By Dan DeLuce -
NBC News
The United States is threatening harsh sanctions against Russia if it launches an attack on Ukraine, but Moscow could strike back at the West by blocking natural gas supplies to Europe or causing oil prices to spike, experts and former US officials say.
The Joe Biden administration says it is holding talks with European gas companies and governments to prepare for possible Russian attempts to cut off the flow of natural gas to Europe, but it is unclear whether Washington and its allies could lessen the consequences of a retaliation by Russia, former officials and industry experts said.
A brief outage could be managed on a limited scale, though
natural gas prices would rise further
and governments would have to help subsidize the effort, analysts said.
However, a major gas supply outage over an extended period could have
devastating consequences
.
[Relatives of US Soldiers Prepare for Deployment to Eastern Europe Due to Russian Threat Against Ukraine]
Russian President Vladimir Putin in Moscow, Russia, Tuesday, January 25, 2022. Sputnik, Kremlin Pool Photo via AP
"It could be very, very difficult for companies or countries to find enough supply to close a very large gap," said Kevin Book, managing director of ClearView Energy Partners.
"Russia may create a bigger hole in supply than the West can plug," Book said.
"That's just a matter of particles and math," she noted.
The potential economic confrontation between Moscow and Washington represents uncharted territory, as the United States has never imposed drastic sanctions on an economy of Russia's size and importance.
And if faced with unprecedented sanctions,
Russia is likely to choose to respond in an unprecedented way
that could have a ripple effect on the US economy and around the world, experts said.
[Half of Ukrainians believe a Russian attack is imminent]
“The Kremlin has significant capacity to retaliate heavily,” said Adam Smith, who was a top sanctions official in the Obama administration and is now a partner at the Gibson Dunn law firm.
If the United States imposes the sweeping sanctions it has threatened,
China will be watching closely
.
"This Russia case will really test the ability of Western powers to use sanctions against great powers," Smith said.
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Imposing sanctions on some of the major Russian commercial banks or restricting Russia's access to bond markets (measures the administration is considering) could cause some collateral damage to Western companies or investors, and the Biden Administration is looking at how to create exceptions to soften harmful effects, former officials said.
In response to US sanctions, Russia could also orchestrate
a campaign of cyber hacking and ransomware attacks
that could disrupt Western markets and industries, experts say.
But
the most serious pushback
from a US sanctions package against Russia would surely come in the energy sector, where Russia is a global player with market-moving resources, experts said.
[5 Reasons Russia Might Invade Ukraine and Why the US Is Involved]
Despite attempts to bring about change by the US and Eastern European governments over the years, the European continent remains dependent on Russian gas.
Moscow is Europe's main supplier,
providing around 40% of the gas consumed by the continent.
It also provides more than half of Europe's coal and is a leading supplier of crude oil.
Germany is in an even more difficult situation: it relies on Russia for more than 50% of its gas, and Russia's state-owned energy giant Gazprom owns many of Germany's underground storage sites.
European governments have tried to switch to greener energy sources and their own oil and gas production has declined.
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Europe uses about 400 billion to 500 billion cubic meters of gas a year, and Russia provides about 130 billion to 170 billion cubic meters to Europe annually, and
a third of that moves through pipelines in Ukraine
.
If Russia were to restrict gas supplies, European countries could try to make up the difference in liquefied natural gas shipments from the US and the Middle East.
Experts say that if Russia were to cut off gas supplies entirely, a drastic and unlikely move, there would not be enough liquefied natural gas available on the world market to make up the difference.
If Russia were to cut off the roughly 40 billion cubic meters of gas flowing through Ukraine, it would be a challenge to make up the shortfall through shipments of liquefied natural gas or other energy sources.
But making up the shortfall would also have consequences:
Gasoline prices would rise further
and governments would have to subsidize the effort, experts said.
About two-thirds of the world's liquefied natural gas load is already under contract, and governments may have to cover the cost of companies breaking contracts to divert it to Europe from other markets, they added.
Europe's capacity to receive natural gas shipments is also limited, and it would be difficult to accommodate a major increase in deliveries depending on how much gas is needed to make up the shortfall.
US officials have been in talks with Qatar, one of the world's biggest exporters of liquefied natural gas, to see if it could help cushion the blow of reduced supplies.
But Qatar is already producing at full capacity and most of its shipments are en route to Asia under long-term contracts, Bloomberg News reported.
Russia has cut off gas supplies before, but
only briefly during disputes with Ukraine
.
In 2009, the gas supply was closed for almost two weeks in winter, forcing Slovakia and some Balkan countries to ration gas and cut electricity supply.
If Russia makes a major cut in gas deliveries, European countries would have to consider rationing and governments would have to decide how much gas and energy resources they are willing to share with their neighbors.
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After
Russia invaded Ukraine in 2014 and seized the Crimean peninsula
, the Barack Obama Administration chose to avoid large-scale sanctions against Moscow, in part due to fears that Russia might wage economic warfare of its own by exploiting vast oil and gas reserves, according to former officials.
But Biden Administration officials say they are confident that natural gas producers will be able to ramp up production to help offset any Russian attempts to cut supply.
"To ensure that Europe can get through the winter and spring, we hope to be prepared to secure alternative supplies that cover a large majority of the potential shortfall," a senior administration official told reporters on Tuesday.
The official noted that Russia has already halved the usual level of gas supply flowing to Europe through Ukraine.
The official's comments are "
a way of sending a message to Putin: We know what he might do and we're prepared for it
," said Dan Fried, a former career diplomat who crafted the sanctions policy and now works at the Atlantic Council. , an American institute dedicated to international politics.
The United States has had to come to terms with the harsh reality that introducing forceful financial sanctions against Russia carries risks, but sacrifices are needed to deter Moscow, Fried said.
"Your risk tolerance has to increase when you talk about a ground war in Europe," he said.
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As one of the world's largest oil producers, Russia could also slow oil production and cause oil prices to rise, a step that could exacerbate inflation in the world economy and
increase gasoline prices for Americans.
.
Oil is Russia's most lucrative export, and Moscow would have to weigh the consequences of any production cuts.
US officials argue that although Europe is heavily dependent on Russian gas, Moscow also needs the revenue from gas sales and that cutting off gas shipments would hurt its own financial position.
[US Sends “Lethal Aid” To Ukraine Amid Rising Tensions With Russia]
The senior administration official said that "if Russia decides to weaponize its supply of natural gas or crude oil,
it would not be without consequences for the Russian economy
."
"Remember, this is a one-dimensional economy, and that means it needs oil and gas revenues at least as much as Europe needs its energy supply," the official said.