Energy reports
Scenario analysis of the economic and social consequences of energy sanctions between the European Union and Russia. Consequences have been profound, causing heavy losses on both sides, though Russia is hit hardest. As geopolitical tensions escalated, the EU moved to reduce its reliance on Russian energy, triggering a sharp restructuring of trade flows, inflationary pressures, and economic instability. Using a global multi-region comparative static CGE model, the study examines the extent of these disruptions, revealing that a full energy trade ban could result in a 2.895% drop in global GDP. The European Union faces a contraction between 0.099% and 1.488%, while Russia’s economy could shrink by up to 4.8%. The total loss in global welfare is projected to reach $40,860.18 million, underlining the widespread impact.
The shift in energy trade is dramatic. With Russia excluded from European markets, the EU turns to alternative suppliers, including the United States and OPEC countries, though at higher costs and logistical difficulties. Meanwhile, Russia pivots toward China and India, but these new trade flows fail to fully offset the decline in European demand. Sanctions also fuel inflation, particularly in the EU, where electricity prices have surged by as much as 10.12%, straining households and businesses alike. Russia, while experiencing a drop in domestic energy prices, faces an economic downturn driven by the collapse of trade revenues.
The energy crisis also reshapes industrial output and social welfare. The EU’s energy-intensive sectors suffer, while a growing reliance on coal threatens its climate policies. In Russia, restricted exports lead to an increase in domestic industrial production, particularly in energy-intensive manufacturing, as the country redirects its resources inward. Despite these shifts, neither side escapes unscathed. The study suggests that rather than weakening only one party, the sanctions have fractured economic stability on both sides, forcing a costly and uncertain reconfiguration of global energy markets. While Russia seeks new buyers and the EU scrambles for supply alternatives, the long-term effects of this energy standoff will continue unfolding far beyond the immediate conflict.
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