An Excerpt of “Energy Geopolitics,” for the Foreign Policy Association, and the Wood County Committee on Aging’s Great Decisions Lecture Series, 2023, Bowling Green (21 January 2023)

When the Russians invaded the Ukraine last February, they hoped to use Europe’s dependence on Russian energy deliveries, particularly gas, to soften the reaction of the West, and perhaps also to split the West’s reaction to Russian aggression. 

They hoped in particular that the Germans would remain somewhat conciliatory.  Russia was supplying the EU with 40% of its natural gas before the war began.  Natural gas constituted 25% of Germany’s energy supply, and Russia supplied 55% of Germany’s gas consumption.  Moreover, Germany and Russia were about to open Nordstream II, the second major pipeline under the Baltic Sea, which permitted the direct shipment of Russian gas to Germany, without passing through Polish or Ukrainian territory. 

Germans had put a tremendous amount of capital into the construction of the pipeline; were they not going to turn it on now, just because Russia was invading Ukraine?  Putin and the Russians got this wrong.  Even the Germans were very critical of the invasion of Ukraine.  They refused to bring Nordstream II on line, and the members of NATO have largely stood together against Russian aggression. 

The Russians responded over the summer by putting the energy screws on Europe.  They delayed the reactivation of the original Nordstream pipeline, after a shutdown for routine maintenance, and then mysterious explosions destroyed sections of both of the Nordstream pipelines in Danish territorial waters, under the Baltic Sea, in September 2022.  The Russians have subsequently cut off gas deliveries, at least by pipeline, to most EU and NATO countries, including Germany.  (They’re still delivering gas to Hungary and Serbia, via pipelines, by the way.) 

By early fall, Europe’s energy prospects for this winter were looking rather dire.  Journalists speculated that major sectors of manufacturing might shut down in Germany and Italy, and that there might not be enough energy to heat houses over the current winter.  Russia’s energy offensive against Europe coincided with defeats on the battlefield in Ukraine.  In late March 2022, the Russians began pulling back from positions around the Ukrainian capital Kyiv.  In September, the Ukrainians launched a major successful offensive in the Kharkiv region, causing a new round of Russian withdrawals.  And of course, in early November, the Ukrainians reoccupied Kherson, the largest Ukrainian city they had seized in their 2022 offensive, near the mouth of the Dnipro River.  Since Russia wasn’t winning on the battlefield, the default strategy became winning by depriving Europe of gas and splitting the West. 

The good news is that while dwindling Russian energy imports have harmed Europe’s economy, they haven’t led to a severe recession yet or left Europeans shivering in the cold.  Europe managed to stockpile gas reserves during the summer and fall to carry it through the winter—especially if the winter remains relatively mild, as it has been so far.  However, this doesn’t mean that Europe is out of the woods yet.  Over the next two to three years, the EU will have to continue to scramble to make up for the collapse of Russian energy deliveries.  Right now, the EU is trying to ramp up the production of renewable energy, especially from wind and solar, and these efforts will trim Europe’s gas requirements over time.  The Europeans are also scrambling to expand their capacity to import liquid natural gas (LNG), by building new terminals and expanding the capacity of existing terminals—Germany particularly.  The United States, in particular, could become a more significant supplier of LNG gas to Europe, but it’s going to take time to get the infrastructure in place, and there will be a window of vulnerability that will not close until about 2025. 

Let’s look at the economic situation in reverse.  The Biden administration tried to dissuade Russia from invading Ukraine by threatening a comprehensive regime of economic sanctions.  Over the short run, the sanctions that the USA and its allies have imposed on Russia have probably shaved at least a couple of percentage points off of its GDP and have probably led to supply chain problems in at least some industries.  However, they certainly haven’t brought Russia to its knees yet. 

There’s a debate among energy experts about the medium term.  The Spanish journalist Javier Blas raised a stir, when he reported on 12 December 2022 in Bloomberg and Business Insider that at a meeting organized by the Oxford Institute for Energy Studies the previous week, about 40% of those present predicted that Europe would go back to purchasing natural gas from Russia again, once the Ukraine crisis was resolved, while another 40% predicted they would not, and about 10% declined to take a position.  Blas numbered himself among those who thought the Europeans would go back to buying Russian gas.  I think that Europeans will certainly buy Russian gas on the spot market, if the international situation improves again.  However, I tend to side with the experts who think that the Ukraine War has dealt a body blow to the current Russian economic model. 

Sustaining Russia’s position as one of the three major fossil fuel producers in the world, and as one of the two main exporters during the period in which the world transitions to net zero carbon emissions would have required major Western investments in the Russian energy sector.  The Russians don’t have the technology to bring additional Russian production, in difficult to reach zones of Siberia, on line without sophisticated partners.  Maria Shagina, a research fellow at the International Institute for Strategic Studies in London, describes lucidly the likelihood of this happening in an article titled “Russia’s Demise as an Energy Superpower” in the August-September 2022 issue of Survival.  The title is self-explanatory.  The Russians spent decades, beginning in the 1980s, trying to build a reputation for being a reliable energy supplier to Europe.  Their reputation for reliability now lies in tatters.  Europeans may buy gas on the spot market from the Russians again, but they will never put themselves in a position where they depend on the Russians again, and it is difficult to imagine circumstances under which Europeans will invest in major energy infrastructure projects in Russia. 

 This is my second piece of good news in this talk:  in the medium term, Russia’s future as a major energy producer, and a major international player in energy markets looks dim, and this means that the medium-term viability of Russia’s economy and of Putin’s autocratic state also look dim. 

Of course the Russians are trying to restructure their export markets right now away from the EU and towards China and India.  During this past year, the Chinese and the Indians have been happy to take Russian gas, although the Chinese have exacted major price discounts from the Russians.  However, the Chinese are also extremely cautious about becoming dependent on energy from any single foreign supplier.  They’re not happy about running the world’s largest energy deficit today, which includes importing about 60% of the oil and 42% of the natural gas they consume.  The Chinese have an informal standard of limiting foreign suppliers to a 15 % share of their domestic market for major energy commodities, and the Russian share of the Chinese oil market was already running a bit above that before the Ukraine War started (above 18%).  They could import more gas from Russia, without exceeding the informal standard, since they started from a lower level.  But the Chinese have proven notoriously skittish in the past about making major investments in the Russian energy sector, investments which the Russians could one day render worthless to the Chinese by turning off the tap. 

Russia’s energy policies vis-à-vis Germany and the rest of Europe are hardly going to encourage the Chinese to become bolder about investing in Russia.  In fact, what the Chinese have been doing is building out the infrastructure allowing them to import gas and oil from Kazakhstan, Turkmenistan, and Uzbekistan.  Chinese imports from Central Asia have been growing, as Russian influence there wanes.  Keep in mind also that the Chinese are now, and have the ambition to remain major suppliers of green energy technology around the world, and in the long run they plan to transition to a zero net carbon economy.