Yulia Tseplyeva, chief economist at Sberbank, said that she is not optimistic about current Russian economic conditions and the consequences of the present political restructuring process. There is a strong possibility Russia will stay in political isolation for a long period. The long term national rating according to Moody’s is Baa1 as of March, 27th 2013, and ‘under review’ for March, 28th 2014. Fitch has changed its long term rating from BBB(Stable) to BBB(Negative) on March, 21st this year.
A lot of analysts and economists are concerned about the Russian economic condition after the annexation of Crimea because of subsequent sanctions from the EU. According to Olli Rehn, European Commission Vice President, the EU should ‘refrain’ from applying broad economic restrictions on Russia. This is certainly going to increase tension in current international relationships by nonverbally forcing European countries to take sides in the conflict. This process has been intensified by recent statements made by German Chancellor Angela Merkel, that she had hoped the restrictions would have been strong enough to prevent further escalation of the conflict.
Is it a question of treatment really?
Since Germany has played major role in declaring political and economic sanctions on Russian natural gas deliveries from EU side, let us examine a little further the numbers behind this.
As per OOO Gazprom website delivery statistics (www.gazpromexport.ru), during 2013 40.18 billion cubic meters natural gas was sold to Germany, out of total amount of 161.50 billion cubic metres export to Europe (including Turkey). Approximately 35.00% of German natural gas and oil import is from OOO Gazprom. If Germany is prepared to face consequences of Russian economic isolation, then there should be a backup plan for delivering the missing 35% of national demand. Average price for European deliveries of natural gas is slightly above $380.00 for 1 000 cubic metres, as per Gazprom export reports. Next proved natural gas reserves holders are Iran and Qatar. Qatar has 50% less reserves than Russia, and Iran – 35% less. Qatar approximate European export is 45%, and Asian – 50%. Iran sells more than 90% of natural gas to Turkey under long term contracts (25 years).
Iran would not terminate long-term contracts with Turkey. In order to face additional demand from Germany, volumes could not be delivered from local national reserves, but Iran has to become a reseller, consequently – to sell at higher cost. Qatar has not the ability to export that amount of natural gas to Germany alone. This would suggest terminating delivery contracts or reselling – again at higher cost.
So, really, is it a question of treatment?
The above simple calculations are not that thorough, but give us a brief idea of what and who is selling to whom. Consequently, the idea of cutting export from Gazprom to Germany means to Russia – redirection of export and temporary decrease in profits (OOO Gazprom delivers approximately 12% of Russian GDP), and to Germany – inability to face its own demand.