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Even before Russia installed 100,000 soldiers along the Ukrainian frontier in preparation for a possible invasion, European countries were in a low-grade panic about high energy prices. Today, they are in a high-grade panic, as the threat of war pushes prices to new records almost every week.

And they could keep soaring if Moscow reduces natural gas supplies to Europe in retaliation for any Western sanctions that would be put in place if Russian President Vladimir Putin sends his troops across the border. Europe’s energy crisis, in place for a year and already causing enormous pain to families and industrial and agricultural users, may have a long way to run.

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Russia supplies about 40 per cent of Europe’s gas, more so to Germany. The fossil fuel is crucial for home heating, electricity generation and the production of nitrogen-based fertilizers. In anticipation of less gas from Russia, Europe has been scouring the planet for extra supplies of liquefied natural gas. U.S. President Joe Biden reportedly asked Qatar, one of the world’s biggest LNG producers, to send extra shipments to Europe. He plans to ask Qatar’s emir, Sheikh Tamim bin Hamad Al Thani, to visit the White House as soon as this month.

The question is whether Mr. Putin would really turn off the gas tap to Europe, even if his country were hit with punishing sanctions. If he did, Europe would face severe economic, possibly social, trauma. But Russia would lose one of its biggest export income streams and encourage Europe to greatly reduce its dependence on Russian gas. That process, already under way, could accelerate.

World gas prices, especially in Europe – which has little of its own production – began climbing about a year ago as countries ended their lockdowns, allowing their economies to bounce back from their pandemic lows. The closing of many coal plants across Europe – part of the carbon-reduction campaign to reach net-zero emissions by 2050 – and waning investment in oil and gas production helped propel prices upward.

So did Russia’s refusal to boost supplies to the European spot-gas market, which accounts for about half of European gas supplies (contracted supply accounts for the rest). The International Energy Agency has accused Moscow of creating “artificial tightness” in the European gas markets by reducing exports by about a quarter more than a year ago, despite record prices, as tensions over Ukraine mounted.

Germany made itself especially vulnerable to rising gas prices by deciding a decade ago to close all its nuclear plants; the last two will be switched off by the end of this year. The move made Germany ever more reliant on Russia, which supplies 50 per cent or more of its gas needs. That figure will rise if Nord Stream 2, the recently completed pipeline from Russia to northern Germany via the Baltic Sea, receives German regulatory approval.

Gas prices in Germany and elsewhere in Europe have reached levels that were unthinkable even a year ago. According to The Associated Press, the European benchmark gas price last week reached €80 ($114) per megawatt hour, more than four times the price at the start of 2021. In 2020, when the pandemic crippled economies and reduced demand, it hit a low of €4.

Politicians everywhere in Europe, especially those facing elections this year, are getting nervous about a voter backlash as heating and electricity bills soar, across-the-board inflation gains momentum and taxes are increased to pay for pandemic recovery programs. Bank of America says the average European faces gas and electricity bills of €1,850 this year, up from €1,200 in 2020. In Italy, Confindustria, the employers’ federation, calculated that the average family will pay €1,949 for energy this year, up almost 50 per cent in two years.

If Russia does invade, Germany and the EU as a whole, with the urging of the United States, might tell Moscow that Nord Stream 2 will not be approved, ending Russia’s ability to utterly dominate the European gas market. Mr. Putin might retaliate by reducing gas exports to Europe, sending prices to atrocious levels, damaging the economic recovery and forcing governments to run even wider deficits to subsidize energy costs for families and businesses.

That scenario seems a case of mutually assured destruction. European politicians would dread a critical gas shortage as they strive to keep the lights on and not anger voters any more than they already have. But the cost to Russia would be equally painful.

Cutting exports to Europe would deprive Russia of billions in income. According to the Russian central bank, exports of pipeline gas reached more than US$54-billion in 2021 (oil exports accounted for double that amount). Worse, Europe would redouble its efforts to find alternative gas supplies. Ramping up LNG imports is one option, though Europe would need more LNG import terminals. In the EU, only Italy, France and Spain have more than one. Incredibly, Germany, Europe’s most voracious gas user, has none.

Another option would be to import more gas from Algeria, which is already the main supplier to Spain, and expand the Southern Gas Corridor, which recently began delivering gas to Italy from a pipeline network that starts at the Caspian Sea and passes through Turkey and Greece. All these efforts would take years but would cut Russian gas’s market share in Europe. Mr. Putin might have to decide whether short-term punishment for Europe is worth long-term punishment for Russia.

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