Russia holds Europe’s natural gas supply “hostage”

All financial eyes are on the Nord Stream 1 pipeline — Europe’s largest gas import infrastructure. Russia has the pipeline “hostage,” and one event’s outcome in seven days could send Europe into crisis mode…

All eyes are on the Nord Stream 1 pipeline, Europe’s largest gas import infrastructure.

The pipeline carries gas from Russia to Germany and is being used as a bargaining chip in the Russian/Ukraine war.

How important is it? Over 55 billion cubic meters (bcm) of gas flows through the pipeline each year (~35% of the European Union’s 155 bcm of natural gas imported in 2021).

• On Monday, the pipeline was shut down for maintenance — scheduled to be restarted on July 21. But everyone is afraid that Russia won’t turn the pipelines back on.
• A suspension could lead to skyrocketing gas prices and major gas shortages — a nightmare scenario with Russian gas flows already reduced by 60% in recent months.

Per Liberum Capital Head of Strategy Joachim Klement, “there simply is no substitute available for Russian gas” (BBG).

Mild doomsday scenario: The outcome in seven days could send Europe into crisis. Here’s one scenario if Russia stops gas deliveries per UBS Group economists:

• European stocks fall 20%.
• The Euro falls below 90 cents.

They emphasized that these are “rough approximations and by no means as a worse-case scenario.”

Many investors believe Russia will turn the pipes back on, but Germany’s energy regulator isn’t ruling out a scenario where the gas imports aren’t resumed (CNBC).

Mind games: Per Bloomberg’s energy and commodities columnist Javier Blas, Russia may want to keep some gas flowing for bargaining chips.