Russia’s Russia’s Energy Politics: Short Term Impact with Long Term Implications

As analyzed by Stratfor (subscription required), the Russian threat of turning off lights or heat in Central and Eastern European capitals — especially in winter — is a powerful one. While Europe can succeed in its efforts to diversify its energy sources in the long term, Russia is sure to use its compelling energy lever as long as it can. As the article notes:

“…The Russian government has reportedly told its oil companies to prepare to cut off shipments to Europe in response to the European Union’s threat of sanctions… The report was immediately refuted by LUKoil, Russia’s largest privately owned oil company, as well as by the Kremlin through Russian Energy Minister Sergei Shmatko, who said, “We are doing everything we can so Druzhba can keep working stably and supply European consumers with enough oil.” Druzhba is the main oil pipeline through which Russia supplies Europe with nearly 1.4 million barrels per day (bpd).

Map - FSU - Druzhba and Other Pipelines

Even with the speedy Russian denial, the timing of the Daily Telegraph report is crucial. The European Council will gather the heads of EU member states Sept. 1 to discuss the Russian intervention in Georgia and the possibility of imposing economic sanctions. “Many other means as well” will be considered, said French Foreign Minister Bernard Kouchner on Aug. 28. The Russian threat is likely an intentional leak by the Kremlin to give Europe something to ponder over the weekend before the EU Council meeting, a reminder that the European Union may have sanctions as a lever but Russia has energy.

…Europe understands Russia’s energy pressure tactics and has been trying to counter them for some time. European attempts to diversify energy imports — oil and natural gas alike— are rooted in the 2006 Ukrainian energy crisis, when the Kremlin cut off natural gas supplies to Ukraine in its first use of energy policy for political purposes. The Kremlin was trying to directly influence Ukrainian elections and, more important, signal to the West that it did not accept Western advances into what it considers its vital periphery. The cutoff shocked European countries further down the pipeline into realizing their vulnerability and that something decisive needed to be done.

There is an indication that Europe’s 2020 energy and climate plan is progressing on some levels. Europe has begun to develop liquefied natural gas (LNG) infrastructure as well as undersea links to natural gas in North Africa. However, Europe is still largely dependent on Russia, particularly for natural gas, while many European countries have since made side deals with Russia that seem to contradict the stated imperative of moving away from Russian energy.

Since the Ukrainian energy crisis in 2006, Russia has only threatened individual countries with energy cutoffs and has never gone through with it. Cases of the Kremlin’s willingness to still play energy politics with Ukraine, the Baltic states, Belarus and the Czech Republic abound. Each case was a pointed reminder for Europe of just how capable the Kremlin is of playing energy politics.

France is one of the leading voices for sanctions, along with the United Kingdom, because it uses nuclear power instead of Russian energy imports. The United Kingdom similarly does not need Russian energy supplies because of its access to Norwegian natural gas and plentiful LNG imports. Germany and Central European states, however, are particularly dependent on Russian imports, with 43 percent of Germany’s total natural gas consumption coming from Russia. Beyond natural gas, German manufacturing also depends on Russian metals and chemical imports and any further slowdown in the sector would cripple the overall European economy. Germany simply does not have any alternative in the short term to Russian oil and gas imports and neither do Slovakia, Bulgaria, Hungary, Austria and Czech Republic.

European Dependence-Natural Gas-400.jpg


This entry was posted on Saturday, August 30th, 2008 at 6:08 am and is filed under Gazprom, Lukoil, Russia, Ukraine.  You can follow any responses to this entry through the RSS 2.0 feed.  You can leave a response, or trackback from your own site. 

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Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.