The euro could dip below the value of the U.S. dollar as the Eurozone's economy could be hit with rationing if Russia completely stops gas supplies to Europe, according to investment bank Barclays.
"Our economists estimate that a total loss of Russian supplies, combined with rationing of the remainder, could dent euro area GDP by more than 5 percentage points over one year," Barclays' economists wrote in a note carried by Reuters.
Moreover, if Russia stops natural gas supply to Europe, the EUR-USD will fall below parity, the investment bank added.
Since the start of the war in Ukraine, the euro has dipped by around 8 percent and is currently at $1.03.
Russia has already stopped gas supply to two EU member states, Poland and Bulgaria, and is reportedly threatening to halt deliveries to Finland, too, over its Scandinavian neighbor's choice to apply for NATO membership.
While some buyers, such as Poland and Bulgaria, refused to pay in rubles for Russian gas, others have started to prepare for that possibility.
Ten more European buyers of Russian gas have opened accounts at Russia's Gazprombank, designated by Vladimir Putin to process the ruble-for-gas payments that he demands from now on, a source close to Gazprom told Bloomberg on Thursday. So far, 20 companies from Europe have already opened accounts at Gazprombank, and 14 others have asked for the paperwork necessary to open such accounts, Bloomberg's source said.
At the same time, Russian gas supply to a Gazprom subsidiary that Germany placed under trusteeship in April has stopped, German Economy Minister Robert Habeck told Parliament on Thursday.
Russia on Wednesday imposed sanctions on Gazprom's subsidiaries in Europe, banning them from supplying Russian gas.
It's not only Germany and the Eurozone that would be hit if Russian gas is stopped.
Economies in central and southeastern Europe, the western Balkans, North Africa, and Central Asia could see their post-COVID recovery endangered if Russian gas supply is further disrupted, the European Bank for Reconstruction and Development (EBRD) said in a new report earlier this week.
By Tsvetana Paraskova for Oilprice.com
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Comments
Under intense incitement by the United States, the EU is mulling over banning Russian oil and gas imports just to prove that it has some geopolitical influence. But to prove this, the EU has instead to stand up to the United States and cut its losses with the realization that banning Russian oil and gas supplies will inflict very serious damage on its economy and currency and could even lead to a brake-up of the EU itself.
The EU economy could shrink this year and next year the euro could plunge below the value of the U.S. dollar if the EU bans Russian gas supplies according to investment bank Barclays.
Moreover, the EU is deluding itself if it thinks that it can replace Russian fossil fuels with renewable energy and imported hydrogen power. Renewables can’t on their own supply the electricity needs of EU because of their intermittent nature. And whilst it is possible that the EU could produce 40% of electricity from renewable sources by 2030, the other 60% will have to come mainly from natural gas and to a lesser extent from coal and nuclear power.
The EU is again deluding itself if it thinks that imported hydrogen could substitute for natural gas used by Europe's industrial countries.
Whether green, blue or grey, hydrogen is a non-starter. It is more expensive to produce than natural gas. Furthermore, it needs far more energy to produce than it will eventually provide.
.Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London