Gas Rubicon: Europe decides how to respond to U.S. sanctions against Russia

The longer anti-Russian sanctions, the more they split the Western world. Now in financial and political circles of Europe there is a growing indignation at the latest U.S. sanctions against Russia. Expressing dissatisfaction with officials and businessmen of the Old world, which were, to put it mildly, in an awkward position. On the restriction of trade with Russia the EU has lost since the beginning of the sanctions confrontation between more than 100 billion euros. Join the new anti-Russian steps States to lose a similar amount, and in a short time. To argue for Washington to gamble trade relations with the most powerful financial power on the planet. So Brussels will have to maneuver between the interests of the United States and Russia, trying especially contrary to American pressure and at the same time, not much harm relations with our country.

European LNG terminals close only 30-35% of the EU’s raw materials. Most of them are idle due to unprofitability. Photo: nord-stream.com

Ovchinka not worth the candle

New us sanctions against our country, which relate to limitations in the support and financing of Russian oil and gas projects and specifically of the pipeline “Nord stream-2”, has put Europe in a fair amount of difficulty. Announced in 2014, the first anti-Russian sanctions after the annexation of Crimea, Washington and Brussels presented a United front. The EU is not even embarrassed by countermeasures Russia to limit imports of European food. According to financial analyst FxPro Alexander kuptsikevich companies, initially Europe had deflationary impulse and the price of sanctions products began to decline due to the growth in demand in the domestic market.

However, very soon the Old World has come to count losses. As noted by the French centre for research on the world economy CEPII, only for the first year of a trade war the EU has lost approximately $60,2 billion Maximum forgone revenues were from German suppliers — every month they lost $830 million, followed by Ukraine with a monthly loss of $450 million, followed by Poland, the Netherlands and France — $200 million per month.

“Then they found new markets and shortened production”, — said the expert. Nevertheless, over the three years of the confrontation, according to the special Rapporteur of the UN Council for human rights Idris, Jaziri, who is responsible for the negative impact of unilateral coercive measures, European States, has imposed on Moscow sanctions, has lost a total of about $100 billion, double the damage, which had to face Russia.

Whether Brussels in this case, agree with the strengthening of confrontation, dictated by the US? Given that this time Washington strongly recommends that completely abandon lending to Russian raw materials industry and to bury the project “Northern stream-2”, half of which belongs to the largest power of the EU.

In Europe are well aware that under the cover of the new US sanctions promote the rich European market producers of liquefied natural gas. Squeezing out Russian natural gas from the EU, the Americans first of all think about how to take our place in the energy mix of the Old world. Strategic objective — to replace Russian pipeline gas with liquefied U.S. shipped across the ocean on marine gas carriers. However, the conquest of the European fuel market the United States need to create an impressive size and investment infrastructure for reception and distribution of liquefied natural gas (LNG). While the existing European LNG terminals will be able to close no more than 30-35% of the EU’s raw materials. In addition, the majority of these transfer stations are now idle because gas supplies from overseas remain unprofitable.

According to the head of the German energy company Uniper Klaus Schaefer, transportation of natural gas can reliably supply Europe with raw materials. The head of another German oil company Wintershall Mario Mehren reminds about the risks of the loss of European competitiveness due to higher cost of LNG.

Bodlivoy goats no horns

As a result, the Brussels says ready to retaliate against the United States because of the new anti-Russian sanctions harm European business. Primarily this position was expressed by the head of the European Commission Jean-Claude Juncker, who claimed that the material losses of the EU with the deterioration of trade relations between the EU and Russia could increase, and if the sanctions will be supported, and the banking sector of the EU will suffer significant damage.

With this agreement and the commercial counselor of the Embassy of Austria in Moscow Rudolf Lukavsky who believe that EU members look to Brussels response to the tightening of US sanctions against Russia, as the new economic constraints jeopardize joint projects of Russia and the EU.

By the way, the President of the Economic chamber of Austria Christoph Leitl has previously noted that the United States ignore international trade relationships and want to break the Russian-European economic ties. “Russia with its energy and Europe with its know-how complement each other. To terminate this relationship would be desirable all,” complained Leitl.

The European Commission has already made the relevant document, opposing us sanctions, however, according to experts, it is not so much the instructions for use and a list of complaints about the infringement of the interests of the EU.

First, the EU intends to achieve from the administration of Donald trump “public or written assurances” that the new sanctions against Russia will not be used dangerous for the EU.

Secondly, Brussels intends to use the European legislation to be adopted by the US action “was not recognized in Europe and could not be in her life”, and can also produce “compatible with WTO rules retaliatory measures.”

Thirdly, the EU fears that the US action will hurt European energy companies involved in the related Russian projects. In particular, in the creation of the “Nord stream-2” and construction of additional pipelines on the territory of Germany.

So in what direction will swing of the European pendulum? How it will work in Brussels, being between two fires? To answer this question it is necessary to understand the structure of the external trade of the European Union.

Main revenue of EU exports are machinery industry and chemical industry, which accounted for over 20% of world exports for these product groups. 13% — high technology and the middle class. Also 13% of the export of agricultural products.

A large part of the European deliveries abroad are focused on the US. Experts believe that the EU is unlikely to completely abandon cooperation with the Americans on these items of income, but they are quite capable to reduce the current volume of trade. However, this will not happen immediately, but within a few years, when they picked up new sales markets.

Import of Europe concentrated on commodities — oil, gas and metals (the share of foreign procurement in this segment amounts to 75-95%), and non-processed foods. The main suppliers of these products are Russia and China. In the US, the Europeans are becoming secondary food products, such as corn and soybeans. Analysts believe that in this case the situation would resemble the situation with the export from the Russian and Chinese mineral resources of the EU will not give up, and American agricultural products may be replaced with purchases in other countries. However, also only on a partial basis.

Don’t bet on it

Says financial analyst Gerchik & Co Victor Makeev, Germany unwanted any new ideas of sanctions against Russia, therefore, the opinion of Berlin will be considered by Brussels first. The EU trade turnover with Russia is much less than the United States. The European economy after the 2008 crisis, is recovering more slowly than the us. Member countries of the EU is still concerned about the vulnerability of its economy, as evidenced by statistics on unemployment in Spain and Italy (more than 15% of the population) and holding interest rates at zero for maximum support of the business. “The EU will be forced to maneuver between the interests of the United States and Russia, trying not to contradict the entered USA sanctions, but not to cross the strategic directions in relations with Russia”, — the expert believes.

Meanwhile, saying that the Europeans are dissatisfied with the new package of US sanctions against Russia, citing a sharp reaction from some European politicians and businessmen, we must not forget several important factors that play against Moscow.

First, in Europe, the attitude to our country as a whole remains negative. The EU is not randomly imposed against Russia’s own sanctions. Second, that Europe could exert effective pressure on the USA in terms of easing restrictions, is necessary to achieve a consolidated position of the EU on this issue. This is problematic: the Brussels ones interests in Berlin — the other in London, are in the process of leaving the EU, and others. Whereas the former socialist countries agree to tougher sanctions against Russia on their territories are American military bases, and they are militarily and politically dependent on the United States.

The head of analytical Department GK “Finam” Michael Aristakesyan draws attention to the economic dimension of relations between Europe and America. He cites the world trade organization, according to which trade with the EU brings US more revenue than the Americans from a partnership with the Europeans. “In the case of a hypothetical “trade wars” Europe will suffer stronger than their American counterparts,” — said the expert.

“The most anticipated actions of the EU against anti-Russian sanctions — endless bureaucratic delays. European officials have learned to use this tool in order to obstruct the coordination and discussion of any initiative. If the EU bureaucrats don’t like something, then wait for numerous fruitless meetings. While decision-making is delayed, Russia, contrary to the political will of the United States will continue to supply Europe with oil, gas and metals, which will be more beneficial than any anti-sanctions” — sums up Alexander kuptsikevich.

It’s time to buy tickets to the East

And what about Russia — what position it occupies in the “Bermuda triangle” of sanctions? It is worth noting that Moscow after the beginning of the sanctions war more enhances the practice of bipolar development, emphasizing in particular the Asian sector. In particular, this year the trade turnover of our country with only one China has reached a peak. After a sharp fall at the end of 2015 (by 28.6%) in the last year the trade turnover between our countries gradually began to improve. For the first half of this year growth was quite impressive and will exceed 25%. According to the forecast of the Minister of economic development Maxim Oreshkin, at the end of 2017 of the Russian-Chinese trade turnover will reach us $80 billion, and by 2020 the figure may reach the level of $200 billion.

However, experts agree that to throw all their forces to market the same China is not worth it. Excluding the EU from the list of foreign trade partners, if he will once again take over Washington, or significantly restricting trade with European countries, Russia would have a severe impact not only on the financial space of the Old world, but the private economy. The whole Euro-Asian region will automatically be immersed in the crisis, even more powerful than in 2008. This situation is not advantageous either to Russia or the EU, well aware of both sides.

However, wishful thinking is one thing, but the geopolitical reality is another. Therefore, it is logical to expect that the Europeans will be more substantive: or again they meekly agree with Washington, or arrange a demarche against the United States in response to their sanctions against Russia. If Brussels would prefer to act on the principle of “neither fish nor fowl”, his position in cooperation with the two opposing sides will be an occasion for dissatisfaction on the part of Russia and the USA, but also middle Eastern and Asian regions.

photo: Ivan Skryplev

Sanctions . Chronicle of events

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