Russia’s decision on 2 September to indefinitely close the Nord Stream 1 gas pipeline sent gas prices in Europe soaring another 30%, from already record levels.
German electricity one-year futures – a benchmark for the single European energy market – recently spiked to more than €1,000 per megawatt hour, before settling 718% higher than a year ago. Investors have made up their minds on the implications for the European economy: the euro is at a 20-year low to the dollar and European equities have underperformed the US and Britain.
What triggered the decision by Russian President Vladimir Putin to tighten the screws on Europe? The timing of the G7’s decision to impose a unilateral cap on purchases of Russian oil makes it look like deliberate retaliation.
Putin is using two strategies against Europe. Closing Nord Stream 1 is an escalation of the tit-for-tat economic war. Any more sanctions against Russia by the West will be met with further reduction of energy supplies, with clear consequences for European businesses and consumers.
Second, Putin is using a classic divide-and-conquer strategy. Hungary, whose Putin-leaning leader Viktor Orban has been explicitly against harsh sanctions on Russia, has seen no reduction in its gas supplies. Indeed, Russia has increased its allocation. Hungary is basking in an abundance of Russian gas and lower energy prices, while Germany, France and the Czech Republic, which have been stringently anti-Putin, now face crippling shortages.
Cracks in the hitherto unified anti-Russia stance are starting to show. This week, polls indicated that a small majority of Italians favour ending sanctions to guarantee energy supply through the winter. Far-right populist leader Matteo Salvini, who has made no secret of his past pro-Russian sympathies, has argued the sanctions need to be softened to appease the Russian strongman.
The EU and Nato have made it clear that it is politically unthinkable to lessen the harsh sanctions. Reneging would be acquiescing to a state that not only invades part of Europe, but also brazenly commits war crimes.
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The scenes of Bucha and Mariupol have been seared into the European collective conscience. The methods employed there were first used in Syria by Russian and pro-Assad troops, and are now being perfected in Donbas and Luhansk. Widespread atrocities, mass civilian murders and torture in Ukraine prove that these are routine Russian tactics. Only time will tell just how many hundreds of thousands of victims there will be.
But the economic price that Europe is willing to pay is a murkier question.
Europe is stuck between the immoveable object of Nato and the EU’s commitment to facing down Russian aggression with sanctions, and the irresistible force of Russia’s economic war on Europe via the continent’s energy dependence.
A winter of energy rationing and potential load shedding looms. An estimated 70,000 demonstrators gathered in Prague last weekend to protest soaring energy bills and demand an end to sanctions against Russia. It will surely not be the last such protest.
Europe, once again, is facing an existential watershed.
This week, the IMF and the think-tank Bruegel put forward recommendations on how to deal with the energy crisis. They suggested measures such as price caps, pan-European windfall taxes and, contentiously, more borrowing by the European Commission to fund energy subsidies.
One of the fathers of European integration, Jean Monnet, said that “Europe will be forged in crises, and will be the sum of the solutions adopted for those crises”.
But it is unclear whether solutions to the energy crisis can be found at a truly pan-European level, further pulling member states together, or the latter-day tsar succeeds in splintering the continent along old national fissures.
Either way, winter is coming. DM168
This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R25.
