Economists: Russian gas cutoff could hurt Europe

Russia’s suspension of natural gas service to Poland and Bulgaria will not do immediate damage to the European economy, but Europe could face a sharp slowdown of growth if the cutoff spreads to other countries — or if Europe imposes an embargo on Russian gas, economists said.

Russia’s war on Ukraine is already rippling through Europe, lashing energy prices and hurting manufacturers just as the bloc was recovering from a pandemic-induced recession.

The International Monetary Fund last week cut its 2022 growth forecast for the countries that use the euro to 2.8%, from a 3.9% estimate in January, with Germany, the largest economy, taking a big hit.

The euro fell Wednesday below $1.06 for the first time in five years on rising concerns about energy security and a slowdown in European growth. The currency has slumped nearly 4% against the U.S. dollar in April alone.

The action this week by Gazprom, Russia’s oil monopoly, to turn off the gas taps to two European Union nations was unlikely to tip Europe into a fresh recession immediately. This is in part because Europe “still has many diplomatic and fiscal policy responses available” to combat one, said Mark Haefele, chief investment officer at UBS, in a note to clients.

But the specter of an outright energy war — including a potential European embargo on Russian gas and oil — is looming at a vulnerable time. European companies are already facing higher energy costs, which are threatening profit margins and squeezing consumers’ purchasing power.

The EU has been drafting plans for an embargo on Russian oil but made no mention of it in the hours after Gazprom’s cutoff.