THE European Union has a lot more to lose than the United States from conflict with Russia, explaining why the Western allies are having difficulty agreeing on a tough stance in the standoff over Ukraine.

Russia ranks as the EU’s fifth-biggest trade partner — as well as its top energy supplier — while for the United States it barely makes the top 30. There’s a similar gap for investment, with Russia drawing in money from Europe’s household names including Ikea, Royal Dutch Shell Plc and Volkswagen AG.

With inflation surging and consumers squeezed by a surge in energy prices, EU officials are moving carefully on the prospect of sanctions. They want Russia to feel more pain than Europe from measures aimed at preventing an invasion of Ukraine. They’re worried a war could choke off natural gas supplies in the middle of winter when they’re needed most.

“European energy prices are a major concern,” said Tim Ash, senior emerging-market strategist at Bluebay Asset Management. He said Russian President Vladimir Putin wants the EU “terrified about gas this winter and being cold. He doesn’t want them to do anything if he goes into Ukraine.”

Adding to that reluctance is a sense that for penalties imposed on Russia in the past, especially after the 2014 invasion of Crimea, it was the EU economies and not the U.S. that paid the price. As U.S. President Joe Biden warns that Russia’s military may move shortly, EU leaders such as France’s Emmanuel Macron are playing for time.

“Sanctions have the best effect if they are efficient,” German Foreign Affairs Minister Annalena Baerbock said last week. “It’s about sanction which really have an effect, not against oneself, but rather against Russia.”

By contrast, Russia is “well prepared” to weather any sanctions after taking steps to insulate itself from measures the United States might impose, said Viktor Szabo, fund manager at Aberdeen Asset Management in London.

Energy is the biggest friction point. The United States is a net energy exporter, but the EU relies on imports, and Russia is its No. 1 supplier of both oil and natural gas.

JPMorgan Chase & Co. economists Friday warned a surge in the price of oil to US$150 a barrel would hammer growth and spur inflation.

Gas is a particularly sensitive matter now, with Russia holding back supplies for the past few months. Prices have tripled, boosting the cost of electricity across the continent. It’s the main reason Europe is suffering a bigger energy shock than the United States.

Escalation with Russia over Ukraine could make it worse. EU officials are caught in a bind, since domestic gas production is in decline while Russia has built facilities to supply more.

Russia’s gas exporter Gazprom PJSC and partners including Shell have spent 9.5 billion euros (US$10.8 billion) completing the Nord Stream 2 pipeline and want to open it. Military action in Ukraine would put that on the chopping board — and any future deals to boost Russian supply to the region. That would exacerbate the energy shortage in the EU.

“Were sanctions to be placed on Russia’s energy exports or were Russia to use gas exports as a tool for leverage, European natural gas prices would probably soar,” said Capital Economics analyst William Jackson. “We think they would far exceed the peak reached last year.”

Sanctions against Russia would also benefit U.S. exporters who are seeking to ship more liquefied natural gas into Europe.

Europe also has been stung hard by past sanctions aimed at Russia. After Russia annexed Crimea in 2014, the United States and EU agreed on a sanctions regime.

Three years later, a study by the Kiel Institute for the World Economy found that while Russia suffered the biggest trade losses, Germany wasn’t all that far behind. Other EU economies got hit too. The United States actually came out ahead. A similar pattern followed sanctions on Iran.

Politicians in the United States and Europe boast about the economic pain they’re capable of inflicting on Russia. They’ve kept quiet about the “inconvenient truth” that there’ll be consequences at home too, according to Tom Keatinge, head of the Center for Financial Crime and Security Studies at the Royal United Services Institute in London. (SD-Agencies)