Prolonged Russian Gas Cutoff Becomes Reality... Europe Trembles in Fear

Russia Declares Termination of Gazprom Supply Contract... High Dependency German Steel and Chemical Industries in Emergency
German GDP Expected to Decline by 6% by End of Next Year... EU Also Anticipates Up to 1.5%P Decrease

[Photo by EPA Yonhap News]

[Asia Economy Reporter Park Byung-hee] Russian state-owned gas company Gazprom declared a 'force majeure' to some European gas companies on the 14th (local time), Bloomberg reported on the 18th (local time).

Bloomberg explained that force majeure is a legal term applied to supply, declared by companies unable to fulfill supply contracts due to unforeseen natural disasters or other events. It means that gas supply cannot be guaranteed.

On the 11th, Russia shut down the Nord Stream 1 gas pipeline connecting Russia and Germany for scheduled maintenance. Concerns that Russia might use this as an excuse to cut off gas supply have become a reality. The scheduled maintenance was originally planned until the 21st, but according to officials, Gazprom did not specify the end date of the force majeure in the letter. German energy companies Uniper and RWE are reported to have received force majeure notifications from Gazprom.

Concerns over a European energy crisis have intensified. The German industrial sector, which heavily depends on Russian gas, is now on high alert. Steel and chemical plants are expected to be severely impacted.

A representative from ThyssenKrupp, Germany's largest steel company, told the UK Financial Times that if gas supply is cut off, there is no alternative but to stop operating blast furnaces. BASF, the world's largest chemical company based in Germany, stated that even if gas supply is reduced to half of the usual amount, it would have to reduce operations of chemical decomposition facilities. Fertilizer plants that use natural gas as a primary raw material may also have to halt production.

According to the German Chemical Industry Association (VCI), only about 2-3% of German chemical companies can substitute gas with coal or oil in case of gas shortages.

Swiss investment bank UBS estimated that if gas supply is cut off, the German economy would fall into a deep recession, with Germany's gross domestic product (GDP) potentially decreasing by 6% by the end of next year. The German central bank, Bundesbank, warned that global supply chain shocks could increase by about 2.5 times.

Serious economic recession is also feared across Europe. The European Commission plans to release a report analyzing the impact of the Russian gas supply cut on the 20th. According to the draft, if Russian gas supply is cut off and no alternatives are found before winter, the EU's GDP is expected to decrease by 0.6 to 1.0 percentage points. If the winter is colder than usual, the EU estimates the GDP decline could reach up to 1.5%.

This content was produced with the assistance of AI translation services.