Russian gas cut-off could see some European countries' growth fall by 6%, says IMF -

15 August, Monday

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Russian gas cut-off could see some European countries' growth fall by 6%, says IMF

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If Russia cuts off its gas deliveries to Europe then the most exposed countries could see their economies contract by up to 6%, the International Monetary Fund (IMF) said in its blog on July 19.
“Our work shows that in some of the most-affected countries in Central and Eastern Europe –Hungary, the Slovak Republic and the Czech Republic – there is a risk of shortages of as much as 40% of gas consumption and of gross domestic product (GDP) shrinking by up to 6%,” IMF economists Mark Flanagan, Alfred Kammer, Andrea Pescatori and Martin Stuermer said in the Fund’s regular blog.
The IMF went on to say that the impact of an increasingly anticipated Russian gas embargo could be mitigated, however, if governments act quickly to secure alternative supplies and energy sources, ease infrastructure bottlenecks, encourage energy saving and expand solidarity agreements to share gas across countries.
The Russian-owned gas behemoth reduced flows of gas to Europe by 60% in mid-June, stoking fears that Europe would not be able to pump enough gas into its storage tanks ahead of the start of the heating season. At the beginning of this year the EU called for those tanks to be 80% full by November 1, and they were 64.4% full as of June 19.
It is still not clear if Europe will hit the EU’s target as the key Nord Stream 1 pipeline was taken out of action for 10 days of annual maintenance on July 11, but it seems unlikely gas flows will resume at the end of this week.
Gazprom has demanded documents from Canada that would allow a key compressor unit to be returned to the pipeline after repairs and this week it declared force majeure on July 19 that gives the Russian energy company a legal pretext to ignore its contractual obligations to send more gas to Europe.
While Nord Stream 1 is the main pipeline from Russia’s Yamal gas fields to Europe, it only carries 55bn cubic metres of gas a year, about a third of the 155 bcm that Russia sold to Europe in 2021. The other pipelines through Ukraine and Turkey could still deliver gas to Europe even if flows via Nord Stream 1 stop.
The IMF economists explored the possibility of what a reduction of gas by 70% would do to European economies and concluded even at that level there is some wiggle room.
“Our work suggests that a reduction of up to 70% in Russian gas could be managed in the short term by accessing alternative supplies and energy sources and given reduced demand from previously high prices,” the IMF said, but added that a total shut-off of gas would cause major problems.
“Diversification would be much harder in a total shut-off. Bottlenecks could reduce the ability to reroute gas within Europe because of insufficient import capacity or transmission constraints. These factors could lead to shortages of 15% to 40% of annual consumption in some countries in Central and Eastern Europe,” the IMF said.

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