Moody’s estimates that Europe imports 46% of its solid fuels (such as coal), 38% of its natural gas and 26% of its oil from Russia, stressing that in the event of a Russian invasion of Ukraine sanctions from the West and retaliation from Russia, Europe will not remain unaffected by its high energy dependence on Russian exports.
Greece is highly dependent on Russian energy exports, but it is not affected by tensions in Ukraine on the trade or security front, and is therefore one of the least at-risk countries in Moody’s.
Moody’s basic scenario wants tensions between Ukraine and Russia not to eventually escalate into a military conflict. This means, according to the house, that the risk of substantial pressure on the credit ratings of European countries is low, unless there is a conflict that will last for a long time or escalate into a war that will extend beyond Ukraine.
In any case, the main channel through which European economies and ratings are affected is that of energy, with Moody’s also identifying risks of trade disruption but also security risks, mainly in the form of cyber attacks.
The Baltic and CE countries are the most exposed to these three channels, while Austria, Italy and Greece, on the other hand, are vulnerable to energy security risks, mainly due to their high dependence on Russian gas. .
Greece
In particular, oil and gas are equivalent to at least 75% of the total energy supply in Greece (in Austria, for example, high percentages of renewable energy sources reduce the relative dependence).
Greece imports 82% of the total energy it consumes, according to Moody’s. Russia also supplies 26% of the oil and 39% of the natural gas imported to Greece.
LNG terminals and easier access to other suppliers from South Africa reduce the risk somewhat, Moody’s analysts note.
In contrast, while energy exposure is high, exposure through trade is limited. Moody’s considers very low the risk that Greece will face a security threat that will negatively affect its credit rating, mainly due to its geographical location.
The dangers for Europe
Moody’s warns of significant implications if Russia decides to cut energy supplies, as a lever of political pressure or in response to possible European sanctions.
Potential damage to infrastructure is another risk, as most of Russia’s gas reaches the EU through pipelines passing through Ukraine.
The disruption of gas supplies will cause a significant but temporary weakening of the European economy, as it is a critical fuel for electricity generation and household heating.
In addition, Russian gas can not be replaced easily and quickly, as Moody’s points out, since the total capacity of European LNG terminals covers at best only a quarter of total demand.
“Although a complete cessation of Russian energy supplies is unlikely, even a relatively short cut in gas supplies would likely lead to a further rise in energy prices, which have already skyrocketed in recent months, triggering an explosion in inflation and further strengthening more production costs in industry “, the analysts explain.
A further escalation of inflationary pressures could also intensify pressure on the ECB to tighten monetary policy. On the other hand, it would burden public finances, forcing governments to implement additional measures to support households and businesses.
moneyreview
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