Tensions are rising between the United States and European countries and Russia over concerns that Russia will invade Ukraine, while economic calculations make it very difficult for the United States and European countries to take a common and tough stance against Russia.
According to an analysis by Ben Holland and Anya Andrianova published in Bloomberg, economic figures show that Russia is the fifth largest trading partner and largest energy exporter of the European Union (EU).
The United States ranks 30th on the list of energy exporters to the EU.
Russia has also become an important destination for investments by major European companies such as IKEA, Carlsberg and Volkswagen.
With inflation rising and energy prices squeezing consumers, EU officials are moving cautiously on sanctions.
Europeans want to take steps that would harm Russia rather than their own countries to prevent a possible Russian invasion of Ukraine.
Europeans are also concerned that in the event of any war, much-needed Russian gas supplies will be cut off this winter.
“European energy prices are a big concern,” said Timothy Ash, strategist at London-based Bluebay Asset Management.
Ash suggested that Russian President Vladimir Putin wants to scare Europeans about gas supplies this winter, saying, “So he wants them not to take any steps if he heads to Ukraine.”
At the same time, there is a widespread feeling among Europeans that their own economies, not the U.S. economy, are paying the price for Western sanctions imposed after Russia’s annexation of Crimea in 2014.
US President Joe Biden says Russia’s invasion of Ukraine is imminent, while EU leaders such as French President Emmanuel Macron are playing with time in this crisis.
German Foreign Minister Annalena Baerbock said last week, “Sanctions have the best effect if they are sufficient. Sanctions really need to affect Russia, not us.”
In contrast, Viktor Szabo, a fund manager at London-based Aberdeen Asset Management, said that “Russia is well prepared to deal with any sanctions in order to isolate itself from any steps that the United States can take.”
Szabo added that it would be difficult to impose sanctions that would make Russia feel the hardship that European countries will feel, and that those sanctions would not force Russia to back down in the Ukraine crisis.
Jamie Roach, Chief European Economist at Bloomberg Economics, said: “Europe is on its own when it comes to the price consumers pay for natural gas. According to our estimates, if the crisis continues for another year due to the increase in energy prices, the eurozone economy will lose about 1 percent of its gross domestic product (GDP).”
The issue of energy is the biggest point of contention between the UNITED States and the EU over Russia. While the UNITED States is an energy exporter, the EU is dependent on imports. Russia is the largest exporter of both oil and gas to the EU.
JPMorgan Chase&Co. Economists warned friday that raising the price of oil to $150 per barrel would boost growth and inflation.
Analysts at Goldman Sachs Group, the American investment bank, expect europe’s gas shortage crisis to continue next summer or even until 2025.
The bank stressed in a report that the severe imbalance in gas supplies in Europe that led to higher energy prices late last year has reached historic levels.
This has also led to the destruction of industrial energy demand, which could be repeated in the next few years, according to the report.
Therefore, the escalation of the conflict with Russia through Ukraine can lead to a worsening of the situation.
European officials find themselves in a very difficult predicament.
As Europe’s local gas production declines, Russia is expanding production and building facilities to pump additional amounts of gas into Europe.
European partners such as Russian energy company Gazprom and Shell have spent 9.5 billion euros ($10.8 billion) to complete the North Stream 2 pipeline and want to open it.
This pipeline is now ready to operate, but on the one hand, political differences between Russia and the West, on the other hand, some procedural problems are delaying the commissioning of the line.
Capital Economics analyst William Jackson said, “Whether Western sanctions are imposed on Russia’s energy exports or Russia uses gas exports to respond to sanctions, all kinds of gas prices will rise. We believe that prices will exceed the record levels set last year.”
Such sanctions against Russia, on the other hand, will benefit US liquefied natural gas (LNG) exporters who want to increase their exports to Europe and cannot compete with Russian exports under normal circumstances.
Europe, along with the United States, has been hit hardest by sanctions against Russia following its annexation of Crimea in 2014.
Three years after the implementation of these sanctions, Russia has been hit hard by the sanctions, while the economies of Germany and other European countries have also suffered, according to a study by the Kiel Institute for World Economics. The United States, on the other hand, has not lost much as a result of these sanctions.
According to Tom Keatinge, head of the Centre for Financial Crime and Security Studies at the Royal United Services Institute based in London, politicians in the US and Europe pride themselves on their ability to inflict serious economic damage on Russia, while at the same time staying silent about the damage it will cause in Europe and the US.