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‘An unprecedented situation’: How would a gas embargo impact Austria?

As the war in Ukraine continues, it is expected that imports of Russian energy will be targeted next by EU sanctions. What could it mean for Austria?

The French government has published guidelines on what to do if you are struggling to pay your energy bills.
The Italian government is expected to extend funding for energy bills and discounts on fuel taxes. Photo by Ina FASSBENDER / AFP

EU leaders are currently discussing possible new sanctions on Russian oil and gas in response to Russia’s invasion and subsequent war in Ukraine.

But while most EU countries are united in their condemnation of the war and support of sanctions, cracks are starting to show when it comes to a possible embargo on the import of Russian gas.

Austria has been very vocal about its opposition to sanctions on Russian energy – mostly because Russian gas imports account for 80 percent of Austria’s entire gas consumption. 

Germany is also hesitant to support such a move as the country depends on Russian gas for around 50 percent of its total supply.

In the meantime, economic experts are trying to predict the impact of sanctions on economies within the EU – something that is not easy due to the unprecedented nature of the situation. 

Here’s what it could mean for Austria.

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What would an embargo on Russian gas mean for the economy?

A recent report by the Conseil d’analyse économique (CAE) – an economic research institute for the French government – states the economic impact of sanctions on Russian gas would lead to a decline of 0.15 to 0.3 percent on gross national income in France. 

France currently sources around 20 percent of its gas supply from Russia.

According to the CAE, the impact on Germany would be higher at 0.3 percent at the lower level, but possibly up to 3 percent. This is related to Germany’s higher dependency on Russian gas compared to France.

The report further states that economies in Lithuania, Bulgaria, Slovakia, Finland and the Czech Republic could see national income drop between one and five percent. This is due to a high reliance on Russian gas imports within these countries.

Austria is not mentioned in the report but to provide a comparison, Slovakia currently sources 85 percent of all gas from Russia – just five percentage points higher than Austria.

Michael Landesmann, Senior Researcher at the Vienna Institute for International Economic Studies (WIIW), told The Local: “There is not an equivalent study for Austria yet so we are a bit in the dark, but so are other modellers. It’s an unprecedented situation.”

However, Landesmann added: “​​If there was a study in Austria, it would show a similar impact to Germany, but there could be some flexibility of supply in Austria and room for negotiation because it’s a smaller country than Germany.”

READ MORE: ‘Gas and blackmail’: How Russia reported the Austrian Chancellor’s visit

Additionally, he said there are different ways that EU sanctions could be implemented to lessen the impacts and to avoid a permanent stop to the supply of Russian gas. 

Landesmann, who is also a Professor of Economics at Johannes Kepler University Linz, said: “We could possibly stop gas imports for three months. This could have a significant economic impact on Russia, and it would be a diplomatic gesture. 

“This approach would require the skilful use of existing resources and a redistribution of gas to the most important needs. But if you move industries into temporary short-time work, like in the Covid crisis, it’s not the end of the world.”

Landesmann believes the coming warmer months could be the right time to place temporary restrictions on the import of Russian gas and stressed the biggest impact on households would be a rise in prices, which could then be offset with subsidies.

He said: “We are still far away from winter, so the issue is how we use the months in between.”

But if such an approach was taken by the EU, the big question is whether Russia’s President Vladimir Putin would then be prepared to return to previous supply levels later in the year.

Landesmann said: “Of course, the whole thing would depend on the reaction of Russia, but it would be irrational of Russia to stop all gas supplies due to the economic impact [in Russia].” 

Prior to Russia’s invasion of Ukraine, Elisabeth Christen, Senior Economist at the Austrian Institute of Economic Research (Wifo), told The Local that while the EU is dependent on gas supplies from Russia, it is a “mutual dependency”. 

READ ALSO: Ukraine: What does the government’s ‘gas alert’ mean for Austria?

Which Austrian industries would be most impacted by an embargo? 

Industries in Austria with a high reliance on natural gas include chemical, agriculture, pharmaceutical (although this sector is smaller than in Germany) and steel.

This means an embargo on Russian gas would hit these industries harder than others, but Landesmann believes there are ways to mitigate the impacts.

He told The Local: “An embargo would involve a lot of changes for these industries and there could be job stoppages involved, but we know how to deal with this from the Covid crisis. We can keep people employed without them actually working.”

According to Landesmann, another possible solution could be an EU-wide initiative to redistribute the supply of gas across the bloc, which would reduce the impact on countries most impacted by an embargo.

However, as there would be less gas flowing into the country, there would still be some tough decisions to be made about which industries in Austria to prioritise with a limited gas supply.

What action has Austria already taken in response to the crisis?

The Austrian federal government has already activated the country’s gas alert system, placing Austria on level one of the three-tiered emergency plan.

The emergency plan was activated after Russia announced that future gas deliveries can only be paid for with Rubles as a consequence of international sanctions resulting from Russia’s invasion of Ukraine. 

So far, the supply of gas from Russia to EU countries has not been interrupted and contracts are still being fulfilled.

The Austrian Federal Government has also brought in a new gas storage law to ensure the country has a back up supply of 12.6 terawatt hours of gas. According to the Wiener Zeitung, this is equivalent to the average consumption of gas during a cold winter month in Austria.

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Russia suspends gas to Italy after ‘problem’ in Austria

Russia's Gazprom has suspended gas deliveries to Italy's Eni, blaming a transport problem in Austria, the Italian energy giant said on Saturday.

Russia suspends gas to Italy after 'problem' in Austria

“Gazprom told us that it was not able to confirm the delivery of the volumes demanded for today, citing the impossibility of gas transport through Austria,” Eni said in a statement.

As a result, “Russian gas flows to Eni via the Tarvisio entry point will be naught”, it said.

In a statement published on Telegram, Gazprom said the problem was due to regulatory changes in Austria that took place at the end of September and that it was working with Italian customers to resolve the issue.

According to Gazprom, the Austrian gas grid operator had refused to confirm the transport nominations.

In Austria, regulatory authority E-Control said the new rules, which entered into force on Saturday, had been “known to all market actors for months”.

It said it expected “all to conform and take the necessary measures to fulfil their obligations”.

The problems were related to “contractual details” linked to the transit of gas towards Italy, it said on Twitter, adding in response to a tweeted question that this currently had “no effect” on users in Austria.

Most of Russian gas delivered to Italy passes via Ukraine through the Trans Austria Gas Pipeline (TAG), to Tarvisio in northern Italy on the border with Austria.

Before the war in Ukraine, Italy imported 95 percent of the gas it consumes — about 45 percent of which came from Russia.

Outgoing Prime Minister Mario Draghi has signed new deals with other gas producers to reduce Italy’s reliance on Russia, lowered to 25 percent as of June, while accelerating a shift towards renewable energies.