An entire cut-off of Russian fuel provides may minimize the GDP of probably the most weak EU international locations by as much as 6% and push them into recession, the Worldwide Financial Fund has warned.
Amid hypothesis that Russian President Vladimir Putin will shut down the Nord Stream 1 pipeline when routine annual upkeep ends later this week, the IMF stated Europe lacked a complete plan to cope with shortages, rising vitality costs and hitting progress. .
The Washington-based fund recognized Hungary, Slovakia and the Czech Republic because the three EU international locations most probably to be affected, however stated Italy, Germany and Austria would additionally undergo important results.
“The prospect of an unprecedented complete shutdown is fueling considerations about fuel shortages, still-high costs and financial implications. Whereas policymakers are transferring too quick, they lack a blueprint to handle and mitigate the influence,” IMF officers stated in a weblog publish.
“Our work reveals that in among the most affected international locations in Central and Japanese Europe, a 40% discount in fuel consumption and a 6% contraction in gross home product are possible.
“Nonetheless, impacts might be mitigated by securing various provides and vitality sources, easing infrastructure bottlenecks, selling vitality financial savings whereas defending weak households, and increasing fuel sharing solidarity agreements amongst international locations.”
Europe’s vitality infrastructure and international provide have suffered a 60% drop in Russian fuel provides since June final yr, the IMF stated, however underlined the potential value if the Kremlin responded to Western sanctions by “weaponizing” vitality provides.
Russia’s invasion of Ukraine led the fund to chop its progress forecast for the worldwide economic system to three.6% this yr, and it’ll announce an extra downgrade later this month.
Whole fuel consumption within the first three months of 2022 is down 9% from a yr earlier, tapping various provides, significantly liquefied pure fuel (LNG) originating in international markets.
“Our work means that reductions of as much as 70% in Russian fuel might be managed within the quick time period by accessing various provides and vitality sources and by easing demand from beforehand excessive costs,” the IMF stated.
“Nonetheless, diversification might be very troublesome in a complete shutdown. The power to divert fuel inside Europe will scale back bottlenecks attributable to inadequate import capability or transmission constraints.
The IMF stated that if a complete shutdown had been to happen, the EU would expertise a drop in financial output of round 3% over the following 12 months. Some international locations, akin to Sweden, Denmark and Greece, will see little influence on progress, however Italy, which depends closely on fuel for energy era, may face a decline of greater than 5%.
“Relying on the supply of different sources and the flexibility to cut back home fuel consumption, the consequences in Austria and Germany are important, if not extreme,” the fund stated.
The IMF weblog stated EU governments ought to step up efforts to safe provides from international LNG markets and various sources, and a technique is required to handle infrastructure bottlenecks to import and distribute fuel, provide in emergencies, defend weak households and promote vitality financial savings. Good fuel rationing packages.