Russia is worse off than Europe for natural gas supply cuts to EU
- Russia has slowed its natural gas exports to Europe amid the war in Ukraine.
- This decision harms Russia more than Europe, according to an analysis by Yale University.
- Russia is now looking to customers in the East, but countries like China and India are negotiating hard.
Russia has cut back on natural gas supplies to Europe amid the war in Ukraine – and the commodities giant is under ‘severe pressure’ because of it, according to an analysis from Yale University .
“Contrary to widespread alarmism regarding the negative impact of the Russian-Ukrainian war on world commodity prices, the importance of commodity exports to Russia far exceeds the significance of Russian commodity exports to the rest of the world,” the experts wrote in the analysis, released on July 20.
Europe depends on Russia for 40% of its total natural gas needs, from home cooking to power stations. He worries about a winter energy crisis, as Russia cut natural gas flows to the continent, citing sanctions-related challenges.
Even so, it is Russia’s economy that “is most affected by changing natural gas supply chains” in the longer term, the Yale authors wrote. Indeed, the EU has already agreed to ban almost all Russian oil imports from the end of 2022 and said it would reduce coal imports from mid-August. Several European countries, including Germany and Italy, are also trying to wean themselves off Russian gas.
Russia’s total export earnings overwhelmingly come from raw materials. “These export revenues represent well over half of the total Russian government budget in most years – and likely an even larger proportion now,” the Yale team wrote.
The study, led by Yale School of Management professor Jeffrey Sonnenfeld, also found that Russia’s economy is “reeling” from sweeping international sanctions. His findings contrast with studies of Russia’s economy that show it is holding up better than expected, thanks in part to strong revenues from its massive oil and gas industry.
Putin looks east to sell Russian energy, but buyers are picking up bargains
To lessen the impact of falling energy sales to Europe, Russian President Vladimir Putin is peddling Russian energy exports to other markets, such as Asia, but at a discount.
“Its isolation from the west has devastated Russia’s strategic hand in negotiations with China and India, notoriously price-conscious buyers who retain close ties with other major commodity exporters,” wrote the Yale team.
“These countries have not been shy about exploiting previously sanctioned pariah countries, with China notoriously conducting massively cut oil deals with countries such as Iran and Venezuela with regularity,” the authors added.
Since the invasion of Ukraine, prices for Russia’s flagship crude oil, the Urals, have fallen dramatically. Urals were priced at $1.50 against international Brent crude from January to February, but have since fallen to a $25.80 discount to Brent, according to a Bloomberg compilation of data from the Russian Ministry of Finance. and the Intercontinental Exchange.
“It now trades in a weak position with the loss of its once major markets,” the Yale team wrote, adding that Russia’s strategic position as a commodity exporter had “irrevocably deteriorated. “.