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Europe’s energy security asymmetry – POLITICO

Soňa Muzikárová is Chief Economist at Globsec. She is a former economist at the European Central Bank and a former diplomat with the OECD.

There are few possible sanctions against Russia left in the European Union’s arsenal that are both potentially effective and politically and economically “easy”.

Just look at the current stalemate over a proposed oil embargo. The divisiveness over the sixth tranche of sanctions is particularly pronounced on Europe’s East-West axis due to the East’s disproportionate reliance on Russian energy raw materials, typically between 70 and 100 percent. for oil or gas for most countries depending on the raw material. And despite the exceptions of Poland and Bulgaria, without a thorough solution for the region, achieving energy security in Europe will not be possible.

The asymmetry of Russia’s energy dependence is why the European Commission was initially willing to seek a compromise on phasing out oil – considering additional time, considering exemptions and offering cash to modernize the oil infrastructure of the countries most in difficulty. The bloc’s hardening stance came after war crimes against civilians were uncovered, as well as President Vladimir Putin’s decree requiring ‘unfriendly’ countries to pay for Russian gas in roubles, cutting off Poland and Bulgaria a month longer. late for non-compliance.

Poland was dependent on Russian gas for less than half of its supplies and Bulgaria was dependent for almost all of them at over 90%. But with the two countries’ contracts with Gazprom expiring, they were not caught off guard and emerged relatively unscathed.

Poland had already built up gas stocks with its tanks 76% full and is preparing an alternative supply, including from Norway via the Baltic gas pipeline and the completion of a new liquefied natural gas (LNG) terminal for bring in additional supplies from the United States and the Middle East.

By comparison, Bulgaria’s gas reservoirs were only around 18% full, but the country had undertaken sufficient contingency planning, ensuring alternatives, including via the Trans-Balkan gas pipeline in Romania, supply in liquefied natural gas (LNG) via the Revithoussa terminal in Greece, and a new interconnecting pipeline with Greece to bring volumes from Azerbaijan from the end of next month. The gas supply shutdown also currently has less of an impact as it is spring. Just because Poland and Bulgaria have dodged the bullet doesn’t mean other landlocked countries in Central and Eastern Europe can.

Countries like Slovakia, the Czech Republic and Hungary face additional policy challenges from transit, infrastructure and trade facilitation that coastal countries do not have. And the combination of high dependency and isolation weighs on their ability to seek alternatives, as well as to change infrastructure quickly and effectively. It also costs more in national political capital.

Slovakia, for example, currently imports around 85% of its gas from Russia and is the fourth most dependent EU country on Gazprom, after the Czech Republic, Latvia and Hungary. Its storage is only about 20% full, covering its consumption for about four months without limiting industrial or domestic use. In terms of alternatives, the country is exploring LNG supplies from the United States, Qatar, Australia and Egypt and it has started delivering LNG supplies from the United States via tankers on the Croatian island of Krk. The Polish LNG terminal which should be completed this summer should also help ease the pressure.

As for oil, Slovakia is 100% dependent on Russian supplies, followed by Finland, Lithuania and Poland. And although, in theory, the country could pump oil through the Adria pipeline from Saudi Arabia or other partners, in practice the facilities of the main Slovak refinery are not suitable for the Saudi alternative to the “light” crude, and retrofitting existing facilities will take time.

On top of that, the region’s annual inflation rate also soared well above the EU average at 7.8% in March, hitting double digits in some cases. The region is already struggling to absorb refugees; weakening local currencies add to inflationary pressure; and much of its manufacturing sector is energy-intensive. Nor is it clear to what extent their central banks will be able to contain inflation.

The cost of living crisis will only get worse before it gets better, and domestic political crises are only a step away. These considerations undoubtedly all enter into the Kremlin’s calculation.

But when it comes to Europe and its energy security, now more than ever, the chain remains as strong as its weakest link.

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