Maintenance work on Nord Stream 1 has started. At the start, politicians once again reiterated their fears that Russia would then no longer deliver natural gas through the Baltic Sea pipeline. However, such a means of political pressure would also cost them dearly.

On a normal day, around 150 million cubic meters of gas flow through the Nord Stream 1 Baltic Sea pipeline from Vyborg in Russia near the Finnish border to Lubmin near Greifswald in Mecklenburg-Western Pomerania. Because of a defective turbine, the Russian operator Gazprom had already reduced this amount to around 100 million cubic meters in mid-June, and now it’s going down to 0. The ten-day maintenance work on the pipeline, which is around 1,224 kilometers long, begins today.

There is fear in the West that Russia could use the scheduled work as an excuse to stop delivering natural gas to Germany through Nord Stream 1. That would cost our country 70 percent of Russian gas imports in one fell swoop. “Regular maintenance could turn into longer-lasting political maintenance,” says Klaus Müller, head of the Federal Network Agency, at the beginning of July. Federal Minister of Economics Robert Habeck (Greens) confirmed this when he said that as of today there is a threat of a “blockade of Nord Stream 1”. He said on Deutschlandfunk today, as did French Finance Minister Bruno Le Maire, that both countries were preparing for a “nightmare scenario”.

But how hard Germany and Europe would be if Nord Stream 1 stopped supplying natural gas is only one side of the coin. If we no longer get natural gas from Russia, Russia will not get any money for its natural gas from Germany. The Kremlin would have to calculate a complete halt to deliveries beforehand, because it won’t be cheap for Russia either.

Previous US embargoes on Russian raw materials and supply stops or reductions to Germany, Poland and Bulgaria were not a major problem for the Russian state budget. In a study at the beginning of June, the “Center for Research on Energy and Clean Air” (CREA) from Finland found that Russia suffered hardly any losses in income from the export of oil, natural gas and coal in the first 100 days of the Ukraine war had to. On the contrary: by 930 million euros per day, income even increased compared to the previous year.

This is due to the fact that although the exported volumes fell as a result of sanctions and political decisions in Europe, the prices for oil and natural gas rose enormously. At the beginning of June, Brent crude oil from the North Sea cost almost 70 percent more on the world market than a year earlier. Gas prices at the Dutch trading point TTF, which is important for Europe, have even risen by almost 400 percent per megawatt hour since the previous year. In addition, lower sales to Europe were partially offset by increased sales in China and India. China is now the largest importer of Russian oil, natural gas and coal, ahead of Germany.

But: This trend will not continue like this. A blocking of Nord Stream 1 will be clearly noticed in Russia’s wallet. There are mutliple reasons for this.

That sounds banal, but it has important implications for sales. Crude oil from Russia is mostly shipped to the buyer countries via tankers. That gives Russia some flexibility. If Europe no longer wants to buy Russian oil, the tankers can simply go to China, India, Southeast Asia, theoretically also to Africa or South America. Although this increases transport costs, this can be compensated for with discounts on the price of oil.

With natural gas the situation is different. Liquefied natural gas (“LNG”) shipped via tankers accounts for a very small part of Russia’s exports. Most natural gas is transported to the consumer countries via pipelines such as Nord Stream 1. There are also such pipelines to China, for example, but their capacity is already at the limit. So Russia cannot simply divert gas supplies intended for Nord Stream 1 to other countries.

If the Kremlin blocks Nord Stream 1, it will lose daily income for the sale of 150 million cubic meters of natural gas. At the current market price, that would be around 246 million euros a day. Such a blockade would cost Russia around 7.4 billion euros per month.

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The prices for raw materials such as oil and natural gas, with which Russia generates around half of its government revenue, have long stopped rising everywhere. This is mainly due to the fact that demand has fallen. Analysts are now assuming that Europe, the USA and even China could fall into recession. Even if this negative scenario does not materialize, the global economy will not grow as strongly as expected this year. Less economic growth is expressed in lower production of goods, which then also requires fewer raw materials.

Since resources such as oil and natural gas are traded on exchanges in futures contracts, where buyers and sellers agree a price today for delivery a few months from now, these changes are already being felt. In the US, the price of natural gas has fallen 32 percent since it last peaked about a month ago. In Europe it went up by almost 100 percent due to the blockade fear, but the prices here are also well below the values ​​that were reached in early March shortly after the start of the Ukraine war. If Russia were not to reduce its deliveries through Nord Stream 1, it would still have a drop in income of around 2.8 billion euros per month compared to March.

The US has already imposed an embargo on Russian oil and gas, the EU will follow at least on oil in January. A natural gas embargo is not in sight because the raw material cannot currently be replaced in Europe. But at the most recent G7 summit, the heads of state of the most important industrialized countries in Europe and North America, as well as Japan, at least discussed the idea of ​​capping Russian gas prices. The West could also set global maximum prices for oil, which Asian buyer countries such as China and India would then have to adhere to.

That would be enforceable for two reasons: First, as shown above, Russia sells most of its natural gas to Europe via pipelines. Asian pipelines would be the only factor that the G7 countries could not control. But they have global shipping under control. There is hardly a tanker that transports Russian liquid gas or oil all over the world that is Russian. In its study, Crea analyzed that in April and May, 68 percent of all tankers that shipped Russian oil belonged either to shipping companies in the EU, Great Britain or Norway. Greece accounts for the largest share at 43 percent. In the case of oil deliveries to India and the Middle East, the proportion is as high as 80 percent.

Even worse: 97 percent of all tankers transporting Russian raw materials are insured in just three countries – the USA, Norway or Sweden. In addition, most of the insurance policies run through the financial center in London. Western governments could easily intervene here. Although they cannot dictate to Russia who the country sells oil and gas at what price, they can dictate to the shipping companies and insurance companies registered in their countries who they can do business with and on what terms.

So the blockage of a major pipeline like Nord Stream 1 could result in fatal retaliation from the West. The financial damage that Russia would suffer from this cannot yet be quantified.

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