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EU asks countries to ration gas in the winter after Russian threat

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Yahoo Finance Live anchors Brian Sozzi, Brad Smith and Julie Hyman discuss the EU president asking European countries to ration gas as fears that Russia will cut off energy supply looms.

Video Transcript

- All right, well, also watching the crisis over in Europe as major headwinds batter the economy, a record heat wave, record inflation, and, of course, the energy crisis all this on the backdrop of an ongoing war in Ukraine with no resolution in sight. Today, the European Union asked countries to cut their gas use by 15% through the winter over fears Russia will cut off gas supply to the rest of Europe. And guys, just another risk factor that perhaps the market wasn't thinking about here. Futures were at one point positive this morning, but as we got this news on the oil front, we saw futures tick lower.

- Yeah, it was the European Commission President Ursula von der Leyen outlining and really kind of putting forward this proposal, and the markets responded to this almost immediately as well. They mentioned the 15% decrease in demand or cut gas demand at that rate particularly from August through next March. And so with that kind of extended period of time, it's this larger question of, for a broader kind of European kind of consortium that had 2.2 million barrels per day in 2021 that they were bringing in from Russia, where else do they get that energy from and how quickly does it kind of trigger some of that move over to renewables as well?

- So just a couple of quick things to note-- first of all, the 27 nations within the EU that are subject to the European Commission have to ratify this. It's not just automatically happen. So now there is going to be some lobbying in order to get countries to adopt this.

It just has to do with natural gas. That's what the rationing is about. And that's not just about heating fuel in the winter. It's also about industrial uses and powering. In other words, if we see rationing, is that going to then affect supply chain issues--

- Right.

- --for components coming out of Europe? So that's something to think about. And on top of all of this, you have the Nord Stream 2 pipeline, which we've been talking so much about now-- a big natural gas pipeline that brings the fuel from Russia. It has been down because of scheduled maintenance because it was waiting-- they were waiting on the order of a new turbine that was-- that's a component in it.

And now Vladimir Putin coming out and saying it's going to open up again, but there were sort of an implied threat perhaps or questions about that. So if that doesn't indeed open again or if you get reduced flow going through that, that is also going to be a very big deal. So those are the two things to watch. Will that be ratified, the reduction or the rationing, rather, and then what's going to happen with Nord Stream 2?

- And as luck would have it, I asked Goldman Sachs CEO David Solomon about European recession risk potentially spilling over here to the US. Here's what he said.

DAVID SOLOMON: I think the chance of a recession in Europe is certainly higher given what's going on there economically and some of the policy decisions that have been made across the continent over the course of the last 5 to 10 years. A recession in Europe potentially knocks one percentage point off US growth. And so we are globally connected. We do operate in a global ecosystem economically. And a slowdown in Europe will have an impact on the United States.

- As if investing wasn't already hard enough, now you have to worry also about what's increasingly is a deteriorating situation over in Europe.

- Yeah, and you know, kind of bringing this back to the point that Julie was making as well here, I mean, even in the fact that we're still waiting-- Russia, of course, kind of holding-- I don't want to say hostage. But at the same time--

- You can say holding hostage.

- --holding hostage, at the end of the day, the ability to actually bring that capacity back to the European countries, the European nations. I mean, that flow could decrease to 20% of capacity by next week, so imminently. And that's if they don't get this one piece that's coming back, this pipeline, coming back from Canada as well.

- Oh, and PS, there's a heat wave and rampant wildfires happening in Europe as well. And if you think the heat wave is hot--

- Yeah.

- --did you see the UK inflation numbers? Did you like that?

- Oh--

- Sorry.

- There we go.

- Yeah, I know you were looking at UK--

- 40 year high.

- Yeah.

- 40 year high. You are looking at gas prices too over in the UK, what, over $8 a gallon now?

- Yeah, and I think we were showing those figures up on the screen before.

- Holy cow!

- Year over year, motor fuel prices up 42.3%.

- Yikes.

- So you know, obviously the inflation there, 9.4% is at a speedier pace that even than what we're seeing here.

- It sounds like more efforts are on the way for higher rates.

- Going to need that new VW electric--

- Scout.

- Electric Scout over there? Yeah, very soon.