EU says bloc GDP could fall by 1.5% over 'likely scenario' of Russia cutting gas supplies

A full cut-off of Russian gas supplies to Europe, combined with a cold winter, could reduce average European Union gross domestic product by up to 1.5 per cent if countries do not prepare in advance, the European Commission said on Wednesday.

The EU executive proposed a voluntary target for member states to cut gas use by 15 per cent until March to prepare for potential further gas cuts from Russia. It said a full Russian cut-off in an average winter could reduce average EU GDP by up to one per cent if countries fail to prepare.

Europe is racing to fill its gas storage ahead of winter and build a buffer in case Moscow further restricts supplies in retaliation for European support for Ukraine following Russia's invasion.

Since Russia invaded Ukraine, the EU has approved bans on Russian coal and most oil to take effect later this year, but it did not include natural gas because the 27-nation bloc depends on gas to power factories, generate electricity and heat homes. Now, it fears that Russian President Vladimir Putin will cut off gas anyway to try to wreak economic and political havoc in Europe this winter.

"EU level savings so far have been equal for five per cent and this is clearly not enough. So we have to start, co-ordinate, savings programs right now, if we don't want to face the worst case scenario in the middle of the winter," EU energy policy chief Kadri Simson told a news conference in Brussels.

The International Monetary Fund has recently warned a Russian gas cut could plunge European economies into recession, heightening a gas crisis that has sent consumer bills soaring. The IMF has said that gross domestic product in member nations like Hungary, Slovakia and the Czech Republic could shrink by up to six per cent, while Italy "would also face significant impacts."

The European Commission on Wednesday proposed a voluntary target for all EU countries to cut gas use by 15 per cent from August to March, compared with their average consumption in the same period during 2016-2021.

The proposal would also enable Brussels to make the target mandatory in a supply emergency — if the EU declares a substantial risk of severe gas shortages. While the EU has gained centralized authority over monetary, trade, antitrust and farm policies, national governments have jealously guarded their powers over energy matters.

"Russia is blackmailing us. Russia is using energy as a weapon," said EU Commission President Ursula von der Leyen.

"And therefore, in any event, whether it's a partial major cutoff of Russian gas or total cutoff of Russian gas, Europe needs to be ready."

The regulation needs approval from a reinforced majority of EU countries. EU country diplomats are set to discuss it on Friday, with the aim of approving it at an emergency meeting of countries' energy ministers on July 26.

The plan has already hit resistance from some countries, which feel their contingency plans do not need a boost from the EU. Countries would be required to update their emergency gas plans by end-September to show how they will meet the EU target.

Among those opposed to mandatory EU targets is Poland, which has filled its gas storage to 98 per cent of capacity after Russia cut its gas supply in April.

EU officials say it is crucial to ensure all countries act now, rather than wait to react if Russia cuts supply.