Europeans anxiously anticipate energy rationing amidst the ongoing conflict in Ukraine and Putin's threats.

• Officials and analysts have cautioned that Europe may experience fuel shortages, specifically with diesel and natural gas.
• Some analysts believe that Europe's most effective weapon against Russia could be implementing policies aimed at reducing the demand for fossil fuels.
• Large cities could implement car-free Sundays, lower speed limits, and cheaper public transport to reduce traffic congestion.

The ongoing dispute between Moscow and the West over payments for Russian exports is threatening to result in energy supplies being rationed in European countries.

The EU and the U.K. imposed sanctions on Moscow after its invasion of Ukraine in late February, which heavily impacted European countries' reliance on Russian oil and gas deliveries.

By the end of the year, the EU aims to reduce its Russian gas imports by two-thirds, while Britain plans to eliminate its Russian oil imports by the end of 2022.

The surge in wholesale prices of natural gas due to tight supplies in Europe last year has resulted in households in Britain facing a more than 50% increase in their energy bills from April 1.

Natural gas rationing

On Wednesday, Germany issued a warning that it may soon face a natural gas emergency, which could require the rationing of gas supplies. However, German Economy Minister Robert Habeck stated that the "early warning" measure did not mean the country had to resort to rationing gas yet. He urged consumers and companies to reduce their energy consumption.

Austria's government has activated the first step of a three-stage emergency plan to monitor its gas market more closely due to Russia's demand for payments in rubles. If the third stage is reached, emergency control measures such as rationing may be implemented.

If Western countries continue to clash with Russia, Germany and Austria may not be the only ones to implement extreme emergency measures, as stated by Chi Kong Chyong, director of Cambridge University's Energy Policy Forum.

Putin announced last week that the Kremlin will require payment in rubles for gas sales from "unfriendly" countries, a demand that has been rejected by the G-7 nations. On Thursday, the Russian leader signed a decree stating that foreign buyers must pay in rubles for Russian gas starting from April 1.

If there is no agreement on payment terms and gas flow from Russia is halted, other European countries will also need to implement emergency measures, according to Chyong, who spoke to CNBC. Even though we are currently in a warmer season and consume less gas, we still require gas to be stored for use during the upcoming winter months when temperatures drop and we need it for heating purposes.

To prepare for the winter months, all European governments, including the U.K.'s, must activate emergency plans and launch public campaigns if Russian gas flow stops.

Diesel rationing

It is possible that the U.K. government may impose fuel rationing for cars, according to Jim Watson, a professor of energy policy and director of the UCL Institute for Sustainable Resources.

Watson stated via telephone that Britain faces greater challenges in transitioning away from Russian oil than from natural gas because it has historically been more dependent on oil imports.

In a meeting of the U.K. Parliament's Treasury Committee in March, Amrita Sen, director of research at Energy Aspects, cautioned that imposing sanctions on Russian energy exports could lead to severe consequences for Europe.

"Germany may face rationing of diesel products by the end of the month, which could have repercussions in the UK as well, given that Russia has several intermediaries and companies that buy and sell its crude products," she stated.

According to Russell Hardy, CEO of Swiss oil trader Vitol, Europe relies on Russia and the Middle East for half of its diesel imports each, resulting in a systemic shortfall.

According to The Times, he suggested the possibility of rationing diesel.

Demand reductions

In 2021, the U.S. Energy Information Administration estimates that Russia exported approximately 4.7 million barrels of crude oil daily, with nearly half of it going to European OECD countries. The top importers of Russian oil in the region were the Netherlands, Germany, and Poland.

Last year, 74% of Russia's natural gas exports were directed to OECD Europe, as per the EIA.

The U.K. government could decrease its reliance on imported oil by implementing policies that reduce public demand for oil, according to Watson. He suggested that promoting public transport uptake and introducing other behavioral policies that focus on people's choices are also possible solutions.

The current situation in the U.K. is different from last year's panic-buying of gasoline, which led to severe shortages and dry gas stations. However, Watson predicts that the risks around energy supply may result in a continuation of high prices in the country, which is currently facing its worst cost of living crisis in decades.

"Setting those measures as top-down policies with the government mandating the population to drive slower, drive less, fly less, and use public transport presents a challenge," he stated.

A ‘true and effective weapon against Putin’

The International Energy Agency recently released a report detailing 10 policies that could rapidly decrease global oil demand by 2.7 million barrels per day. These policies, aimed at "advanced economies and beyond," include reducing highway speed limits by 10 kilometers (6.2 miles) per hour, making public transportation cheaper, and implementing car-free Sundays and alternating the use of private cars in large cities.

Earlier this month, Rory Stewart, a former British International Development Minister and a senior fellow at Yale's Jackson Institute, tweeted that it is possible to decrease Russia's income from oil exports by focusing on reducing demand.

He stated that the effort required to address the current situation is equivalent to the government and civilian collaboration seen during the Covid response.

The proposed policies of reducing U.K.'s speed limits to 50 miles per hour, making all public transport free, and calling on companies like Uber to open technology that would allow free civilian ridesharing should remain in place throughout the crisis in Ukraine, according to him.

Putin would face a catastrophic impact if the demand and price of Russian oil were reduced, as Stewart stated.

Slashing demand was the key to hurting Russia through energy sanctions, according to Cambridge University's Chyong, as stated to CNBC.

Our true and effective weapon against Vladimir Putin is to decrease the demand for fossil fuels, as stated.

The relationship between demand and prices is negatively exponential due to the current global energy crisis. As demand increases, prices will rise disproportionately, while reducing demand will result in a drastic reduction in prices.