Analysis | Russia's Tightening Grip on European Energy Supply
- European & Russian Affairs Specialist,
The International Scholar
- Foreign Policy, National Security, Energy Security, European & Russian Affairs
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Ithaca, NY — The Kremlin often wields access to its oil and natural gas supplies as deft foreign policy tools to pressure nations into political and economic action beneficial for Russia. As one of the largest energy exporters in the world, Russia takes advantage of importer-countries’ “need to ensure their energy security.” In the interest of U.S. national security, we should respond with new policies in response to Russian energy weaponization.
Russia uses the oil and natural gas industry to exert political and economic pressure on other states. One of the ways the Kremlin achieves this is by offering different prices to different nations for energy exports. First, Russia will determine oil and gas prices based on a country’s reliance on Russia and the dominance of Russian companies in the market rather than regional demand. Thus, because Central and Eastern Europe rely on Russia for about 75% of natural gas demands, countries in this region “ultimately overpay 10 to 30 percent more for their imports than their Western neighbors.” Further, rather than pricing supply by transport distance or quantity, Moscow also offers discounted energy deals to nations supporting the Kremlin’s goals over those of, for example, the EU, as “political discounts or punishments.”
When dealing with specific countries, it becomes clear that Russian gas company Gazprom also uses discounts and price increases to influence domestic political decisions. In 2006, Moldova’s gas prices increased $30 per 1,000 cubic meters following a shut off of Russian gas supply to the small Eastern European nation. Previously, Russia sold gas to former-Soviet republics like Moldova at discounted prices, but by 2006, Russia began re-negotiating contracts with many former Soviet nations – or at least those which failed to maintain close ties with Moscow. Moldova continues to largely depend on Russia for energy supplies, further complicated by pipelines which run through the breakaway province of Transnistria, and will have trouble breaking Russia’s grip even with the implementation of the EU’s Third Energy Package for market diversification.
Moscow also uses energy supply to influence foreign political decisions. By threatening to build new pipelines to divert supply (and associated income from tariffs), decreasing supply, or shutting off supply completely, Russia can leverage energy resources over consumer nations to pressure them into making political and economic decisions favorable for Russia. While Ukraine’s recent energy cut offs from Russia may be more well known, Belarus has also faced issues with Russia limiting natural gas supply over the past decade. Disputes between Minsk and Moscow including conflicts in 2004, 2007, 2010, and 2016 all resulted in changes, or complete cut offs, in Russian energy supply to Belarus. Reductions in supply were often met with accusations of Russian intimidation to pressure Belarus to remain in Russia’s orbit of influence by refusing closer political and economic ties to the West.
Russian state-owned energy companies have also accumulated large shares of energy infrastructure throughout Europe. Investments in distribution markets, pipelines, energy trading, and storage facilities in countries including Serbia, Bulgaria, Latvia, Hungary, Slovakia, Germany, Austria, and the UK offer Russia further influence over political and economic decisions in these nations. Pipeline routes, in particular, including the proposed South Stream and Turkish Stream pipelines and the current Nord Stream 1, are dictated by political motivations rather than commercial viability to “exert maximum influence over the countries they are going through, as well as the countries that they circumvent.” The most recent example of Russia’s ‘pipeline politics’ is Russia and Germany’s joint venture with Nord Stream 2 (NS2). NS2 is a new supply line, running parallel to Nord Stream 1 in the Baltic Sea, which will allow Russia to increase supply to EU customers and discontinue the use of the Brotherhood and Soyuz pipelines which run through countries including Ukraine. Therefore, NS2 supply line strips Eastern Europe of existing leverage over Russian energy by diverting supply directly to Western Europe. Russia will be able to decrease or cut off supply to Eastern European nations for political reasons without consequences for other Western European nations while increasing Western European reliance and capacity for Russian supply.
Finally, Russia uses its energy resources to levy pressure on multilateral institutions. Large oil and gas reserves provide the Kremlin strategic influence in the energy industry and, consequently, influence over nations reliant on energy imports including Bulgaria, Estonia, Finland, Latvia, Lithuania, Romania, Germany, Austria, Italy, France, Hungary, Poland, and the Netherlands. In turn, these nations represent Russian political and economic interests in forums like the EU and NATO. Germany, which imports Russian energy for about 40% of oil needs and about 35% of natural gas needs, illustrated Russia’s influence when Chancellor Angela Merkel attempted to block EU regulations which would prevent Gazprom from buying more European energy utilities and establishing the company’s “monopolistic position in EU gas markets”. Further, former Ukrainian President Viktor Yanukovych abandoned negotiations for an association agreement with the EU in favor for closer ties with Moscow after Russia drastically cut Ukraine’s gas prices in 2013 in an effort to convince Ukraine to sign a trade deal to bring Ukraine closer to Russia. This move precipitated the outbreak of protests and violence in Ukraine that contributed to his ouster and the ongoing violence today.
Russia’s weaponization of energy coerces sympathetic political and economic behavior from states reliant on Russian energy supply. The United States should act against Russia’s energy strategy which seeks to spread Russian influence throughout Western and Central Europe and in former-Soviet republics, exploit divisions between Western allies, and weaken the Western-oriented world order. As U.S. allies both in NATO and outside the alliance depend on Russian energy, U.S. political and economic goals are pit against Russian influence. Washington should take action to address the rising conflicts of interest between the U.S. and European allies to protect our security, economic, and political interests.
Over the past two years, U.S. leadership has announced new trade deals with countries including China, Poland, Ukraine, Lithuania, Japan, South Korea and Vietnam as recipients of U.S. liquid natural gas (LNG). The current administration has also rolled back environmental regulations on pollution and fracking and increased federal gas acreage available for lease. These actions support expanding market opportunities for U.S. energy companies but are not enough to meet the President’s promises of global “energy domination.”
The United States and Russia share common interests in European regional stability, economic development, and energy supply. Thus, while it is in the U.S. national interest for Russia to continue to supply some oil and natural gas to Europe, the United States must pursue energy policies which support the American national security agenda. With this in mind, U.S. goals should be to guarantee the security of NATO partners in Eastern Europe, provide alternative energy supplies for states dependent on Russian energy, facilitate increased opportunities for American natural gas producers and exporters, and grow the international renewable energy industry. In order to reach these goals, the United States should pursue several new policies.
First, the U.S. should pursue trade agreements with nations willing to pay a premium for diversification away from Russian energy dependence. Nations dependent on Russian energy and associated income from tariffs, such as Ukraine and Belarus, will prioritize diversification of energy supply over low-cost Russian energy. Central and Eastern European nations concerned about Russian influence from energy imports will value relationships with American energy companies for fuel alternatives, foreign energy infrastructure investment, and increased diversification of supply. Many of these nations already have LNG import terminals and would likely pay a premium for non-Russian natural gas to ease dependence on Russia. Though Russia may respond negatively, the U.S. should stress that it is not looking to replace Gazprom but rather sell energy alongside it in a competitive marketplace. U.S. supply will offer a choice for those highly dependent on Russian gas.
Second, the U.S. should work to create a favorable market environment for U.S. producers to export LNG abroad. American LNG can become a viable alternative to both free-trade and non-free trade agreement countries. U.S. natural gas companies are more likely to increase production and exports of LNG if a guaranteed market exists. The U.S. can facilitate new opportunities in the world market by passing legislation to expedite regulatory processes for LNG exports, confirming trade deals with non-free trade agreement countries, guaranteeing space in storage containers and use of natural gas pipelines, and making deals for short-term, low-fee use of LNG import terminals and pipeline capacity. As demand increases, economies of scale will allow American companies to produce LNG at decreasing costs until energy producers are able to sell LNG for competitive prices in free-trade regions like the EU. Expanding markets will support U.S. LNG company growth and contribute to U.S. economic strength and energy security.
Finally, the U.S. should support the research and development of renewable energy technology. Europe’s growing renewable energy market offers an alternative to the Russian-controlled energy supply. Favorable U.S trade deals with European allies on materials used in renewable energy infrastructure and battery production for energy storage will help both sides increase production and use of renewable energy sources. The United States government should also provide grants to private companies and universities pursuing development of renewable energy technology and encourage overseas partnerships with corporate and university counterparts. Renewable energy infrastructure will invest value in the growing market and become increasingly used (and profitable) as the world looks for clean post-fossil fuel energy resources.
All views expressed in this article are solely those of the author, and do not represent the views of The International Scholar or any other organization.
Banner Photo Credit:
Russian Energy Week International Forum, The Kremlin