Sanctions are stifling imports and crippling industry; car production fell more than 60% in August
Putin’s decision to shut down Nord Stream 1 makes no economic sense. He seems willing to pay a high price to force the EU to lift sanctions. He will send the country into a deeper recession.
The closure of the pipeline will deprive Russia of between €4 billion and €12 billion in gas revenue by the end of the year, according to estimates based on already declining European demand. Contrary to what the Russian authorities say, Gazprom cannot for the time being divert its gas to new markets.
Russia may weather some short-term financial stress. EU members spent $89 billion on Russian oil, gas and coal in the six months after the invasion of Ukraine, according to the Center for Research on Energy and Clean Air. That’s almost as much as the $100bn it paid for Russian energy in all of 2021. EU energy payments pumped $43bn into Moscow’s budget in March-August, financing a significant part of the war effort.
Putin’s problem is that his European flow is shrinking fast. Countries have been quick to reduce their dependency, which goes a long way to explaining the rise in gas prices. The closure of Nord Stream 1 will make the change more urgent. Putin hopes that high winter energy bills will inflame public opinion and lead the EU to relax its sanctions. This is what his collaborators have said, and Gazprom has insisted on it with a video. But Putin’s latest ploy could induce Europeans to close ranks; polls continue to show strong support for the EU’s response to the invasion.
The sanctions are choking off Russian imports and crippling the industry; car production fell more than 60% in August. According to Bloomberg, an internal government document shows that Putin’s ministers envision three scenarios that would see the economy contract again in 2023, in the worst case bottoming out in 2024, 11% below its 2021 level.
