European energy crisis

The coming months will amount to a profound test of economic and political willpower as Western Europe prepares for a cold, dark winter without Russian energy supplies.

• American and British officials are optimistic that the end result will be a world economy less reliant on Moscow, but there’s no telling how the politics will evolve.

Why it matters: In recent decades, no rich country has experienced mass shortages of heating capacity during cold months. But Europe now confronts that scenario, with unpredictable consequences.

Catch up quick: The G7’s finance ministers announced on Friday a formal agreement on an oil price cap. The strategy uses Western allies’ control of shipping, insurance and lending networks to keep Russian oil flowing, but at below-market prices.

• In retaliation, Russia cut off its Nord Stream natural gas pipeline to Germany.
• Energy futures soared, and the euro, British pound and other European currencies plunged.

Between the lines: American officials are confident the strategy will accomplish its goals, one way or another.

• Countries like China and India seeking to buy Russian oil can strike a deal at the agreed-upon price cap to take full advantage of the shipping and financial services infrastructure of the allies.
• But a Treasury Department official told reporters Friday that even if they elect to find workarounds for finance and shipping, the price cap gives those buyers greater leverage to extract lower prices out of Russia.

The big picture: Even if that strategy works in stabilizing the oil market, it still leaves Europe in a lurch with shortages of natural gas. And that could test the West’s political resolve.

• Millions of German and British citizens could be staring at a winter of cold showers, chilly houses and skyrocketing utility bills. Some businesses may not be able to operate.

What they’re saying: “Clearly, this is not a short-term issue,” Nadhim Zahawi, the British Chancellor of the Exchequer, told reporters last week on a visit to Washington, D.C. “Putin will want to continue to put pressure on us, using energy as a tool.”

• “We want to demonstrate that we can outlast him,” said Zahawi, who is set to take a new cabinet role in a government taking shape today, led by Prime Minister Liz Truss.
• In the longer term, the country wants “an energy strategy that demonstrates to the market that the United Kingdom will be able to wean itself from expensive imported hydrocarbons,” he added, by relying more on wind and nuclear power.

Officials on both sides of the Atlantic are hoping that the pain of Russia’s natural gas shutdown will harden Europe’s resolve and lead to a permanent shift away from Russian supplies.

Yes, but: We just don’t know how citizens of modern, wealthy democracies will react to this kind of deprivation, or what political costs their leaders will pay for their support of Ukraine.

Πηγή: axios.com