Energy

What Happens To Gas Supply If Russia Goes Broke?

Old_car_2Russia has begun to ship gas to Europe through the Ukraine again. The dispute over whether Ukraine firm Naftogaz was siphoning fuel is now over, at least for now.

Russia faces a significant threat to its economy, one that is making the country progressively more poor with each passing day. With the price of oil falling, the value of the nation’s most valuable export is evaporating. The Russian government is having to provide financial aid to large companies inside the country, but it is not clear how long that will last. The government’s financial reserve are not endless.

What happens when Russia is essentially broke? Its only international leverage is its exports of oil and gas. The international markets have plenty of options to buy crude. Europe has no realistic options to get gas from alternative sources.

If Russia falls into a deep recession, the gas supply into Europe is going to bring a much higher price. Russia has shown it has the ability to cut it off and that gives it the ability to ask unreasonable compensation.

Douglas A. McIntyre

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