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THE ENERGY CRISIS MAY NOT BE OVER FOR EUROPE

Harvest Global Markets :

The blend of stored tanks and Europe’s extending warm weather created a sentiment in the market that Europe’s energy emergency may be easing down as gas prices dropped by $32 per MMBTU and Brent oil slumped to $96 per barrel from a peak of $139 in March 2022. However, many analysts believe it may be a nine days wonder for Europe as circumstances may exacerbate, given the upcoming winter season and Putin’s decision to surge up the war. Analysts have developed three possible future scenarios, and none is pretty for Europe.

Under the first possibility, analysts have assumed:

1)  Nord Stream will remain shut.

2) Europe will impose complete embargoes on Russian fuel.

3) European insurance companies, which hold 90% of the global shipping market, will refuse to provide cover to non-western countries importing fuel from Russia.

4) Non-western countries will only be protected if they implement price caps set by European Union.

 

Under the above assumptions, Europe may escape a cataclysm, but a crisis may tangle it. Although Europe has filled over 90% of its gas tanks through imports from Azerbaijan and Norway, and it could easily stroll through summer 2023 without refilling, embargos on Russia will reduce Europe’s supply by 84 billion cubic meters by the end of 2022, i.e., 17% of annual consumption. The time of refilling may be gloomy for Europe. Throughout the year, various energy-dependent companies of aluminum and ammonia have shut down in lieu of Europe’s attempt to reduce energy consumption. The increasing shortage may also impact the remaining businesses. It is assessed that for a 1% reduction in energy consumption, Germany and Italy’s GDP will decline by 0.5%-1%.

In the second scenario, analysts assume the following:

1) Russia may cut supplies through the Ukraine pipeline, costing additional gas loss of 10-12 bcm per year.

2) In retaliation, Europe may impose further price caps on Russian fuel imports.

3) Russia may convince OPEC+ to bring a cut of an additional 1 million barrels per day in oil, which may lead to soaring oil prices.

The second probability may not cause much gas shortage for Europe; however, it will increase the region’s importing bills for oil by billions of dollars.

The third case carries the following deductions:

1) Russia will eliminate all the fuel supplies of Europe.

2) Russia will destroy the imports infrastructure of Europe, including the Norway path.

3) Russia will persuade OPEC+ to bring excessive supply drops.

4) Western countries will threaten non-western countries to halt all trading with Russia, or they may lose access to the American dollar.

The third extreme situation can break Europe down to ruins. Europe could face $250 billion in 2023 due to gas shortages and $1 trillion in oil imports. Furthermore, excruciating situations may lead to the unity of the European countries falling apart.

Whatever the future holds, it may not bring a rising sun for Europe.

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