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Russian oil supply cut would hit Central Europe hard

Friday, September 23, 2022

Significance

Flows resumed within days, but the sudden cut-off -- ascribed to overdue transit payments -- highlights Central Europe’s dependence on Russian oil imports and the difficulty of securing seaborne alternatives quickly. Flows via Druzhba’s northern leg to Poland and Germany were uninterrupted. The incident revealed a lack of solidarity amid restricted supplies in neighbouring countries and tight markets.

Impacts

  • Central European credit ratings have deteriorated, as energy insecurity has knock-on effects on growth and public finances.
  • Short-term priorities (refugees, defence and the cost-of-living crisis) will lack fiscal space.
  • Similarly affected will be long-term priorities including healthcare, education and effective use of EU funds.
  • Soaring energy prices, inadequate policy responses and rationing may expose fragile democracies to social unrest and populism.

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