Home Energy system Russia’s shutdown of natural gas flows to Europe puts the continent in a new era of uncertainty

Russia’s shutdown of natural gas flows to Europe puts the continent in a new era of uncertainty

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In what would have been a scenario unimaginable just a few months ago, Russia has cut off all natural gas flows to Europe via its Nord Stream pipeline, plunging the continent into a new era of uncertainty that is impacting the steps.

Why is this important: The gas cut bodes very badly for economic growth in Europe, as a range of industries dependent on abundant Russian gas are forced to cut production.

What they say : “This broad, long-term industrial and energy strategy that the government – but also huge swathes of energy-intensive industries – have pursued for decades, building entire sectors like the chemical industry around very cheap Russian gas , collapsed,” said Lion Hirth, a professor of energy policy at the Hertie School of Governance in Berlin, tells Axios.

The impact: The euro has just plunged to a new 20-year low against the dollar.

  • The pound plunged to its lowest against the greenback since 1985.
  • Yields on European government bonds – which determine borrowing costs for national governments – have risen as investors price in the risk of large new borrowing to fund crisis responses.

Catch up fast: Russia – which reportedly closed the pipeline for maintenance on Friday – surprised no one by announcing that it would not restart gas flows.

Zoom out: For decades, Europe – especially Europe’s largest economy, Germany – depended on Russian natural gas for heat and electricity.

  • Today, Europe is forced to rebuild its energy system on the fly, using an untested and costly mix of price caps, rationing and bailouts to get through the next few months.

Between the lines: Analysts believe Russia wants to inflict economic and financial pain this winter in order to erode Europe’s solidarity and support for Ukraine, which has been crucial to the country’s revulsion in the face of the Russian invasion.

The last: In recent days, countries across the continent have been rushing to bolster their energy systems in the face of soaring costs for consumers and businesses.

What we are looking at: Economists’ expectations for growth in the EU and UK, which are falling rapidly.

Data: FactSet;  Graphic: Axios Visuals
Data: FactSet; Graphic: Axios Visuals