Fears grow that Russia could sever Europe’s gas supplies altogether, pushing continent into deep recession

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Natural gas prices have soared in Europe to record highs.

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  • Fears are growing that Russia will choke off the supply off natural gas to Europe completely.
  • Analysts have said such a move would push an already fragile economy into a major recession.
  • Goldman Sachs and JPMorgan are predicting a recession even if supplies continue.
  • For more stories, go to www.BusinessInsider.co.za.

Fears are growing that Vladimir Putin’s Russia could completely stop the flow of natural gas to Europe, a move analysts say would push the continent into an economic crisis.

Russia last week cut the supply of natural gas — a crucial fossil fuel — to Germany and Western Europe through the Nord Stream 1 pipeline to just 20% of its previous capacity, pushing prices to record highs.

Moscow has blamed the cuts on sanctions, which it says are stopping the arrival of a key piece of equipment for the pipeline.

But politicians in Europe have said the supply cuts are a politically motivated effort to punish Western governments for sanctioning Moscow over its war in Ukraine. They have repeatedly warned that Russia could even cut off flows entirely, and analysts are now beginning to take them seriously.

In research notes and reports over the last week, economists and strategists have said a complete stop to natural gas supplies to Europe would batter the already fragile eurozone economy.

“A complete gas supply stop remains a live possibility, especially during the winter months,” said Goldman Sachs economists, led by Sven Jari Stehn. “We estimate that such a stop would push the euro area into a sharp recession.”

Stehn and colleagues said the eurozone is set to fall into a recession in the second half of the year even if flows through Nord Stream 1 pick back up to 40% of capacity.

JPMorgan also said this week that it now expects the eurozone economy to fall into a recession by the end of the year, basing its forecast on a situation in which natural gas supply from Russia stands at around 40%.

“Inflation pressures have not abated and new shocks have emerged,” JPMorgan economist Greg Fuzesi in a note to clients last week. “The outlook for gas supply to the region has become highly uncertain, US recession fears have increased, and, more recently, Italian political uncertainty has been brought again to the fore.”

Economists have said the reduction in natural gas supplies means European consumers and companies will have to cut the amount of energy they use, so that storage facilities can be filled ahead of the winter months.

The European Union agreed last week to try to cut its gas consumption by 15% between August and March. Andrew Kenningham, chief Europe economist at consultancy Capital Economics, said the planned cuts come with big economic risks.

“If this translates into mandatory gas rationing – which looks plausible at least for Germany – it could force factories in the metals and chemical sectors to put staff on short-time working scheme and reduce their output,” he said.

Germany is likely to bear the brunt of the looming crisis, analysts have said. Before the war it got 55% of its natural gas from Russia, and it is an industrial powerhouse that is heavily reliant on the fossil fuel.

Commerzbank, Germany’s biggest lender, warned Wednesday that a total halt to supplies would plunge Germany into a 2009-style recession in which the economy would shrink 2.7% this year and 1.1% in 2023.

Karolina Siemieniuk, analyst at Rystad Energy, said: “A serious gas shortage in one of the biggest European economies could cause a major economic crisis in the country and negative impacts on other EU member states.?”

Goldman Sachs said last month that the energy crisis in Europe could weigh on US growth by knocking trans-Atlantic trade.

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