What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing ever since russia's invasion of ukraine, the west has levied crushing economic stations against them. Many experts expect the russian economy to shrink by as much as 10 percent this year, but when it comes to economic warfare, both parties have cards to play. The european union relies on russia for 40 of its natural gas supply, the pipelines are still flowing and since the beginning of the war, europe has paid tens of billions of dollars to russia for natural gas and oil. In an effort to support the price of the ruble, russia mandated that unfriendly countries pay for their energy imports in rubles.

Many countries thought that russia was bluffing and refused to comply, continuing to pay in euros as the contracts originally stipulated. But putin was not bluffing. Last week russia's state-run energy giant gazprom officially announced that it is shutting down all natural gas exports to poland and bulgaria. Both are members of the eu.

Poland relies on russia for about half of its gas, while bulgaria relies on them for more than 90 percent. It's hard to overstate how disastrous this could be for the two countries, especially bulgaria. Germany has also refused to pay in rubles for its imports. If russia falls through on its promise and cuts off gas to the entire eu, the economic and social costs will be enormous.

Demand for natural gas is pretty low in the summer, so they can probably get by, but once winter hits and temperatures start to drop there simply won't be enough gas to go around energy. Intensive industries will be all but decimated, leading to a deep recession in unemployment, but a potential full-scale embargo will also come at great cost to russia. Running an invasion costs a lot of money. They rely partly on the proceeds of their european gas exports to fill up their war coffers in this video.

We'll look at why russia's weaponizing energy exports and what, if anything, europe can do to mitigate it. Natural gas is used to heat about half of the homes in the eu in recent years. It has also played an increasingly important role in electricity production. The eu has been trying to reduce its reliance on fossil fuels and eventually transition to 100 green energy, but this is easier, said than done and will likely take decades to accomplish.

In the meantime, they've been shutting down coal and nuclear power plants at the behest of environmental activists after the fukushima nuclear disaster. In 2011, protesters in germany demanded that the government shut down the country's remaining nuclear reactors as they feared. A similar disaster could happen in germany. The fukushima disaster was caused by an earthquake and subsequent tsunami.

Germany doesn't have earthquakes, so the risks of a similar disaster are infinitesimally small. Despite the lack of validity of the protesters concerns the government caved and agreed to shut down all nuclear power plants by the end of 2022 to make up for the shortfall in energy, they went to their good friend vladimir putin to increase imports of russian natural gas Because of their shift away from nuclear, germany is the largest importer of russian gas by far accounting for 50 percent of total imports. If putin did halt shipments to germany, it would be catastrophic. Energy would have to be rationed in the winter, and many families would freeze electricity prices would skyrocket and the manufacturing sector would grind to a near halt.

Poland and bulgaria, on the other hand, are much smaller importers. Also, both of them have been making plans to phase out russian energy by the end of the year anyway. Poland has already foreseen that something like this could happen and has increased their strategic reserves. These reserves will last them a few months and they are actively working on new liquefied natural gas ports which will help them increase imports from the us and middle east.

While bulgaria imports the vast majority of their natural gas from russia, they have significant nuclear energy capacity. So their total consumption of gas isn't that high the lost russian imports can be mostly made up by increasing imports from azerbaijan, while they will certainly see electricity and heating prices increase, it's not going to be an armageddon scenario. Putin likely knew this. The embargoes were designed as a warning shot against the eu, specifically germany, by targeting two smaller importers.

They can make a statement and prove that they're serious without jeopardizing very much of their revenue. Germany's natural gas imports are significantly greater than poland and bulgaria combined. If they lose access to russian imports, there would be no way to make it up because of their long-standing reliance on russian pipelines. They have not invested in ports which could facilitate the import of liquefied natural gas or lng from overseas and there's not sufficient existing pipeline capacity to increase its imports from norway.

After the russian invasion began, they started working on a new lng terminal. Lng terminals are extremely complicated. The gas has to be frozen at very low temperatures. To turn it into a liquid.

The liquid is transported on a ship and turned back into gas at the importing terminal. A lot of sophisticated technology is required to perform the re-gasification. So the german terminal likely won't be ready until 2026 hungry for more immediate relief. They allocated 3 billion euros to purchase floating lng terminals.

A floating terminal is a large boat which includes the regassification technology. If they can bring over an existing floating terminal, they don't have to start from scratch by making one on land, but even this will not be finished until 2024 and will only have the capacity to offset 10 percent of russian imports. If russia shuts off natural gas, there is frankly zero possibility that germany can replace it until at least 2024, and probably not until 2026.. If left to pure market forces, prices would skyrocket, exponentially low income and even middle-income households will not be able to afford to heat their homes in the winter.

Consequently, the government will be forced to start rationing, their limited supply, energy intensive industries such as automobile manufacturing will be forced to drastically curtail their production and engage in mass layoffs. Of course, russia would also be negatively impacted by an embargo against germany. In the first two months of the war, they made over 6 billion euros from selling natural gas to germany alone and over 9 billion from all fossil fuels, while certain parts of their economy, namely their financial services sector, have been hit hard by western sanctions, their energy Sector is booming. Higher prices have caused their monthly export revenues to double since the war began.

Despite the decreases in volume, this revenue goes to gazprom, which is owned by the government, so unfortunately, the kremlin can invest these proceeds directly into the war effort. So far, germany has said they will not comply with putin's demand to pay for energy and rubles, but is believed that some private energy importers within germany are already paying in rubles because they are so scared of getting supply cut off. It seems very unlikely that the german government would compel private businesses to stop paying rubles for russian energy, given the dire situation, while russia has suffered humiliating tactical defeats on the battlefield, it's undeniable that they've put europe into a stranglehold. The austrian chancellor, carl nehamer strongly opposes shutting off russian energy.

Austria is in a similar situation as germany when it comes to dependence on russian gas. He says that blocking imports would hurt the eu more than it hurts russia and he's probably right if germany would refuse to pay rubles and russia cuts off gas. Export volume will decline, but this will at least be partially offset by market dynamics, pushing prices even higher for other european countries. The only way to cut off funding completely would be for the entire european union to ban imports, which would cause a 2008 level recession across the entire continent, if not worse.

This would undoubtedly also hurt the russian economy greatly. The ruble would crash and their 20 inflation rate would only go up. While this would cause great pain to the russian people. It would not directly affect their military campaign, at least not in the short term.

That's because their military hardware is produced domestically, so they can print more rubles to pay for it. Poland has been one of the most ardent supporters of ukraine, supplying significant military hardware and other support. They even wanted to send over some of their mig fighter jets. But this was effectively vetoed by the us in fears it would escalate the situation.

Russia's halting of exports to bulgaria, and especially poland, is a way to retaliate against this and show that he's willing to weaponize energy. Unfortunately, putin's blackmail tactic will probably work. Germany and other countries will most likely cave in and pay for imports and rubles, because the economic costs of doing otherwise are just too high. Alright guys that wraps it up for this video.

What do you think about putin's weaponization of energy? Should the eu ban russian energy, even if it would cause a recession? Let us know, in the comments section below also don't forget, to open an account with moomoo and get up to five free stocks, valued at up to seventeen thousand dollars, use the link in the description below, as always. Thank you so much for watching and we'll see in the next one wall, street millennial signing out.