Cut on Russian Gas Supplies to Europe to Hurt the Continent’s Recovery: Fitch

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Cut on Russian Gas Supplies to Europe to Hurt the Continent’s Recovery: Fitch

A ban on Russian gas shipments into the EU following deteriorating tensions in Ukraine would hurt the region’s economy recovery as well as heavily gas-reliant industries such as steel and chemicals, Fitch Ratings Ltd has said.

“A ban on Russian gas imports to Europe stemming from a deepening of the Ukraine crisis is a low-probability, high-impact scenario. Risk premia would spike and undermine Europe’s fragile recovery,” the company’s analysts said today in an email.

Russian President Vladimir Putin said he would stop gas supplies to Ukraine because of an unpaid debt amounting to $2.2 billion. Russia pumps 15% of Europe’s gas supplies via Ukraine. Price wars between the two countries caused disruptions to gas exports to Europe amid extremely cold weather.

According to Bloomberg, Fitch said that if Russia were to cut shipments, soaring gas prices might send gas-intensive industries mothballing or shutting down capacity. The firm’s report showed that energy expenses account for more than 50% of a chemical producer’s costs and that Europe’s steel industry was unlikely to witness improvements in energy-efficiency.

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The credit-rating agency said that disrupted gas supplies from Russia would expose Europe to gas shortages and an increase in prices, because there would be little capacity to replace gas with another source of energy for residential and commercial heating needs.

As ABC reports, Fitch said that 27% of Europe’s gas comes from Russia, and considering the possible costs a ban would have on both sides, it would take severe escalation of the crisis in Ukraine for it to take place. The report added that the most likely result of the current crisis would be a short-lived interruption of gas supplies through Ukraine pipelines, a scenario for which Europe is better prepared because of high inventories and a recently launched pipeline from Russia to Ukraine. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com