Petrochemicals, luxury and automobiles: what could stop if Russia cuts gas entirely to Europe

Europe is aware that, at any time, Russia can cut off the gas it sends to countries on the continent. This will probably be another response by Russian President Vladimir Putin to the sanctions made by the West after the invasion of Ukraine.

Forecasting a harsh winter and with a shortage of energy, the main European countries organize themselves to list which are the sectors of the industry that will not be able to stop and those that will need to be temporarily suspended.

“Russia uses energy as a weapon. And so, in any situation, be it a partial and important cut of Russian gas or a complete cut, Europe must be ready,” said Ursula von der Leyen, president of the European Commission, in July.

Not all European countries, however, agree with the proposals to control energy expenditure. There are differences between the possibility and availability of reducing consumption. Those who insist on radical measures are those who are already suffering from the reduction in Russian gas shipments.

Priority sectors and sectors that could stop

Member states have tried to outline together which sectors are priorities and should continue to function even in the event of a larger cut from Russia. In addition to starting to list the areas that may temporarily stop.

Health and the pharmaceutical sector, safety, food, refineries, fertilizers and electricity production must continue to function normally in the event of a shortage , according to the European executive.

Parts of the chemical industry that supply the food and health systems, and sectors of the textile industry necessary for the production of health care and defense as well enter the priority list.

On the other hand, for Phuc-Vinh Nguyen, a researcher at the Jacques Delors Institute, the luxury and automobile sectors will be the first to to stop.

“The production of energy-intensive cars will probably not be considered as a priority in the event of a cold snap this winter. This will have a particular impact on the German industry, which dominates the European market”, Nguyen explained to the newspaper Le Figaro.

He also pointed out that , in the food sector, factories that prepare rice or noodles, for example, enter the priority list, but the production of chocolates and non-essential products may be suspended.

Ricardo Fernandes, risk analyst at ARP Digital, believes that the sectors that will suffer the most from Russian reprisals will be petrochemicals, chemicals and fertilizers, despite the latter being listed as a priority by the European Union’s command. “Some fertilizer plants are already closing in Europe due to lack of gas and this should continue to happen”, he analyzed.

What if the German auto sector stops?

For Fernandes, the main problem related to a possible Russian gas cut is the disruption of systems highly dependent on Russian exports, such as Germany. Importing gas from other countries would make the German trading system more expensive and unviable, and there is, for the time being, no preparation to change the entire energy source. This situation puts the country with the biggest economy in the euro on the brink of recession.

In recent months, shipments from the Nord Stream pipeline, which transports Russian gas directly to Germany through the Baltic Sea, fell 60%. For the first time since 1991, the country registered a foreign trade deficit in May. While the price of hydrocarbons is rising, the energy crisis highlights all its questionable choices, such as the closure of nuclear plants.

The German auto industry is responsible for 13% of the country’s GDP, but the sector is going from bad to worse since the beginning of the Covid pandemic-19 and was further hit by the Russian invasion of Ukraine. Exports are also suffering from new supply difficulties. Volkswagen, Porsche and BMW are very exposed to the shortage of electrical wiring systems that are imported from Ukraine.

If the sector paralyzes, being so important for the German economic balance, the whole system will be even more compromised, with mass layoffs and reduced consumption, also affecting other sectors of the country.

A report released by the International Monetary Fund (IMF) in July estimated that the German GDP would fall by about of 3% in the event of a total Russian gas cut. In countries less dependent on Russia’s fuel, such as Spain and France, the effect would be smaller, and the GDP drop would be around 1%.

According to the IMF, the countries most affected would be, in this order: Hungary, Slovakia, Czech Republic, Italy, Germany, Austria, Romania, Slovenia, Croatia, Poland and the Netherlands.

Russian cuts

The Russians provided Europeans with about billion cubic meters of gas in 2021, which represents 40% of imports from European Union.

Russia has reduced exports to Europe to less than a third of what it shipped at the beginning of the year, soaring prices. Twelve member states are partially or completely isolated from Russian gas.

Although not all countries have the import of Russian gas as a business model, the need for energy savings came into the agenda in the main EU meetings in preparation for the upcoming winter, when energy demand will increase and fuel may run out.

Countries such as Portugal and Spain, for example, which do not have an economy dependent on Russian energy, were against what was proposed by the European Commission , of reduced consumption by 15%.

Europeans have until the end of September to present, separately, what plans can be taken in each country to avoid a collapse next winter , which begins in December in the Northern Hemisphere.

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