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How Russia's gas ban rips through the core of European industry

Russia has escalated the weaponization of its energy resources, compounding the pain for European industry and exacerbating an already grim outlook for the economy. (AP Photo/Pavel Golovkin)

Russia has escalated the weaponization of its energy resources, compounding the pain for European industry and exacerbating an already grim outlook for the economy. (AP Photo/Pavel Golovkin)

Published Apr 28, 2022

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Russia has escalated the weaponization of its energy resources, compounding the pain for European industry and exacerbating an already grim outlook for the economy.

Gazprom halted gas flows to Poland and Bulgaria and said it will keep them turned off until the countries agree to pay for the fuel in rubles. The move has left the rest of Europe -- particularly Germany -- worrying if they'll be cut off next.

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Europe's largest economy wouldn't be able to handle any stoppages in Russian gas supplies and the economic toll would be "dramatic," utility Uniper said Wednesday.

Even if Russia doesn't broaden the ban to other countries, there's a fallout already rippling through the continent. Gas prices in Europe surged as much as 24% on Wednesday, putting an additional squeeze on costs at a time when inflation is surging and the post-Covid recovery is under threat.

Europe is already heavily exposed to fallout from the war in Ukraine. Earlier this month, the International Monetary Fund slashed its forecast for 2022 euro-area growth by 1.1 percentage points to 2.8%.

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Here's a look at some of the most affected major companies, and how production issues there affect other businesses and consumers down the line:

- BASF. The German chemical giant relies on pipelines of Russian gas to churn out the building-block compounds for the nation's powerhouse car, pharmaceutical, and agricultural industries. So far, the company is weathering the crisis by increasing prices, but a major gas-supply disruption could halt production of its more advanced chemicals, such as the polyurethane foam for the plastic panels, steering wheels, and seating found in cars built by BMW, Mercedes-Benz and Volkswagen.

- YARA International. The Norwegian fertilizer maker has already slashed ammonia and urea output at its European facilities to less than half of capacity, and others in the industry have taken similar steps. Natural gas is used as a feedstock for nitrogen fertilizers, usually accounting for around 80% of a manufacturer's costs.

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Virtually every major crop in the world depends on inputs like nitrogen, and without a steady stream, farmers will have a harder time growing everything from coffee to rice and soybeans. Shortfalls across the fertilizer industry have sent food prices surging, with a United Nations index already up 20% this year to a record high.

- Aluminum Dunkerque Industries France. Europe's largest aluminum smelter had planned to ramp up curtailed production after French government aid helped cover much of a jump in energy prices. But the company had to put that idea on ice after the February invasion, and the renewed surge in prices clouds the outlook further.

Several aluminum smelters and steel plants using electric arc furnaces -- among the most energy-intensive industries -- have been forced to cut output or work intermittently to avoid times of day when electricity is most expensive.

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Germany's Trimet Aluminium said prior to this week's surge that manufacturing the metal already wasn't economical. It cut production by a third last October at three of its five German smelters. Then last month, it halved output at a plant in Essen, again citing cost pressures.

- Acerinox. Steelmakers across Europe had already cut production before the most recent price surge. Acerinox suspended operations at several facilities across Spain more than a month ago. The company launched a furlough program for 1,800 employees, it said.

WASHINGTON POST

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