Russian Energy Warfare Tactics Might Be Counterproductive
As the dust begins to settle on the Ukrainian Civil War, a new conflict waits in the wings. After pulling forces from regions in Eastern Ukraine, Russia has found other means of putting pressure on the Ukrainian government in Kiev through one of its favorite political tactics - energy warfare.
For the last few months, Russia and Ukraine have been locked in heated political brinkmanship over the question of Russian exports of natural gas. Blocked from receiving natural gas until a deal could be brokered, Ukraine was forced to resort to buying re-sold natural gas from Western allies – a process known as reverse flows. These practices evoked a strong negative reaction from Russia’s Gazprom, with the energy giant ultimately deciding to punish states aiding Ukraine such as Poland, Slovakia and Hungary by reducing gas flows to them as well.
At long last, EU-backed negotiations reached a preliminary agreement on September 26th, striking a deal whereby Russia would resume exporting natural gas to Ukraine at a moderate price. Even with this new plan in place, however, there is still a real danger that Russia could cut off gas supplies later this winter should Ukrainian-Russian relations take another nosedive. Russia is not shy to resort to using its dominance in the energy sector as a political weapon, and cut off Ukrainian gas earlier in 2006 and 2009 in response to political confrontations. In preparation for the possibility of a repeat occurrence, Europe has been stockpiling reserves natural gas as a safety measure.
This entire scenario, often repeated in times of political tension, is painfully indicative of a larger problem – namely, European dependence on Russia for oil and natural gas. Ukraine receives 60% of its natural gas from Russia, with Europe as a whole dependent on Russia for over 35% of their gas import. Other states in Eastern Europe are completely dependent on Russia for their energy import. It is clear that Russia has an energy monopoly in these areas, and is not afraid to use it to its benefit.
Despite these troubling statistics, however, things appear to be changing slowly. New Ukrainian President Poroshenko has pledged one of the primary priorities of his administration as achieving energy independence from Russia. Meanwhile, Europe is actively undergoing a process of energy liberalization, with new pipelines being built between European countries to make them more resilient to Russian pressures and new investments being placed in floating liquefied natural gas (LNG) import terminals. One such pipeline, currently under construction, would also provide relief to Moldova, who is currently entirely dependent on Russia for gas imports. There is even talk that these efforts could eventually culminate in a European “energy union.”
Even Russian allies in the Central Asian countries such as Kazakhstan and Uzbekistan are beginning to feel the bite of dependence on Russian energy. There, Russian fuel prices are rising – and this time not because of Moscow’s politics, but because of Russian production and distribution inefficiencies. Simultaneous repairs at key Siberian refineries that supply Central Asia, paired with new demands for fuel from Russia’s recently annexed Crimea have given rise to this fuel deficit, highlighting the shortcomings of Russia’s aging energy infrastructure. This has caused many in Central Asia to begin to question Russia’s energy monopoly as well, and many are starting to consider other markets.
With both allies and adversaries preparing to jump ship on Gazprom, it is clear that Russia needs a new strategy. While currently enjoying its ability to manipulate its leverage as an energy hegemon, Russia may find its clientele significantly reduced in the coming years. As oil and gas revenues count for more than 50% of federal budget revenues, this is not a scenario that Russia can afford to withstand, especially with the economy facing major pressure from Western sanctions. In the long run, then, Russia may find that proving to the world that it can be a reliable energy supplier may be more rewarding than flexing its energy muscles for short-term political gain.