European Energy Crisis

Tensions across Europe are escalating as a potential energy crisis is looming in the near future. In June of this year, Russia cut off all gas supplies to Ukraine, citing Ukraine's failure to payback debt. Ukraine has since been receiving gas from Hungary, Poland, and Slovakia. Hungary, however, suspended the flow of natural gas to Ukraine last Friday, intensifying the energy crisis in Ukraine.  Ukraine is dependent on natural gas to heat homes and to power industry during the rapidly approaching winter months.

The potential for a continent wide energy crisis comes from the response to the severe gas shortages in Ukraine. The controversy is over the use of reverse flows to supply Ukraine with the natural gas it desperately needs. Reverse flows are the re-exporting of Russian natural gas by other European nations. The European Union in Brussels insists that reverse flows are entirely legal and the EU intends to utilize reverse flows to supply Ukraine and the other central European nations with natural gas. Russia has a contrasting viewpoint, claiming that reverse flows are contractually forbidden amongst European Union nations.

The fear across Europe is that Russia will cut off its gas supply to any nation that re-exports their gas to Ukraine. This fear is based around comments made by the Russian Energy Minister, Alexander Novak. Novak told reporters “We hope that our European partners will stick to the agreement [and] that is the only way to ensure there are no interruptions in gas deliveries to European consumers.” These “interruptions” are already beginning to be seen in Slovakia and Poland, two nations that continue to supply Ukraine with reverse flow natural gas. Slovakia reported that the flow of Russian gas was down 25% from contracted levels. Poland has reported similar results.

This precarious situation will have a major effect on business across Europe and the world. If Ukraine, or any other nation, does not receive the amount of gas it requires, it will not be able to effectively power industry, and its economy will suffer.  Additionally, there is the potential for the European Union to enforce more sanctions against Russia. New sanctions could stretch into the natural gas and energy industry, an industry that the European Union has intentionally tried to avoid in their sanctions.