From: Energy Update

Russia is dependent on oil income, while the EU is dependent on Russian gas supplies. If on one hand, half of Russian budget depends on income from energy exports, Europe imports 30 per cent of its gas requirements from Russia. The two are interdependent, in more than one ways. However, the crisis in Ukraine and the subsequent downing of the Malaysian airliner mid-July changed the overall context, prompting Washington and the EU to slap sanctions on Moscow.

But will it cripple Russia?

Both the US and EU sanctions focused on offshore oil exploration and production, Arctic projects and oil extraction from shale. The US banned sharing technology used in fracking. Sanctions also prohibited American banks from issuing loans with a maturity of over 90 days to four key Russian companies, Rosneft, Novatek, Gazprombank and VEB.

The EU banned the sale of equipment used in oil exploration and production. Financing of Russian oil and gas projects in Crimea, the peninsula once owned by Ukraine and recently annexed by Russia, is also off limits.

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Interestingly the gas sectors appears not to have been touched by the newly announced sanctions regimen – for obvious reasons. The exemption of the Russian gas sector reflects concerns in Brussels about EU reliance on Russian gas. Indeed for the European Union to survive without gas from Russia is difficult if not impossible. Almost 30pc of the gas requirements of Germany, the world’s fourth largest economy, comes from Russia.

Overall too, 30pc of European gas needs are met by Russia. Many EU countries receive some Russian gas, 12 EU countries receive more than half of their gas from Russia and six countries are almost entirely dependent on imports from Gazprom.

Russia is Europe’s third-largest trading partner and Europe is Russia’s biggest. Last year, more than $400 billion worth of goods moved between the two, compared with just $38bn in trade between Russia and the US. The disparity makes Washington’s decision to slap sanctions on Moscow easier than the options being mulled in Brussels. It also makes Europe’s choice more consequential.

“Since Europe is very dependent on Gazprom-exported gas for their heating and other basic energy needs, it’s going to be very hard, if not outright impossible, to see a sanction that directly impacts the export of natural gas from Russia into Europe,” Doug Rediker, a visiting fellow at the Peterson Institute for International Economics was quoted as saying.

However, the sanctions could complicate Russian efforts to develop East Siberian resources for gas exports to China. In May, Russia’s monopoly Gazprom signed a $400bn 30-year export agreement with state-owned China National Petroleum Corp. (CNPC), pledging annual deliveries of 38bn cubic metres (1.3 trillion cubic feet) of gas starting in 2019.

  • Read full article at Energy Update