Did Europe just shoot itself in the foot by sanctioning Russia?

YEREVAN (CoinChapter.com) — Months after the President of Russia, Vladimir Putin, warned that sanctions against his country would backfire, some countries are feeling the heat. Recent developments in the continent suggest that Europe may have shot itself in the foot.

Following the Russian invasion of Ukraine in February 2022, western powers, including the UK, US, and EU, came together to issue tough sanctions on the Kremlin.

While these steps were aimed at crippling Moscow, the country hit back with its counter-measures. As CoinChapter reported, Vladimir Putin cut gas supplies to European Countries after they refused to pay in Ruble, the official currency of Russia.

Russia also cut flows through the Nord Stream 1 pipeline to Germany. As a result, the pipeline currently operates at less than a fifth of its capacity.

Earlier this month, Putin banned investors from “unfriendly countries” from selling their shares in Russia-based companies in various industries, including banking, energy, and natural resources. 

During a conversation with Kitco News, Michael Wilkerson, founder of the American forum Stormwall, denounced the sanctions as “a political tool” that doesn’t work.

“You can look at a long history of sanctions imposed in the 20th century, or even before, if we’re going back in history, they rarely work as economic matter. They often backfire…We’re likely to see it when food shortages and rationing come…in the summer,”

 Wilkerson warned. 

It now seems his predictions are coming through. 

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Europe hit by an energy crisis

Europe’s decision to impose economic sanctions on Russia has left people under energy costs. As a result, natural gas prices have jumped to new highs. 

Reports from last month suggest that prices have jumped at least 700% since the start of 2022. As a result, European nations are now struggling to increase their gas reserves before winter. 

In desperation, the EU is now running from pillar to post to find a replacement for Russian gas. Recently, Brussels has reached out to gas producers, such as the United States, Israel, Egypt, Azerbaijan, and Qatar, to strike new deals. 

The continent is highly dependent on natural gas not only for home heating but for electricity and industrial production as well.

Food producers in Europe are left with high energy prices, with gas, coal, and electricity prices burning a hole in their pockets. As a result, consumers must pay a premium for products as higher production costs increase prices. 

To make matters worse, Russian state gas company Gazprom announced on August 16, 2022, that gas prices in Europe could increase by an additional 60%. According to the company, the continent may end up paying more than $4,000 per 1,000 cubic meters this winter.  

“European spot gas prices have reached $2,500 (per 1,000 cubic metres). According to conservative estimates, if such a tendency persists, prices will exceed $4,000 per 1,000 cubic metres this winter,” 

Gazprom said.

Outside the European Union, the United Kingdom faces a crisis. 

Citizens in the United Kingdom are up in arms. 

Increasing energy costs in the UK have ignited a grassroots-level campaign. One group, called Don’t Pay UK, threatens a bill payment strike on October 1 if it reaches one million pledges on its website. 

The date is symbolic as the Office of Gas and Electricity Markets (OFGEM) will raise the UK’s energy price cap on that day. 

At the time of writing, over 108,000 people had joined the campaign.

“It’s simple: we are demanding a reduction of energy bills to an affordable level… We are taking this action as a last resort. The government has two choices: to protect the billions in profit made by the energy generators and suppliers or to protect the people,” 

the group announced. 

The UK is not heavily dependent on Russia for natural recourses. In 2021 gas imports from Russia made up 4% of the amount used in the UK. Just 9% of the UK’s oil and 27% of its coal came from Russia. 

In contrast, gas imports from Russia to the EU made up 39% of the total amount used. Moreover, 23% of oil imports and 46% of coal imports came from Russia, according to a 2020 report by Eurostat. 

However, growing global prices have hit the UK as well. By January 2023, over 15 million people will spend over 10% of their net income on fuel, according to a report by York academics quoted by DW. This phenomenon is called ‘fuel poverty. 

As per the same report, even a £400 fuel rebate from the Government will not prevent over 80% of large families, lone parents, and pensioner couples from falling into fuel poverty.