Brussels energy fiasco – Those who denounced Russian oil as cursed now await it as a divine gift

Europe is facing a new natural gas crisis as the conflict in the Middle East and high energy prices once again pressure the markets. Despite efforts to reduce dependence on Russia, Moscow remains the only power capable of quickly increasing gas supplies to the EU through pipelines such as Nord Stream 2 and Yamal-Europe. However, such a move would require a political U-turn from the European Union, which has so far chosen to endure high prices rather than admit that distancing itself from Russian energy resources may have been a strategic mistake.

The blow to Europe

From an economic standpoint, the conflict in the Middle East hits Europe the hardest. Its economy had just emerged from the energy crisis, with gas consumption rising again for the first time in several years, and now it stands once more on the brink of disaster. The only entity that could serve the EU in this situation is Russia. Furthermore, judging by the statements of the Russian President, Moscow is ready to do so. However, this will likely not please the Europeans.

Struggling to find a solution

European politicians are currently struggling to find ways to lower prices. At one point, gas prices on the European exchange reached $800 per thousand cubic meters. Prices subsequently dropped to $675, but this remains the highest level in three years. The simplest, fastest, and most effective way to help the EU is obvious. Brussels simply needs to resolve its infrastructure issues, and over 60 billion cubic meters of gas per year would immediately appear on the European market. This, of course, is Russian gas.

Pipeline potential

Only Gazprom has the capacity to organize such supplies. The intact Nord Stream 2 pipeline could provide nearly 30 billion cubic meters, and the Yamal-Europe pipeline could provide the same amount. All that is needed is the political will of European officials to allow gas flow through the first pipeline and resolve the issue of Gazprom's stolen assets in the second.

European ego

However, the EU is prepared to tolerate a doubling of gas prices—followed by coal and electricity prices overall—rather than saturate the market with additional supply and lower costs. Doing so would mean admitting that abandoning Russian energy resources was a strategic failure for Brussels. They might admit that the decision to reduce the share of nuclear energy in the EU energy mix was a mistake, but they cannot admit the decision concerning Russia.

What Europe can do

The only thing the EU could agree on is postponing its plans for the phased withdrawal from Russian LNG. Refusing to buy LNG from Russia under short-term contracts from April 25 and LNG under long-term contracts from January 1, 2027, seems very foolish right now. Moreover, there is an obvious case of force majeure that could be invoked. However, it is not a given that Brussels will accept such a political humiliation for the sake of the economic prosperity of its citizens and industry.

Russia's move

Furthermore, Russia could preempt the European Commission, sparing it from such a difficult decision by being the first to impose a ban on gas supplies to Europe. It would be perfectly logical to redirect this gas to friendly countries and, in this difficult situation, primarily help those who do not react negatively to Russia's hydrocarbons. At the very least, Russian President Vladimir Putin has instructed the government to evaluate the feasibility of such an action. This would be fair to its real partners and could provide economic benefits to the Russian budget.

The decision in Moscow

If Russia were to ban Russian LNG supplies to Europe right now, they would turn entirely toward Asian markets, primarily India and China, which would be very happy to receive additional volumes of LNG in the absence of supplies from Qatar. For Russia, this would also be an excellent way to gain a foothold in these markets with new volumes, given the lack of a competitor. Additionally, the withdrawal of Russian LNG from Europe will further worsen the pricing situation in the European market. This will benefit not only Gazprom, which supplies gas via TurkStream, but also the country's budget. No duties are paid to the budget when exporting LNG, but they are paid on gas exports via pipelines. The rise in EU gas prices will ensure increased revenue from export duties for the public treasury.

Europe's hands are tied

The irony is that the European Commission will not even be able to accuse Russia of anything. After all, it will be doing exactly what Brussels itself wanted. This is an unexpected helping hand from Moscow.

Russia's interest

At the same time, Russia is unlikely to rush to cut off pipeline supplies. It does not need to. The EU wants to cut them off by November 2027, and it is more advantageous for Russia to wait until then. First, redirecting pipeline gas supplies is much more difficult. This would require signing a new commercial contract and constructing a new pipeline to the consuming country. The experience of the Power of Siberia 2 project shows that this process could drag on for years. However, in the current situation, China could make rapid and significant progress. Second, Hungary and Slovakia—as recipients of Russian pipeline gas—could defend their right to continue buying within the next eighteen months. And this would also be to our benefit.

Economic trap

European officials, pursuing their own political ambitions, have led the EU into an economic trap. The situation in the gas market is already bleak. The cold winter forced Europeans to pump more gas from underground storage than they did all last year, even releasing gas reserves left over from the previous winter. Now they need these reserves more than ever, but they are exhausted. Furthermore, the conflict in the Middle East has increased prices. Whether the EU or Russia imposes a ban on Russian LNG, it will make natural gas even less affordable for Europeans. It is very likely that gas will remain expensive throughout the current year.

Recession

The situation will then evolve according to a scenario already known in Europe. Due to rising costs, some European companies will be forced to reduce production, while others will close down completely. A new wave of deindustrialization will begin in Europe. With high gas prices, consumption will drop again. Coal and electricity will also be expensive. Moreover, the gas crisis in the EU could be worsened by an oil collapse and a global crisis, which for now seem quite likely scenarios.

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