Russian Energy Embargo 1/6
Part 1 - General considerations
General Considerations
Two months into the conflict after Russia launched its war on Ukraine, the West is facing the question of whether it should hit Russia with an embargo on oil and gas. The voices calling for this action started to appear from the very beginning of the conflict, and for obvious reasons – energy revenue has been the main source of Russian export earnings for the last 20 years, these earnings provided the resources for two decades of prosperity, funding for security forces and propaganda machine, and rearmament – in short, the means that allowed for the establishment of an autocratic regime and made the aggressive war possible.
An article https://www.econtribute.de/RePEc/ajk/ajkpbs/ECONtribute_PB_028_2022.pdf by a group of prominent German economists appeared at the beginning of March, which suggested, that the costs of complete abstention from Russian energy for German economy would be material, but manageable, probably a few hundred euro per person in the first year, and then even less, and this article was the basis of the most following appeals by a group of prominent economists calling for a speedy embargo on Russian energy. Nevertheless, politicians are still contemplating the issue and the outcome is uncertain. So far, the EU and USA have announced limited sanctions, and many Western firms refrain from buying Russian oil and oil products voluntarily as a part of a general boycott of Russia by the West.
In the meanwhile, Russia is raising stakes by creating its own rules for gas sales, threatening to stop supplying those who would not comply.
The energy embargo is a complicated matter with technical and economic issues closely intertwined, so let’s try to make sense of it.
There is a number of facets to consider:
What are the possible costs and effects that Europe and the rest of the world might incur?
What would be the short- and long-term effects on Russia of the embargo?
What are the possible mechanisms and how the energy trade war might unravel?
Would the embargo stop the war?
What might be the longer-term implications for the global energy system?
Part 2 - Energy markets structure and the role of Russia. > > >