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May Is When ‘The Moment of Truth Arrives’ on European Ruble Payments for Russian Gas

April 25, 2022 (EIRNS)—Fortune magazine reports that the world is heading to a crisis point in the month of May, over Russia’s demand that “hostile nations” pay for their gas in rubles, and the European Commission’s continuing refusal to allow companies to do so, on the grounds that “this would be contrary to the sanctions in place” against Russia. “The game of geopolitical chicken could lead to Europe rationing energy,” Fortune wrote, followed by a deep industrial collapse.

The EU last Friday, April 22, made a proposal of how companies might dance around Russia’s demand (see separate slug), “but it’s up to Moscow to decide if that’s acceptable,” Fortune admitted. “Payments come due in May, and that’s when the moment of truth arrives.”

The Fortune article then presents the way that rigor mortis will set in to the European economies without Russian gas. They begin by quoting Katja Yafimava, a senior research fellow at the Oxford Institute for Energy Studies, who explained that by refusing Putin’s payment terms and testing his threat to turn off the taps, European buyers “would be running a very real risk of their supplies being cut.” What would that do?

For starters, forward contracts for natural gas could more than triple in price. Reserves may be adequate for the immediate situation, but come winter, all hell could break loose. “Such a surge [in prices] would put governments and central banks under pressure as they seek to control soaring inflation. The risk is that the mounting cost-of-living crisis intensifies and spills over into wider unrest and a deeper crisis,” according to Fortune.

They add:

“With less fuel for gas-fired generators, the risks of rolling blackouts would increase.... Germany has triggered an emergency plan, with a task force meeting daily to monitor consumption and inventories. Its energy regulator is surveying companies about their usage to help determine how to distribute supplies.... Industry would bear the brunt of a rationing plan.”

How would that play out?

“At Europe’s biggest chemical factory, BASF SE churns out compounds used in manufacturing autos, medicines and fertilizers and all fueled by pipelines filled with Russian gas. The company warns that a sudden halt would send shock waves through many industries and cause irreversible damage to German competitiveness. The concerns are echoed by the likes of steelmaker Thyssenkrupp AG, automaker Volkswagen AG and utility RWE AG.

‘Stopping the pipeline-bound gas supply at this time would have dramatic consequences,’ RWE Chief Executive Officer Markus Krebber said in an advanced copy of a speech for the company’s shareholder meeting next week. Many manufacturers ‘would no longer be able to operate their plants’.”

Fortune notes that such likely consequences are the reason that German Chancellor Olaf Scholz recently stated that a halt to gas flows from Russia could mean the loss of millions of jobs. Similarly, on April 22 French President Emmanuel Macron warned that the European Union would not be able to survive next winter without Russian gas.

The domino effect in the developing sector would be far worse, Fortune reports. “Emerging nations would get squeezed by Europe’s thirst for energy, especially liquefied natural gas, as they would struggle to compete on price. The region is already pulling most of the spare LNG supply from the U.S. and other nearby exporters, keeping spot rates for the super-chilled fuel well above normal for this time of year.

“Pakistan is suffering from blackouts, due in part to European nations outbidding the cash-strapped country for LNG cargoes. Argentina is also dependent on LNG from the spot market and has been forced to fork over hundreds of millions of dollars to secure deliveries for the Southern Hemisphere’s upcoming winter.”

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