Implications the Russia-Ukraine hostility could have on the UK energy market

Back in June last year, when Ukraine caused a stir in Russia after unveiling its Euro 2020 football kit, little did we realise the implications the Russia-Ukraine hostility could have on the UK energy market.

 

Ukraine’s football kit

The Ukraine football kit, released days before the tournament, incorporated a border map that included Crimea, an area seized by Russia in 2014 and now considered part of its territory.

The shirt also contained two slogans; ‘Glory to Ukraine’ and ‘Glory to the heroes’ and a Russian MP called it a "political provocation".

The governing body of football in Europe, UEFA, ordered Ukraine to change the new kit after complaints from Russia. They ordered the removal of the ‘Glory to the heroes’ slogan, but allowing the map to remain.

Ukraine football shirt
Ukraine football shirt Photograph: AFP/Getty Images

Russia-Ukraine hostility

To put it simply…the two countries have history! Both have gone through periods of relations, tension and hostility.

In 1922, Ukraine and Russia were two of the founding members of the old Union of Soviet Socialist Republics (USSR). However, Ukraine declared itself independent in August 1991 and has since looked to forge close ties with the West.

A decision in 2014, by Ukrainian President Viktor Yanukovych to reject an association agreement with the European Union in favour of closer ties with Moscow led to mass protests that saw him removed as leader in 2014.

Russia responded by annexing Ukraine’s Crimean Peninsula.

What happens if Russia invades Ukraine?

Russia has massed 100,000 troops on the Ukrainian border and has been accused of preparing to invade its pro-Western neighbour.

The United States (US) has responded by putting 8,500 troops on standby for deployment and the military alliance, NATO is sending ships and jets to bolster the region’s defences.

Western nations have voiced their support of Ukraine and there has been talk of financial sanctions.

Cutting off Russia from international financial transactions, including profits from oil and gas production, would account for 40% of the country’s revenue

The US is considering imposing export restraints, potentially cutting Russia off from the high tech that helps warplanes and passenger jets fly and powers smartphones.

BBC News has reported all the possible sanctions against Russia if it were to invade Ukraine

 

The implications the Russia-Ukraine hostility could have on the energy market

Håkan Frisén, head of economic forecasting for Swedish financial group SEB has warned that a Russian invasion of Ukraine could have ‘almost incalculable consequences for energy prices’ across the continent.

Russia supplies around 40% of Europe’s gas and a further surge in prices could happen if supplies are disrupted due to:

  1. Vladimir Putin turning off the tap
  2. Any disruption to pipelines running through Ukraine

The UK gets around 3% of its gas from Russia, unlike France and Germany, which are significantly reliant on Russian gas supplies, The majority of UK domestic gas comes from the North Sea and Norway.

This does not mean UK consumers would be protected from the consequences of a shut-off, as increased demand is likely to spark a surge in wholesale prices.

 

What would be the impact on the UK energy market?

UK consumers have been warned to expect a hike in their energy bills from the energy price cap in April 2021, with the average household’s annual bills predicted to rise to at least £1,891 a year.

If Russia were to stop or limit gas supplies to Europe, experts have voiced their concern that a further energy price surge could happen by next winter, causing more pain to the UK, who currently have more than 4 million households in fuel poverty.

Politics professor Amelia Hadfield of the University of Surrey told i News UK “Pre-Christmas gas price spikes are likely to return and remain volatile, triggered by rapidly deteriorating relations between Russia, Ukraine and NATO leaders.”

 

What can the UK do about it?

The UK's reliance on Russia is low and Prime Minister, Boris Johnson has suggested the UK was “in a stronger position to resist the Russian gas blackmail” whilst admitting, “There is the prospect of a spike in prices.”

UK and EU leaders have both signalled they are working to decrease the reliance on Russia for energy in the months ahead.

A senior administration official stated this week that the United States is in talks with major energy-producing countries and companies around the world over a potential diversion of supplies to Europe.

 

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