Europe no longer trusts Moscow’s energy brand
The EU faces hard but necessary choices if it is to end its reliance on Russian gas imports
The writer is vice-chairman of S&P Global and the author of ‘The Prize’ and ‘The New Map: Energy, Climate and the Clash of Nations’ Among Vladimir Putin’s many miscalculations was his expectation, before the invasion of Ukraine, that Europe’s dependence on Russian energy was so great that its response would be muted, limited to little more than protests. That’s hardly proved to be the case as even Germany is now sending arms to Ukraine. This week Putin tried to apply Russian energy muscle directly, cutting off gas to Poland and Bulgaria because they won’t play his rouble game. The effort has fallen flat. Both countries have adequate alternatives.
Still, it serves as a warning that Moscow may seek to use the energy weapon against the rest of Europe. Russia’s president believes he holds that capability. A “replacement” for Russian gas, he said this month, “simply does not exist”.
Rather than trying to analyse whether it will happen, Europe needs to prepare for the possibility. Yet whatever Putin does in the next several months, the energy weapon is going to turn into a boomerang. For the ultimate target will be Russia itself. For half a century, Russia has trumpeted its brand as a reliable supplier — no matter the political tensions, its energy would flow to Europe without interruption.
The war has pulverised that brand. Europe doesn’t trust Russian energy any more and doesn’t want it. Russia may further manipulate supplies as the battle grows fiercer in Ukraine. But the lasting cut-off of Russian energy won’t come from Kremlin action. It will come from Europe, determined to disconnect from its main supplier.
As the war intensifies, the timeline is getting shorter. The Biden administration’s original “massive” sanctions package excluded the most massive thing of all — Russia’s oil and gas exports — currently worth about $250bn a year to the Kremlin. This reflected Europe’s concerns that, without these supplies, its economy would be so disrupted prices would be so high as to undermine governments and their commitment to western unity.
But the shock at Russia’s war set off a process of unexpected self-sanctioning by western firms to avoid touching Russian oil. What is now making the difference is the co-ordination between key European governments and the oil and gas industry, which actually manages the logistics of energy flows. This has led to a much deeper, more informed understanding of energy flows and supply chains — and options.
Make no mistake: cutting the energy cord with Russia will be hard. Roughly 2mn barrels of crude oil have to be replaced. But a ban on Russian crude imports is imminently on the EU agenda. Western countries are putting into the market about 1.3mn barrels a day from their strategic stocks, and China’s Covid lockdown has reduced economic activity and travel, freeing up additional oil.
Only weeks ago, Berlin was saying that it would need a year or two to stop using Russian oil. But a few days ago, economics minister Robert Habeck said something remarkable — if need be, a solution could be found in “days”. As it is, Germany’s imports of Russian oil have dropped from 35 per cent to 12 per cent of total consumption. Harder to detach from are refined products, such as diesel and petrol, of which Russia is a significant supplier. Diesel supplies are short the world over, partly because of refinery closures.
The hardest thing to dislodge in its entirety is Russian natural gas that comes by pipeline, which accounts for 25 per cent to 35 per cent of Europe’s supplies. But please note that means 65 per cent to 75 per cent of Europe’s gas comes from somewhere else. Alternatives to Russian gas exist. The bulk of US liquefied natural gas, which formerly went to Asia, is now coming to Europe.
US supplies will increase this year. However, it appears that only about a third of Russian gas can be readily replaced from existing alternative sources. There are other ways to replace gas imports from the east. But that requires realism — a recognition that short-term expedients are required in wartime, without abandoning longer-term energy transition goals. Floating LNG receiving terminals may come to Germany and other countries by the end of the year.
The giant Groningen gasfield in the Netherlands, virtually shut down for environmental reasons, can be cranked up again. More coal can be burnt in electricity generation, thus prioritising gas for heating and industrial processes. Europe’s exit from Russian gas will strip Putin of his most important market.
The gas will be backed up, no longer generating revenues. Fixed pipelines cannot be dug up, put on tankers and shipped somewhere else. Western sanctions on technology will impede expansion of Russia’s Arctic LNG. Overall oil and gas production will decline. Putin has announced his response — building new pipelines to China.
But that will take years. And when it comes to price, the Chinese will take advantage, as they did when negotiating the Power of Siberia gas deal in 2014 after Russia’s annexation of Crimea and the ensuing western sanctions. No one knows better than Putin what this will mean in terms of reduced revenues for the Kremlin. As he said after the 2014 deal: “Our Chinese friends drive a very hard bargain as negotiators.”
I am having breakfast in my parents’ garden in a suburb of Chisinau, the capital of Moldova. It’s a sunny day, the birds are singing, tulips and violets are in bloom. My two mixed-breed dogs, Pfizer and AstraZeneca, adopted during the pandemic, climb on my knees, asking to be stroked.
A truck selling vegetables passes by with a nasal voice announcing on a megaphone: “La cartoafe, ceapa, morcovi, mere” (“Potatoes, onions, carrots, apples” in Romanian). This couldn’t get any better and yet, once again, I am crying, afraid that I may lose all of this. Just this week there were several explosions in Transnistria, a breakaway region whose border is an hour’s drive from Chisinau. This 400km-long strip of land is separated from the rest of the country by the Nistru (Dniester) river and controlled by a Kremlin-backed regime that has not been recognised by any country, not even Russia.
The strikes destroyed the so-called ministry of security building in the city of Tiraspol on Monday, and on Tuesday hit two radio antennas in the town of Maiac that broadcast Russian programmes. No one was hurt or killed. Such incidents have happened before in Transnistria, but the war in Ukraine makes them all the more worrying.
The Friday before last, Russian general Rustam Minnekayev announced a plan to create a corridor from eastern Ukraine, via the south, all the way to Transnistria. He added he was aware of “oppression of the Russian-speaking population” in Transnistria — an ominous echo of the pretext used to justify the invasion of Ukraine.
Some friends are asking on Facebook whether they should pack their bags. I know Moldovans who have already fled since Russia’s invasion of Ukraine. I’ve planned a birthday trip next week to the Romanian mountains and now wonder whether I will be able to get back and see my grandparents and my dogs again.
“Let’s hope this is not our last Easter together,” my grandmother said as she raised a glass over our family lunch last weekend. When my mother gave birth to me 30 years ago, she could hear the bombs from the Transnistrian war from the maternity hospital in Chisinau. The conflict, lasting between March and July 1992, was Russia’s first post-Soviet war aiming to keep a former colony under its sphere of influence.
To this day, Russian troops are stationed in Transnistria and some 20,000 tonnes of Soviet ammunition are buried in the village of Cobasna, the largest ammunition depot in eastern Europe — despite international agreements signed by Russia to withdraw both.
Throughout my life, the frozen conflict in Transnistria has been a continuous setback for Moldova’s independence from Russia, its aspirations to join the EU and its fight against corruption. But no one believed that a real war might re-emerge on Moldova’s territory. That has now changed.
The mantra we keep repeating is: “Moldova depends on Odesa, and Odesa depends on Mykolaiv.” Odesa is only 60km away from the Moldovan border, and Mykolaiv is 130km from Odesa; neither has yet been taken by the Russians. . .
Since the 1990s, Transnistria’s economy has been monopolised by one company, Sheriff, which was co-founded by ex-KGB agent Victor Gushan and which owns everything from a supermarket chain to the eponymous Champions League football club and effectively runs Transnistria’s ruling party. There aren’t many opportunities for people outside this small elite. With the death of Transnistria’s Soviet-era industry, Moldova has become more attractive for young people like Kalarashan.
It will be even more appealing if its EU membership application makes significant progress. Since the war, my family has stopped watching local TV programmes, tuning in instead to Freedom Ukraine, a Russian-language channel on which several Ukrainian television teams have joined forces to cover the war. One commentator explained the incidents in Transnistria as the Kremlin’s attempt to formally take over the region in order to have “at least something” to report on May 9, known in Russia as Victory Day. It’s a plausible explanation. May 9 parades glorify the Soviet conquest over fascism in the second world war and commemorate the victims, but in recent years they have been used as pro-Kremlin marches. In Transnistria, the May 9 parade has now been cancelled. We are yet to see what will happen in Chisinau, where the date has often been marked by marches organised by pro-Russia political parties.
One key symbol in these parades is the orange-and-black St George ribbon, a Russian military symbol that was banned in Moldova last week, together with the “Z” and “V” markers adopted by Russian troops in Ukraine. “Those justifying the killing of Ukrainians today might ask for the killing of Moldovans tomorrow,” president Maia Sandu said as she promulgated the law. In response to the ban, Duma member Viktor Vodolatsky declared that “the Ukrainian script will be repeated [in Moldova]”.
In the first week of war, Chisinau’s decaying socialist modernist National Hotel was painted yellow and blue, the colours of the Ukrainian flag. As the new law came into force, it was half painted over in orange and black, the colours of the St George ribbon. The police identified two individuals paid by the Kremlin-supported opposition party PSRM as the painters.
The authorities asked the same individuals to cover the orange with black paint. It gives me hope that the blue-and-yellow flag was a spontaneous act, while the St George ribbon was driven by money — and ruled out by law. Law and international support can protect Moldova from Russia’s meddling in its politics. But given our small military, only the Ukrainian army is now protecting us from Russian aggression. I will keep donating to them.