The Putin regime has used gas supply cuts as a tool to pressure Ukraine since 2005-06, when EU gas supplies were also affected
Post Date – 12:45 AM, Sat – 12/31/22
go through Thomas Frohlich
Not since the oil crisis of the 1970s has the West placed so much emphasis on energy security. Suddenly, in 2022, it’s a key part of the battle for Ukraine. Russian attacks on energy facilities left millions of Ukrainians without power during the freezing winter.
Unable to force a quick and decisive victory in Ukraine, Russia has shifted its strategy towards consumption, especially targeting energy infrastructure. Nighttime photos of Ukraine now show dark areas similar to images from North Korea. The theory is simple: a frozen population no longer supports the defending army, and the scorched earth makes Ukraine less attractive for postwar investment, weakening Western support.
This strategy is not new. Vladimir Putin’s regime has been using selective gas supply cuts as a tool of pressure on Ukraine since at least the winter of 2005-06, when EU gas supplies were also affected – something Moscow was willing to The first sign of energy being used as a geopolitical tool.
The U.S. government has long warned of an overreliance on Russian gas, but the European Union, especially Germany, has expanded imports from Russia over the past decade.
European leaders embraced the growth because of low costs and a history of reliable supply. The political nature of energy has been ignored, especially in Germany, most notably the designation of the Nord Stream pipeline as a purely commercial project.
In 2021, the EU imported about 144 billion cubic meters (bcm) of gas from Russia via pipeline, accounting for about 30% of its gas supply. Russian gas accounts for around 8% of total energy consumption in Europe by 2021, resulting in spending of almost EUR 20 billion. It spent about 70 billion euros on petroleum products that year.
noteworthy development
This winter, Ukraine needs international support, especially from the United States and the European Union. The EU appears to be well prepared for this winter, although gas shortages are still possible. But three issues determine the sustainability of the EU’s position on Russia:
• Will Russia stop sending all hydrocarbons to the EU?
• Will the climate be more extreme in the next 12-18 months?
• Will China resume pre-lockdown economic activity, putting further pressure on the global liquefied natural gas (LNG) market?
On the geopolitical front, questions remain about how the EU/G7 price cap on Russian oil will affect the global market, whether the market complies, and if so, whether the price is set correctly.
China may emulate G7 sanctions and buy Russian oil at a discount, costing Russia revenue and influence. But China has the opportunity to build a trade and logistics system outside the G7 sanctions.
This would come at an initial cost, but it would gain independence from the West and possibly more oil supplies through Russia and Iran.
Russia’s war preparations
Russia began preparing to weaponize energy as early as the summer of 2021. Europe’s largest natural gas storage facility in Leiden, Germany, remained unusually low later that year, bringing storage levels in Germany to around 70% in late October 2021, compared with 95% in previous years. The signal is clear: Putin could make a non-compliant EU very expensive.
Europe’s response to Russia’s invasion of Ukraine was a continuation and expansion of sanctions imposed after Russia annexed Crimea in 2014. The EU passed legislation to reduce energy dependence on Russia and sanctioned the regime and its economy – including its energy sector – for boycotting Russian products.
In March 2022, a plan to completely cut Russia’s energy imports was presented, including a coal ban that came into effect a month later. The EU aims to reduce Russia’s energy imports by two-thirds by the end of 2022 and to zero by 2027.
Russia halted gas exports to Poland and Bulgaria in late April after failing to meet demands for gas to be paid in Russian rubles, and controversial maintenance issues in July and disruptions in September stalled deliveries via the Nord Stream pipeline.
In April, the EU launched plans to start negotiations on joint procurement of natural gas and hydrogen to take advantage of their strengths in the market. In May, a plan to rapidly reduce Russia’s dependence on fossil fuels and rapidly advance a “green transition” outlined strategies for energy efficiency, supplier diversification and expansion of renewable energy.
Individual Member States stepped up their diversification efforts. Notably, Germany has a long-term LNG agreement with Qatar and has accelerated the licensing process for three new LNG terminals. By the winter season of 2023/24, Germany will have completed six new LNG terminals. The European Union and the Group of Seven agreed to cap the price of Russian crude at $60 a barrel, days before the EU stopped importing Russian oil. This is designed to keep Russian oil flowing to global markets while limiting Moscow’s revenues.
The EU’s nine sanctions package against Russia complements domestic plans to reduce overall energy demand and provide energy cost support to European consumers. Coupled with global inflation trends, the looming energy crisis has kickstarted preparations to replace expensive natural gas supplies with coal or renewables, in addition to domestic initiatives to reduce costs for consumers, mainly tax cuts, direct energy subsidies And price regulation in many cases.
The EU’s political cohesion has been maintained despite rifts in countries highly dependent on Russian energy, notably Hungary.
If the Russian regime does not collapse or end the war, the EU sanctions are expected to expand to include shipping and insurance of Russian oil and eventually gas.
The effects of the oil shocks of the 1970s were recession and supplier diversification. 2022 is the year energy becomes politicized again, with fears of shortages kick-starting a much-needed energy diversification towards renewables. By 2023, this problem will not disappear.