Russian energy embargo - TL:DR and a table of contents

Part 1. General Considerations

Part 2. Energy Markets Structure and the Role of Russia

Part 3. Economic consequences of the embargo in the short to medium term

Part 4. How vulnerable is Russia to an energy embargo?

Part 5. What the energy trade war might look like?

Part 6. The longer-term and wider outcomes of the looming energy trade war.

TL:DR

• EU and Russia are on a brink of a major trade war around oil and gas.

• Russian energy supplies play a major role in the global market

• If excluded from global markets, Russian oil and gas will be impossible to replace and substitute in the medium term (up to two years)

• Over the short term Russia may be quite resilient to the loss of oil and gas sales volumes and may compensate much of it with the price growth

• Already introduced sanctions have strongly diminished the value of foreign earnings to Russia

• Russia is looking for a retaliation weapon for the European-imposed sanctions

• Europe is compelled to make a bold move to compensate for the unwillingness to send troops to assist Ukraine

• As a result of the trade war the world may face an unprecedented energy crisis, leading to a deep recession, accompanied by a food crisis

• The longer-term outcome will be an acceleration of energy transition for energy security reasons, while at the same time mothballing the decarbonization measures

• The sunset period for fossil fuels may have been shortened by a decade

• There will be a need for emergency investments in the traditional energy sector, which might lead to a brief renaissance, but there will be s need for the governments to promise a payout for stranded assets

The energy sector plays an important role in the modern economy, Russia is an important global player and the decision to introduce an embargo on energy goods for the war in Ukraine may have many complications and unintended consequences. This piece provides many background and technical details that help to understand the complexity of an issue, provides analysis and a point of view on possible future developments, and hopefully leaves the reader with better knowledge and understanding.

14 pages