testing his threat to turn off the taps, European buyers “would be running a very real risk of their supplies being cut.” What would that do?
For starters, forward contracts for natural gas could more than triple in price. Reserves may be adequate for the immediate situation, but come winter, all hell could break loose. “Such a surge [in prices] would put governments and central banks under pressure as they seek to control soaring inflation. The risk is that the mounting cost-of-living crisis intensifies and spills over into wider unrest and a deeper crisis,” according to Fortune.
They add: “With less fuel for gas-fired generators, the risks of rolling blackouts would increase.… Germany has triggered an emergency plan, with a task force meeting daily to monitor consumption and inventories. Its energy regulator is surveying companies about their usage to help determine how to distribute supplies.… Industry would bear the brunt of a rationing plan.”
