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© . FILE PHOTO: Wintershall DEA pump jacks are pictured in Emlichheim near the northern German city of Meppen, Germany, March 9, 2022. REUTERS/Fabian Bimmer
By Francesco Canepa FRANKFURT () – As Russia threatens to cut off supplies of vital gas and oil, European governments are vacuuming rationing plans that evoke memories of the 1973 energy crisis. Are Europeans standing on car-free Sundays, lights dimmed and what felt like government imposed bedtime, as TV broadcasts ended early – last seen at the time of the Arab embargo? Probably not because that, and more recent events, show that companies are adapting quickly, meaning that the impact on euro area economic output could be less than 1% by some estimates. And governments have also learned that imposing austerity measures such as fuel rationing at the pump will yield little if the public doesn’t support them. So they’ll likely go for something a little more consensual, like getting households to turn down their thermostats or slow down the accelerator. Still, choosing which industries to cut their energy supplies will be a thorny political decision, forcing governments to resort to the kind of ruthlessness normally reserved for wartime. DETTEN FOR GROWTH MAY BE SMALL While Europe could almost replace its Russian crude oil imports with other sources, it is unlikely to be able to do so with gas in the near term. This means gas rationing is certain if Russia turns off the taps in retaliation for sweeping economic sanctions. But economists estimate the damage to economic growth will be small. The European Central Bank estimates a 10% cut in energy supply for European companies will hit about 0.7% of the euro area’s gross value added, a measure of goods and services produced in the bloc. This is in line with precedents both in Britain during the 1970s embargo and in Japan after the 2011 Fukushima nuclear disaster. Europe’s service-oriented economies are also likely to come out lighter than production-heavy China as it moves through his own crisis of power went on last year. “Previous periods of energy rationing have not been as damaging as one might expect and companies are adept at achieving significant efficiency gains when needed,” Capital Economics wrote. For example, pork exporter Danish Crown has started equipping some gas-fired production facilities with diesel and sales of diesel generators in Denmark increased by 300-400% in March. Even for Germany, the western European country most dependent on Russian energy, the impact of an 8% cut in oil, gas and coal consumption would cut GDP by 1.4%, according to a paper from the United States. ECONtribute network of economists. Of course, there are more pessimistic scenarios. Nomisma Energia estimates that the Italian economy, which also depends on Russia for its energy, would suffer a 5.6% blow if gas supplies from Russia fell by about half, assuming there were some efficiency gains, but not would be switched to alternative sources. RATIONATION DOESN’T WORK WITHOUT GOVERNMENT SUPPORT Current rationing strategies are primarily designed to save households and focus all the pain on businesses, starting with those who can switch to other energy sources. This is an important lesson we learned from the 1970s. The two European countries that imposed fuel rationing for the population – Sweden and the Netherlands – had to change course quickly because of public reactions. Instead, most governments at the time allowed fuel prices to rise, which automatically lowered demand. And they focused on measures that the population saw as fairer, such as lower speed limits and more frequent public transport. “Can rationing work? It depends on the public’s willingness to support it,” said Alan Pisarski, who helped shape the US strategy to tackle the 1973 oil embargo. He said Europe should focus on convincing people to turn down their heating – a campaign that is already underway in some countries. WAR ECONOMY Even listing which industries need fuel the longest, as the German government is doing, can be politically difficult, history shows. When the oil embargo hit the United States, senators from the mountainous states of Colorado and New Hampshire fought back the idea of turning off lifts at ski resorts and tried to divert attention from the energy used in greenhouses for the floriculture, Pisarski recalls. In Germany, chemical group BASF has already warned of a “complete shutdown” if supplies are reduced to less than half of current needs. Ultimately, industries that require heat as part of their manufacturing process, such as makers of chemicals, metals, glass and paper, are likely to be prioritized. Those with interruptible contracts will likely be the first to experience supply shutdowns and may even have to cut their workweek, as happened in China during last year’s rationing. “The rationing required for an immediate embargo would in principle be comparable to the allocation mechanism of a war economy,” Kirsten Westphal, a member of the German Institute for International and Security Affairs advising the government, said in an interview with the Clean Energy Wire. https://www.cleanenergywire.org/news/russian-energy-embargo-would-force-drastic-rationing-decisions-security-expert. (Additional coverage Gavin Jones in Rome, Ludwig Buerger in Frankfurt and Stine Jacobsen in Copenhagen; edited by Mark Potter)