There is a further twist to this story. Citigroup thinks that Russia may accelerate the swing by dumping cheap gas in Europe at irresistible prices, undercutting LNG in a bid to secure long-term market share. With winter over, Russia no longer gains political leverage from withholding gas. The incentive has reversed: it is to knock out rivals from the US and Qatar.
This scenario assumes that Germany continues to block a meaningful energy embargo at the Nato-G7-EU summit this week, with tacit acquiescence from the rest of core Europe. The German Chancellor, Olaf Scholz, says time is needed to break dependence on the Kremlin.
“To do that from one day to the next would mean plunging our country and all of Europe into a recession. Hundreds of thousands of jobs would be at risk, entire industries would be on the brink,” he told the Bundestag. That does not sound like a man ready to budge.
A gas glut is not (yet) Citigroup’s base case but it is being presented as a serious possibility. Should it happen, Britain will be spared the worst of the real income squeeze, and Rishi Sunak will get away with his contractionary austerity budget.
China’s Politburo has long fretted over the country’s Achilles Heel: dependency on seaborne supplies of foreign energy (and grains). Chinese strategists have studied Franklin Roosevelt’s oil embargo against Japan in 1941, afraid that the US might use this weapon to constrict supplies of coal, crude and gas in a future crisis.
White House sanctions policy since the invasion of Ukraine has crystallised these fears in Beijing, although Xi Jinping had already ordered officials to secure imported fuel as a national emergency, and at any price, after a string of blackouts late last year.
He told the People’s Congress this month that energy security must take priority over the climate. “We can’t be detached from reality. We can’t throw away what is feeding us now, while what will feed us has yet to arrive,” he told a key gathering known as the “Two Sessions”.
