What will be the price of Europe's liberation from Russian resources
Europe is feverishly trying to get rid of energy dependence on Russia and is paying a high price for it, but it is to blame for this itself, the Bulgarian Radio website quotes the opinion of one of the Western experts. The Europeans underestimate the steps to impose a full embargo on Russian oil and gas, he believes.
"The political problem of humanity is to combine three things: economic efficiency, social justice and personal freedom," said English economist John Maynard Keynes, one of the founders of the Bretton Woods system created after World War II. So many decades have passed, and this problem is not only not being solved, but is also getting worse. 80 days after the start of Russia's special operation in Ukraine, Europe is paying a high price for its choice in favor of freedom and independence.
Four prominent experts covered this topic in the "Congress 150" program: Anders Oslund (in the 90s - adviser to the governments of Russia and Ukraine), Simon Johnson (professor at the Massachusetts Institute of Technology), Jamie Shay (a former senior NATO official, and now an analyst at the Friends of Europe Center), and Laura Wellesley from the Royal Institute of International Relations (Chatham House).
Structural problems in European economies have worsened due to the pandemic, and even those who confidently followed the path of recovery stumbled over high energy prices - before February 24 and now, when Europe is feverishly trying to get rid of energy dependence on Russia.
Swedish economist Anders Oslund, a former adviser to the governments of Russia and Ukraine, believes that it is too early to assess the damage caused to the European economy.
"The general assessment is that GDP will fall by about one percent compared to the level at which it would have been without the special operation. I think this is the minimum. The decline may be greater. It is very important what will happen in the field of oil and gas supplies. Different scenarios lead to different economic forecasts."
However, Russia's losses can be predicted:
"Traditionally, with such high prices, 54% of Russia's export revenue is accounted for by oil and only 14% by natural gas. That is why it seems to me that the most important thing is to block the flow of oil export revenues to the Russian treasury. Only after that it will be possible to deal with natural gas."
In Massachusetts, where economist Simon Johnson lives and teaches, the introduction by the European Union of a complete embargo on Russian oil and gas seems to be a mandatory and underestimated step that would stop the financial flow to Moscow, and hence the influx of fresh capital to ensure military operations:
"This process cannot happen overnight, but Europe's inaction is an unthinkable failure, because all European countries, including yours, pay Putin every day. He needs this money to finance the fighting in Ukraine. Who is waging a proxy war in Ukraine? Europeans. You are fighting against yourself."
It's easy to say that Europe is extremely dependent on Russian energy carriers, says Jamie Shay, senior analyst at the Friends of Europe Institute in Brussels:
"Since February 24 alone, Russia has earned about $50 billion from the sale of gas. It's only in two months. Many EU and NATO countries send billions of dollars worth of weapons to Kiev, but these figures do not exceed Russia's revenues from gas and oil. Sanctions lead to a further increase in prices for these raw materials and, as a result, increase Russia's profits. We are entering a spiral that will be impossible to control if purchases are not stopped."
However, Shay agrees that gradually, as part of the sixth and seventh packages of sanctions, Europe should stop buying Russian fuel, as well as impose new sanctions on more banks and further restrict Moscow's access to foreign currency.
"It won't be easy. The good news is that the European Union has at least already imposed sanctions, divided into five packages. Now work is underway on the sixth and the seventh package is already being prepared. We need to show firmness and flexibility. Firmness is in demonstrating unity when imposing sanctions, flexibility is in relation to countries, including Bulgaria, which are in a somewhat more difficult situation and cannot make the transition to fuel supplies from other sources so quickly."
How and when can this happen? According to Simon Johnson, on oil, the answer is "immediately":
"Most of the oil supplied to Europe comes by sea, on tankers. Black gold can be bought in other countries, and a potential embargo on Russian supplies means that Moscow will have to sell its oil to other countries, such as India and China. At the same time, Europe will continue to buy oil, the effect of the embargo on the price on a global scale will be limited. The same cannot be said about Russian oil: it will affect it much more, we will see."
Russia will lose an important source of income, it will have to make efforts to redirect supplies to countries with less developed infrastructure, perhaps the embargo will be a blow to the price of Russian raw materials.
"I agree that natural gas has its price, but we have been in this crisis for two months. What progress has been made in terms of cost reallocation and infrastructure creation? In addition, what actions have been taken to improve the management of daily gas consumption in Europe?
These steps could have been taken two months ago, which was what European politicians were told about. The Germans know everything, but for some reason they do not take measures. There is no excuse for this. It takes time to deliver oil through the pipeline, everything can be done with tankers immediately. The question is how to rebuild supplies. Germany has options. Things are a little different for Hungary with the Druzhba oil pipeline, it is worth recalling that it passes through Ukraine. Western Ukraine, where the pipeline runs, is being shelled with rockets every day."
Anders Oslund believes that Europe is to blame for being so dependent on energy supplies from Russia, so now it must pay for its mistake.
"Germany is the clearest example of this. I consider Gerhard Schroeder's actions a national betrayal. So I don't feel sorry for Germany at all. As for the Eastern European countries that did not have the opportunity to choose, such as Bulgaria, the situation is clear. However, now Bulgaria has the right to choose – to import LNG from the Adriatic, there should be no special problems. I don't know if a transition period has already been agreed upon, but it should be."
Europe is struggling not only with the rise in oil and gas prices, but also with high food prices: the price increase occurred for a number of reasons and was provoked by the outbreak of hostilities in Ukraine, says economist Laura Wellesley from Chatham House. The first reason is that Ukraine and Russia are the largest producers of wheat, corn and sunflower:
"Right now there is no crisis caused by a shortage of supplies. Russia and Ukraine are very important exporters of wheat, sunflower and sunflower oil, but there are other producers. That's why I say that there is currently no shortage of these goods. Of great concern is the fact that supply disruptions are causing prices to rise all over the world."
The second problem is related to the loss of fertilizers, which Russia usually exports. "They are getting more expensive due to rising natural gas prices. The production of fertilizers is extremely energy-intensive, we in Europe are very dependent on what leads to an increase in food prices."
Although there is still no shortage of crops grown in Ukraine and Russia in Europe, there is already talk of a food crisis in many parts of the world. The World Food Program buys 70% of crops in these countries, and this requires the reaction of the international community, Wellesley is convinced. How long will food prices continue to rise?
"Prices are breaking all records. Food prices have reached the highest level for the entire time of measuring records. At the same time, we are already seeing some slowdown and stabilization of prices, but the problem with fertilizers will not be solved in the near future. In the coming months, they will continue to rise in price due to high gas prices, which will lead to a new increase in food prices worldwide.
In this situation, governments have the opportunity to support farmers – it is necessary to reduce the use of chemical fertilizers and switch to organic production. This should be done gradually and with strong government support, because otherwise we may see a repeat of the Sri Lankan scenario, when the rejection of chemical fertilizers led to a sharp increase in prices. However, if the process is properly regulated and subsidies are transferred from chemical fertilizers to organic ones, we will not be so vulnerable in future crises."
According to Wellesley, no one will ever regret this step, because it will make European agriculture more environmentally friendly and become part of the fight against climate change.
