Wednesday, May 14, 2014

Eurozone recession if Russia cuts off Gas supply

For the situation here to have a systemic effect on the global economy there needs to be a full escalation war on eastern and western Ukraine. That would imply that the west is going to impose a range of other sanctions on Russia and then sanctions will also be imposed by Russia on the west. 

You then have the risk that Russia might decide to cut off the supply of gas, not only to the Ukraine, but also to the rest of Europe. Western Europe is barely getting out of a recession and it can’t afford a shock to the price of the supply of gas on which it relies. It will damage the recovery of the Eurozone and might kick it back into recession.

However, this is only if there is a full escalation. If there isn’t a full escalation I would say that the economic and financial consequences remain contained. However, if it does escalate fully with people supporting the government in Kiev, then things could get really ugly.