Russia's Energy War

As cooler fall temperatures arrive in Europe, Moscow has opened a new front in Russia’s war against Ukraine: an “energy war” with the West. While there are other elements tied to the crisis around oil and gas—changes in global demand, constrained supply, and the question of emissions—Moscow’s inhumane war now sits at its center. Russia is the largest exporter of energy materials in the world, supplying crude oil, gas, petroleum fuels, coal, nuclear fuel, nuclear reactors, metals critical for renewable and battery technology, and also electricity. Of these, oil (including petroleum fuels) and gas are by far the most significant in volume and value.

Together, oil and gas account for nearly 60 percent of Russia’s total export revenue, highlighting that, under Putin, the country has become more of a petro-state than the Soviet Union ever was. Russia’s other exports are also dominated by natural resources—metals, gems, timber, chemicals, plus wheat and cereals. Except for nuclear energy, Moscow has allowed Russia’s civilian manufacturing and industrial sectors to either deteriorate or become deeply reliant on western technology. As characterized by economist Branko Milanovic, Russia is now defined as a “technologically regressive” nation. Nonetheless, it has energy relationships with more than sixty countries.

___STEADY_PAYWALL___Or at least it did. Nearly half of these sixty nations are in Europe and have declared they will reduce, then eliminate, such relations with Russia. Furthermore, the EU and UK have banned, as of December 5, the insuring of any tankers willing to carry Russian crude or fuels. For its part, Moscow has directed Gazprom, the state-owned gas company, to cut pipeline flow to a growing number of EU countries including Poland, Bulgaria, Finland, the Netherlands, Denmark, Italy, and Germany. The International Energy Agency (IEA) is warning Europe of a possible complete shut-off soon. This has forced the EU to authorize emergency measures, including an increase in coal use for power generation and energy subsidies for people and businesses. Though Europe’s gas storage levels are now high, at 85 percent or more, these can only cover about three months of demand.

Such actions and corresponding reactions have global impacts. The uncertainty they have introduced to oil markets, coupled with constrained supply, especially from OPEC, have helped to push prices well above the $100 per barrel mark. While China’s lockdown of dozens of cities has lowered demand and prices somewhat, this is temporary and adds to uncertainty. Meanwhile, to say that changes in fuel prices come with political effects, not least in the United States, is to state the obvious. But in this case, they are part of an unfolding rearrangement in the world map of energy geopolitics. Europe’s response has led the Kremlin to offer its oil to Asian buyers such as China and India, who have gladly accepted it at a 30 percent discount of the global price. This weakens European efforts to punish Russia for its vicious war-making, thus fueling tension between the Asian giants and the EU. But it also puts Russian exports in direct competition with OPEC, which is the major supplier to Asian nations.

Meanwhile, one of Putin’s chief aims is to inflict major damage on Ukraine’s economy. Taking control of the Donbas region and nearby areas enables Russia to cut off Ukraine’s access to most of its own coal reserves, oil and gas fields, important pipeline corridors, and shale gas resources. Russian forces have also occupied since March and now shut down power from the Zaporizhzhia Nuclear Plant, a major source of electricity to Ukraine’s industrial areas (as of this writing, the plant is in cold shutdown, with cooling systems working, but shelling may begin again at any time). This strategy of economic damage has been in play since Russia’s 2014 invasion. Destruction of energy and transport infrastructure during that assault reduced the country’s electricity generation by more than 25 percent, and its key exports of iron and steel by nearly half. With the current invasion, Russia means to take control of Ukraine’s entire coastline, thus reducing the country to a landlocked condition.

The energy war and the military assault—BTUs and bullets—are thus two sides of a single conflict. It is a confrontation that can only isolate Russia from the world’s advanced, wealthy nations for a long time to come. Putin believes the West will soon forget about this war once Russia achieves total victory. He is likely to be wrong on both counts.

Putin has also used selective oil and gas cut-offs to sow disunity among EU members, but this has failed. Disagreements over energy are inevitable among so many nations with diverse needs, but there are no signs the Union is falling apart. EU President Ursula von der Leyen’s 2022 State of the Union was clearly a wartime unity speech: “[We] will be tested,” she said, “by those who want to exploit any kind of divisions between us…[But] this is a war on our energy, a war on our economy, a war on our values, and a war on our future.”

In fact, the EU’s decision to cut itself free of Russian oil and gas has the potential to do much damage to Russia. How much damage will depend on a number of factors, but two in particular stand out: how strictly EU and U.S. sanctions against Russian oil/gas exports are enforced, and whether major western oil companies, which Russia needs to develop future reserves, can be kept from operating within the country.

The energy war has brought cruel reminders of the realities of daily life for the EU. These revolve around the very high prices for fuel (oil), heating and electricity (gas), and related commodities.

“Cruel,” that is, in the sense of unwanted but unavoidable truths. After years of bashing fossil fuels with negative rhetoric, targeted policy, and activism, Europe has been forced to accept that they remain critical resources. Oil, gas, and coal comprise over 80 percent of the energy consumed worldwide and more than 70 percent in the EU. In blunt terms, fossil fuels still run the world, Europe included. Moreover, though oil’s centrality to modern economies has declined since the 1970s, it remains globally the most used source (by BTUs). This is due to the increasing role of global trade (and thus transport) in the world economy and the penetration of petrochemicals into every aspect of daily life.

Some commentators point out that the current crisis provides a real opportunity to change course to non-carbon sources. This can’t be denied, but it won’t happen overnight. It simply isn’t possible to solve the crisis with a sudden, massive expansion in non-carbon sources, especially intermittent ones like wind and solar. Wind and solar energy continue to require back-ups, which has predominantly meant natural gas. In its “10-point Plan” to cut EU gas imports from Russia, the IEA advised accelerating new wind and solar projects over the next year because it is a necessary step, but its top two actions were, first, to sign no new gas contracts with Russia, and second, to find alternative suppliers.

This raises two additional points. Much concern has been devoted to the renewed focus on fossil fuels brought on by the energy war. Yet the desire to lower prices for these critical fuels does not necessarily contradict action on emissions. No energy system in crisis can solve its underlying problems in short order. Europe’s priority must be to regain stability for its industries, transport systems, and its people. Thus, it has to focus on fuels it most relies upon.

The second point comes from the EU’s published strategy to reduce dependence on Russian oil and gas. The REPowerEU Plan includes a diverse set of actions, most of which echo the IEA plan, that is,  new suppliers; improved energy efficiency; rapid permitting and construction of renewables; expanded use of heat pumps; stronger incentives for electric vehicles. Regarding the last, EU countries have agreed to support a policy requiring all new car sales to be zero-carbon by 2035. For car companies, this immediately raises the question of charging infrastructure and grid readiness—will these be supported at a high level too? If they are, such measures carried out with sufficient funding could have significant results even by 2025 and will set new standards for progress regarding both energy security and decarbonization.

The one missing element in the REPowerEU Plan is nuclear power, which produces 40 percent of the region’s non-carbon electricity and is strongly recommended by the IEA. Although nuclear power remains controversial in the EU, it is favored as a non-carbon source by more than half of the EU, including France, Finland, and Turkey, as well as the UK. The current energy war showcases that more nuclear plants would have significantly reduced EU demand for gas, and thus dependence on Russia, while also supporting the closure of more coal plants. Conversely, efforts to close nuclear plants have led directly to increased gas imports from Russia. In 2021, the European Commission controversially designated nuclear an acceptable “low-carbon” source for achieving net-zero emissions by 2050. Wishing to avoid an internal energy battle, the REPowerEU Plan leaves any decision about nuclear power up to individual governments. And it is a decision which those governments need to make, rather than avoid. France’s temporary shutdown of half its reactors due to maintenance issues has not made the decision any easier.

Despite the current crisis in the EU, Moscow has the most to lose in this energy war. Geopolitically, a new landscape is emerging: Russia will no longer be a key supplier of oil and gas to advanced nations. A hydrocarbon curtain has begun to fall in Europe.

Scott L. Montgomery is an affiliate faculty member in the Henry M. Jackson School of International Studies at the University of Washington and a fellow at the Stevanovich Institute on the Formation of Knowledge, University of Chicago.

Image: Photo on Unsplash.com by Chris LeBoutillier