Russia’s Gazprom stopped supplying Austria’s OMV last month, prompting a number of headlines. However, there was no major panic this time. It was a completely different story almost three years earlier: when Russian troops invaded Ukraine in February 2022, Europe was thrown off balance for various reasons.

“One of them was dependence on Russian gas. Many countries, especially those like Austria, which purchased around 80% of its gas from Russia in 2021, had to take action quickly to reduce this dependence and ensure supply security,” explains Anton Pichler from the Complexity Science Hub (CSH) and the WU Vienna University of Economics and Business. “We had to react–and in a highly dynamic environment,” says the researcher.

This was the basis for a study now published in the Journal of Economic Behavior & Organization and released as a policy brief in May 2022. In a hypothetical scenario where Russian gas imports to Europe were completely halted from June 1, 2022, the researchers quantified the effects of different measures. “That way, we won't have to start the discussion about the catastrophe, but with possible solutions already on hand,” says co-author and CSH President Stefan Thurner.

Five times less damage through cooperation

The researchers analyzed various measures to mitigate the potential economic impact, including alternative gas imports, gas storage, a switch to different fuels, and savings in heating and pipeline operations. Additionally, they modeled their impact on individual sectors as well as the economy overall.

“As early as spring 2022, we were able to point out that a coordinated distribution of scarce gas supplies among the EU members could reduce production declines five times less than if Austria tried to secure additional gas individually,” explains Thurner.

“In fact, the first steps were taken at EU level in the following months, such as filling gas storage facilities, which was subsequently given a strong political push,” adds Pichler.

Full gas storage facilities are one of the most important levers for being prepared for a gas supply freeze in the short term, but a coordinated crisis response at the EU level is also crucial–as foreigners own about half of Austria's gas reserves.

“Austria has well-filled storage facilities today, with nearly 50TWh of stored gas, i.e. two thirds of annual consumption in 2023, under Austrian ownership. Along with alternative supply routes, these gas storage facilities are one of the reasons why we are much better able to compensate for Gazprom’s current gas supply freeze to OMV,” says Pichler. In contrast, even a partial interruption of Russian natural gas supply in Austria in 2022 would have led to a loss of several hundred million euros per month in gross value added, according to the study.

Austria: still Russian gas

Austria imported 82% of its gas from Russia in August 2024, while other European countries have long since reduced their imports from Russia. Only 8% of all EU gas imports come from Russia.

Because other European countries are now significantly less dependent on Russian gas supplies, the expected economic consequences will be much smaller than in June 2022, according to the two researchers. “In our policy brief, we showed that alternative trading partners can play a key role in reducing damage. Now that our neighboring countries are hardly dependent on Russian gas, it is much easier to import non-Russian gas than it would have been two years ago,” says Pichler.

Mild to severe effects

Based on the hypothetical scenario of a complete halt to Russian gas imports to Europe from June 1, 2022, the study shows that the potential economic consequences can range from relatively mild to extremely severe, depending on countermeasure implementation and success.

The study suggests that securing alternative gas imports, managing storage, and providing incentives to switch to other fuels are the most important short-term policy levers. “The results seem almost obvious in retrospect. However, in spring 2022 there was great uncertainty about the potential economic consequences and our study quantified the effectiveness and feasibility of each individual measure,” explains Pichler.

Be prepared, not only for gas

In light of the critical situation, what have we learned? “Back then, we reacted to a crisis for which we were unprepared. It is possible for crises like this to occur in other important areas as well. It would be extremely important to conduct similar analyses for other critical sectors and technology areas in order to implement preventative countermeasures systematically," the researchers conclude.

Further information

Pichler, A., Hurt, J., Reisch, T., Stangl, J., & Thurner, S. (2024). Economic impacts of a drastic gas supply shock and short-term mitigation strategies. Journal of Economic Behavior & Organization.
Link

Note: This text was originally published on the Complexity Science Hub (CSH) Website.