Economic planet | Variable Cost of Democracy

The question is: are we ready to pay for the Russian regime not to invade Ukraine, and then, perhaps, other European countries? In other words, how much will it cost to defend democracy?

Published March 14

Helen Baril

Helen Baril

We already know the answer. It will be very expensive. The problem is that this cost is not the same for all fighters.

If we want to avoid a third world war, economic sanctions are the only weapon left for Western countries to counter Vladimir Putin. As the Russian invasion of Ukraine began, sanctions rained down on the regime, its leaders, and their fellow oligarchs. Probably no country has been subjected to so many sanctions by so many countries.

Slowly but surely, the sanctions are undermining the Russian economy. Meanwhile, Ukraine continues to be bombed. Sanctions are like a ticking time bomb, but Russia has prepared well for war, including building up foreign exchange reserves.

Day after day, the Russian treasury continues to receive money in the form of oil and gas revenues. Europe pays 700 million euros (975 million Canadian dollars) daily and more every day because prices are rising to buy energy in Russia. Thus, the destruction of Ukraine is indirectly financed.

Hence the growing pressure on Western countries to stop buying Russian oil. Canada has already done it, the US too. For these two countries, the decision to boycott Russian oil does not matter much. In Europe, the opposite is true, where the decision to close the Russian gas valve has serious consequences. The continent’s largest economy, Germany, runs on Russian gas and oil. Some countries are 100% dependent on it.

The cost of abandoning Russian gas for most European countries is enormous. Too many to consider so far. But we may have gotten to it. Rafael Glucksmann, Member of the European Parliament, put it in those terms on Radio Canada last week: if we can bring down the global economy to fight COVID-19, we can live with the consequences of the state of emergency. raising energy prices to prevent Putin from invading first Ukraine and then other neighboring countries.

It will hurt, but this is the price of freedom and peace on the continent, this deputy believes.

Independence plan

Member states of the European Union have known for a long time that they must free themselves from Russian rule. Last week they discussed a plan to cut Russian gas imports by two-thirds this year. The plan includes a mandatory increase in stocks in all countries ahead of next winter, an increase in the production of biogas and biofuels, as well as financial assistance to consumers.

The plan mainly provides for the diversification of supplies from countries other than Russia. Norway, Algeria, the US and Qatar are being called on as these countries already have infrastructure capable of delivering liquefied natural gas. Canada’s oil and gas reserves cannot be used in the short term due to the lack of pipelines and transport terminals.

If this plan works, which is not certain, Europe will not be completely freed from Russian influence. Economists at UBS, quoted by European media, believe it will take four to five years to replace all Russian gas. It will cost even more if countries decide to turn off the Russian gas valve immediately. Rationing scenarios, like during the 1973 oil crisis, shortages and recessions are already looming on the European horizon.

The cost of energy independence will be huge for European consumers, businesses and the economy. It could also be costly for the environment in the short term, as cornered European countries delay shutting down their coal-fired power plants and could delay meeting climate change targets.

But in the medium term, Europe wants to accelerate its green transition, which is already well under way. Countries desperate for oil and gas today may find solutions tomorrow to do without them altogether.

To learn more

  • 5532
    The number of economic sanctions in force against Russia, of which 3,577 have been introduced since February 22, 2022.

    Source: Castellum.AI

Leave a Comment