How Russia Got Leverage Over Europe's Energy
Supplying the power gives you power.
Russia has followed through on its threats of invading Ukraine, and the U.S. and Western Europe have shown a unified initial response. They have vowed to halt the Nord Stream 2 pipeline and announced new sanctions against Russia. These threats sound good on paper, but ring hollow after taking a look at the state of energy security in Europe. Nord Stream 2 was never going to be the primary source of Europe's energy, but would instead augment existing Russian energy imports. Forty-one percent of the European Union's natural gas is already being supplied by Russia and halting an additional pipeline is akin to New York City preventing a new Starbucks construction.
European politicians are trying to alleviate concerns by saying they can transition away from Russian gas to renewables, but executing such a change is difficult. Wind and solar energy are imperfect substitutes, and only intermittently provide power. Politicians do themselves no favors when they pretend that the sun doesn't set, that the wind never dies down, and that these sources can provide limitless on-demand power.
The situation only gets worse when oil and petroleum products are taken into account. Providing 27 percent of Europe's oil, Russia is the dominant supplier. As much as the E.U. has been pushing for electric vehicles, the truth is that only 1 percent of Europe's passenger vehicles are electric. The E.U. is extremely reliant on Russia's oil and there's no reason to believe that will change in the near term.
For anyone speculating that surely the West's response to the invasion of Ukraine will at least get these numbers trending in the right direction, we need only refer to what happened after Russia's other recent invasion of Ukraine and illegal annexation of Crimea in 2014. From 2010 to 2021, the E.U. increased its use of Russian natural gas from 44 percent to 48 percent. Between 2014 and 2020, Germany increased its natural gas imports from Russia by a whopping 41 percent, and now Germany gets 66 percent of its natural gas imports from Russia. In effect, Western Europe responded to Russia's previous expansionism by increasing its reliance on Russian energy.
Sanctions are a common nonmilitary response in international conflicts, but their effectiveness is particularly blunted on energy suppliers because oil is traded in U.S. dollars, and natural gas contracts usually have prices indexed to oil prices. The perverse effect of sanctions on Russia is that as the ruble suffers and weakens under sanctions, the exchange rate becomes more favorable for U.S. dollars, making the relative value of Russian exports to the local currency increase. Gazprom and Rosneft, Russia's major energy companies, are state-owned enterprises, meaning those energy sales are going right into Russia's coffers. With natural gas shortages, skyrocketing gas prices in Europe, and globally rising oil prices, Russia knows it has the West in a bind. Like a Chinese finger trap, the harder the sanctions hit Russia's economy, the stronger a lifeline its oil and gas exports will become.
The obvious response would be to start moving away from consumption of Russian energy products, but despite Russia's aggressive moves—and its attempts to interfere in U.S. elections—one of President Joe Biden's recent energy moves vis-à-vis Russia was to ask it to increase energy production. The U.S. is the world's largest producer of oil and natural gas, but one of the first moves by the Biden administration was to put a moratorium on new oil and gas leases for federal lands.
This is not a viewpoint merely held by the current administration. In 2018, Democratic senators requested that former President Donald Trump "leverage [his] personal relationship" to get OPEC and Russia to increase oil production. More recently, Democrats are calling on Biden to limit exports of natural gas in an attempt to stifle domestic price increases.
Politicians may have good intentions, but they should craft policy with a better understanding of the current global energy system, not an idealized one. Renewable energy is great, but fossil fuels cannot immediately be replaced. Electric vehicles are great, but there are still hundreds of millions of fossil fuel–powered vehicles in the U.S. and Europe.
Deterring Russian expansionism requires less reliance on Russian energy, not more. Policies that aim to increase Russian energy production or that reduce America's ability to supply energy to allies are only going to exacerbate the situation. While many energy policy efforts in recent years focused on environmental concerns, the world is now seeing the very real harm that comes from ignoring energy security issues that empower American adversaries.