Could European countries implement oil and gas rationing?
A person using a petrol pump at a service station in London.
Lewis Whyld | Pictures PA | Getty Images
European countries face the possibility of energy supply rationing, as a dispute between Moscow and the West over payment for Russian exports rages.
European countries are heavily dependent on Russian oil and gas supplies, but Moscow’s invasion of Ukraine in late February saw the EU and UK impose a barrage of sanctions, including cutting Russian energy imports.
In early March, the EU pledged to cut Russian gas imports by two-thirds before the end of the year, while Britain said it would phase out Russian oil imports by the end of the year. end of 2022.
But these measures carry risks for a region already facing an energy crisis. Tight natural gas supplies saw wholesale prices hit record highs in Europe last year, with UK households set to see their energy bills rise by more than 50% from April 1.
Natural gas rationing
Germany warned on Wednesday that it could soon face a natural gas emergency that could require gas supplies to be rationed. German Economy Minister Robert Habeck said the “early warning” measure did not yet mean the country had to resort to gas rationing but called on consumers and businesses to reduce their energy consumption.
Meanwhile, the Austrian government announced on Wednesday that it had activated the first stage of a three-stage contingency plan that would see it monitor the country’s gas market more closely. Officials cited Russia’s demand for ruble payments as the reason for triggering the emergency plan, noting that if it reaches the third stage of the plan, emergency control measures such as rationing could come into effect .
Germany and Austria may not be the only ones to have to implement extreme emergency measures if Western countries continue, according to Chi Kong Chyong, director of the University of Cambridge’s Energy Policy Forum. to oppose Russia.
Putin said last week that the Kremlin would ask for payment in rubles for gas sales from “unfriendly” countries – a request that has been rejected by the G-7 countries. On Thursday, the Russian leader said he signed a decree stipulating that foreign buyers must pay in rubles for Russian gas from April 1.
“If they can’t agree on payment terms and the flow of gas from Russia is stopped, other European countries will also have to take emergency action,” Chyong told CNBC. “Although we are entering a warmer period where we are consuming less gas, we still need gas to power our storage facilities for use over the coming winter months when temperatures drop and we have again need gas for heating.
“If the flow of Russian gas stops, all European governments – including the UK’s – must start activating contingency plans, including public ‘early loading’ campaigns to prepare our citizens to save energy during the winter months,” he added.
Meanwhile, Jim Watson, professor of energy policy and director of UCL’s Sustainable Resources Institute, said it was ‘certainly possible’ the UK could see government-imposed fuel rationing for cars.
Britain is having a harder time moving away from Russian oil than it is from Russian natural gas because it was more dependent on oil imports, Watson told CNBC by phone.
Speaking to UK lawmakers at a meeting of the UK Parliament’s Treasury Committee in March, Amrita Sen, research director at Energy Aspects, warned that sanctions on Russian energy exports could have serious consequences for the EU. Europe.
“Russia has a lot of other middlemen and other companies that would buy and sell its raw products,” she said. “Particularly in terms of produce, we fear rationing will happen as early as the end of this month in Germany. You can absolutely see the repercussions of that in the UK as well.”
Meanwhile, Russell Hardy, CEO of Swiss oil trader Vitol, told a FT Commodities Summit last month: “Europe imports about half of its diesel from Russia and about half of its diesel from the Middle East. This systemic shortage of diesel is there.”
“Diesel rationing is a possibility,” he added, according to the Times.
The U.S. Energy Information Administration estimates that Russia exported 4.7 million barrels of crude oil per day in 2021, nearly half of that to European OECD countries. The Netherlands, Germany and Poland imported the most Russian oil from the region.
Meanwhile, 74% of Russia’s natural gas exports went to OECD Europe last year, according to the EIA.
Implementing policies that reduce public demand for oil could help the UK government reduce its reliance on imported oil, Watson suggested, arguing that a push to adopt public transport and introduce other behavioral policies “that concern people and their choices” are also “certainly possible.”
Last year, panic buying of petrol in Britain led to severe shortages which saw many filling stations dry up, army personnel being deployed to deliver fuel. But Watson noted that the current situation was different and that a more likely outcome of energy supply risks was continued high prices in the UK – a country currently facing its worst cost of living crisis since. decades.
“I think there is a bit of difficulty in establishing these [measures] like top-down policies with the government saying people should drive slower, drive less, fly less, move to public transport,” he said.
A “true and effective weapon against Putin”
Earlier this month, the International Energy Agency released a report that lays out 10 policies it says could help quickly reduce global oil demand by 2.7 million barrels a day. The policies, intended to be implemented in “advanced economies and beyond”, included reducing speed limits on motorways by 10 kilometers (6.2 miles) per hour, reducing transport prices public spaces, the introduction of car-free Sundays and the alternation of the use of private cars in major cities. .
Rory Stewart, former UK Minister for International Development and Senior Fellow at Yale’s Jackson Institute, said in a tweet earlier this month that it is possible to reduce Russia’s revenue from oil exports by focusing on reducing demand.
“It would take a government and civilian effort equivalent to the Covid response,” he said.
His proposed policies, which he said should remain in place throughout the Ukraine crisis, included reducing UK speed limits to 50 miles per hour, making all public transport free and calling to companies like Uber to open up the technology that would allow free civilian ridesharing. .
“It would reduce the demand and the price of Russian oil, [and] have a catastrophic impact on Putin,” Stewart said.
Chyong of the University of Cambridge told CNBC that the key to hurting Russia through energy sanctions is to implement policies that focus on reducing demand.
“It’s about trying to lower the demand for fossil fuels – that’s our real and effective weapon against Vladimir Putin,” he said.
“An exponential negative relationship between demand and prices [exists] because right now we are facing a very, very strained global energy system and every additional unit of demand will cause prices to rise disproportionately. The flip side of this effect is that reducing our demand will have a disproportionate marginal benefit – a drastic reduction in prices.”