The tit-for-tat sanctions between Russia and the West that heated up last week are only adding to fears that Europe’s economy will fall back into recession or experience “lost decades” comparable to the downturn in Japan that left the Asian giant’s economy drifting, deflated and diminished in global influence.

Europe’s growth came to a standstill in the second quarter, but despite the growing risks, European leaders agreed to go along with the U.S. in imposing a series of sanctions on Russia, culminating late last week in the toughest penalties yet on Russian oil and gas companies, which provide a third of Europe’s energy needs.

The sanctions have, as intended, helped to plunge Russia’s economy into recession. But while they were designed to do as little damage as possible to Europe’s own economy, analysts increasingly question whether they are harming Europe as well, especially since they are hitting hardest on the country that was heretofore Europe’s engine of growth: Germany.

German economic output and business confidence fell in the spring quarter as the conflict in Ukraine broke out and Western leaders prepared their first round of sanctions. France’s economy also took a dip while Italy relapsed into its third recession since 2008. The only major economy in Europe that appeared to be in solid recovery was Spain.

Moreover, the economic brew in Europe has only worsened since the spring. Confidence and output have continued to fall while the U.S. and European Union have ratcheted up their sanctions on Russia’s banks, defense and energy companies, prohibiting crucial financing provided by Western banks or the sale of high-value Western technologies to Russia. Those bans led Russia to retaliate with bans on many European and American food exports.

Now, with winter approaching in the Northern Hemisphere, and no end to Ukraine tensions in sight, Europe faces a major economic test given its dependence on Russia for more than a third of the natural gas needed to heat homes and offices on the continent.

Analysts say the latest round of sanctions announced Friday tightens the noose around Russia’s energy sector, making it particularly hard to invest in long-term projects to tap into new sources of oil and gas in Russia’s vast Arctic and Siberian regions. Such sanctions might tempt Moscow to play its strongest card and halt the flow of gas and oil, particularly the large share of gas exported through the Gazprom pipeline that crosses through Ukraine.

“The economy would really suffer if Moscow cut back on gas exports,” said Olaf Storbeck, analyst with Reuters Breakingviews. “The German economic minimiracle is on hold,” in any case, he said, and without it, the recovery in Europe is crumbling.

Turning off the gas

Declines in Germany’s stock market show investors fear that Russia could turn off the gas, even though that seems a remote possibility, Mr. Storbeck said. Russia depends on the $80 billion a year it earns from Gazprom sales to Europe and would only disrupt the flow to make a “political point,” he said.

Europe also is heavily dependent on Russian crude oil. Thomson Reuters estimates that a reduction of one-third in Russia’s supply of oil to the euro area could lower growth across the region by between 1 and 1.5 percentage points in the first year.

Thus, Europe is vulnerable should Russia declare an all-out economic war and boycott fuel exports this winter, Mr. Storbeck said. But short of that, Germany and the rest of Europe should be able to get by with only a slowing of growth, he said.

Much has been made of Germany’s extensive trade ties with Russia, with more than 6,000 German companies doing business there. International Monetary Fund Managing Director Christine Lagarde emphasized in a recent interview with Les Echos that the German industrial complex is the most at risk from the standoff with Russia.

“The crisis in Ukraine is having side effects on Russia and on neighboring countries, particularly those that belong to the German value chain and whose trade, energy and financial links are being affected in varying degrees,” she said.

But Mr. Storbeck said the risk for Germany has been overstated. Germany earns more from exports to China and the rest of the world than it does from Russia, he said.

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