Vladimir Putin has given Europe a handy shove across the energy rubicon. By shutting the key Nord Stream 1 pipeline until the West lifts sanctions, the Russian president has confirmed beyond doubt that Moscow is no longer a reliable gas supplier. That should give governments the impetus they need to stop stalling on radical action.

The pipeline that pumps Russian gas to Germany has in recent months been running at about 20 per cent of its annual capacity of over 50 billion cubic metres (bcm). Even so, that gave European leaders some hope that normal service would return after what Russia claimed were technical difficulties were resolved.

Outrageous demand

Switching it off indefinitely leaves Europe short of about 20 per cent of the 570 bcm of gas it needs this year. It also raises urgent questions about the 50 bcm a year of Russian supply that arrives through other routes. That’s much more than Europe has so far managed in energy-saving measures. And if the coming winter in the northern hemisphere is unusually cold, Europe may need an extra 13 bcm and have to compete with Asian buyers for 140 bcm of liquefied natural gas (LNG).

This means European gas and electricity prices, which are already 14 times and 10 times their respective levels in March 2021, will stay high next year and beyond. Bernstein analysts worry that German household fuel bills could exceed 10,000 euros a year, four times last year’s level, while British energy costs could more than triple to over 6,000 pounds. France, Germany, and Britain alone have over 100 million households between them. If they pay an extra 2,000 euros a year for two years, that’s a 400 billion euro hit.

Freezing prices

Leaving citizens to bear that cost is not feasible. One option is to lend energy companies the cash and then get citizens to pay them back through higher bills in future years, as proposed in Britain. Another is to cap electricity prices and then tax citizens to make the energy groups whole, a version of which is already happening in Spain. Taxing the windfall profits made by oil and gas producers and generators of renewable electricity may help, as Germany has belatedly conceded. Governments may also absorb some of the cost through higher borrowing.

Yet if states shield consumers from market forces, they will need other ways to reduce energy demand. That may require mandatory rationing. European countries will find different ways to balance the financial and social costs of the energy crisis. At least Putin has removed any doubt that they need to act.