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  • By The Financial District

Europe Uses 1970s Oil Shock Lessons To Cushion Ban On Russian Gas

With Russia threatening to cut off the supply of vital gas and oil, European governments are dusting off rationing plans that bring back memories of the 1973 energy crisis, Francesco Canepa reported for Reuters.

Photo Insert: While Europe might just about replace its imports of Russian crude with other sources, it's unlikely to be able to do so with gas any time soon.

Are Europeans heading for car-free Sundays, dimmer lights, and what felt like government-mandated bedtime as TV broadcasts ended early - last seen at the time of the Arab embargo?

Probably not because that, and more recent episodes, show companies are quick to adapt, meaning the hit to the euro area's economic output may be smaller than 1% on some estimates. And governments have also learned that imposing austerity measures like fuel rationing at the pump will yield little if the population doesn't support them.

While Europe might just about replace its imports of Russian crude with other sources, it's unlikely to be able to do so with gas any time soon. This means rationing of gas is certain if Russia turns off the taps in retaliation for sweeping economic sanctions.

But economists estimate the damage to economic growth would be small. Even for Germany, the western European country most reliant on Russian energy, the impact of an 8% cut to oil, gas, and coal consumption would lower GDP by 1.4%, according to a paper by the ECONtribute network of economists.

All the news: Business man in suit and tie smiling and reading a newspaper near the financial district.

Nomisma Energia estimates the Italian economy, which also depends on Russia for its energy, would suffer a 5.6% hit if gas supplies from Russia fell by roughly half, assuming some gains in efficiency but no switch to alternative sources.

The European Central Bank (ECB) puts the hit from a 10% reduction in energy supplies on European companies at about 0.7% of the euro area's gross value added, a measure of goods and services produced in the bloc. This is in line with precedents both in Britain during the 1970s embargo and in Japan after the Fukushima nuclear disaster of 2011.

Market & economy: Market economist in suit and tie reading reports and analysing charts in the office located in the financial district.

Europe's service-oriented economies are also likely to come off more lightly than manufacturing-heavy China when it went through its own power crunch last year. "Past episodes of energy rationing have not been as damaging as one might expect and firms have proved adept at achieving sizeable efficiency gains when required," Capital Economics wrote.

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