360° Analysis

Russian-European Energy Relations: What Is the Problem?


May 04, 2012 02:02 EDT
Russia depends on its gas exports to Europe, almost as much as Europe depends on them.

Many Western analysts fear that European dependence on Russian energy supplies is leading to increased European political dependence on Russia.  The argument runs that the more Europe depends on Russian energy, the more it will have to bow to Moscow’s political demands due to the possibility that Russia could otherwise cut off the flow of energy.  Russia’s abrupt reductions of energy exports to Ukraine and Belarus in recent years — which despite their short duration, dramatically affected Europe — are seen as the harbingers of what Moscow can do, or simply threaten to do, to any country that displeases the Kremlin.

Such fears, however, are unrealistic.  Europe is by no means completely dependent on Russia for energy.  While Russia may be the world’s largest oil producer, there are (as is well known) many other oil producing countries.  Because it is relatively easy to switch oil suppliers, European countries wishing to reduce their dependence on Russian oil can always buy it from other sources.

Natural gas, however, is another matter.  Most of it is still shipped via fixed pipelines.  A reduction or cut-off of gas coming from the Russian pipeline system would have an immediate and severe impact on Europe, as the brief Russian-Ukrainian and Russian-Belarusan gas disputes demonstrated.  It is Europe’s dependence on Russian gas supplies in particular that engenders Western fears of the painful economic consequences of a Russian supply cut-off. The desire to avoid such a situation that many fear, is increasing Europe’s political dependence on Russia.

With regard to natural gas, however, economic dependence is reciprocal.  Just as Europe is dependent on Russian supply, Russia is dependent on European demand.  Reducing or cutting gas supplies to Europe would result in the reduction or termination of Russia’s export revenue from Europe.  And just as consumer countries are dependent on fixed pipeline routes, so are supplier countries.  In other words, Russia would be unable to simply reroute to other markets the gas it normally exports to Europe.

Far from giving Russia political leverage over Europe, Moscow’s dependence on gas exports to Europe gives Russia a strong interest in Europe remaining a prosperous, contented customer.  Russia has not benefited from Europe’s economic problems that have resulted in reduced European gas purchases from Russia.  Furthermore, while it would be difficult for Europe to replace gas that it could not obtain from Russia in the short run, changes in the natural gas market do provide it with more possibilities for doing so over time.  The increasing availability of liquefied natural gas (LNG) allows consuming countries to reduce their dependence on fixed pipeline routes.  Further, the recent glut of natural gas produced in the United States raises the prospect of the US becoming an LNG exporter competing with Russia for the European market.

Any attempt by Moscow to gain political leverage by taking advantage of Europe’s energy dependence would only serve to accelerate these trends, and thus would be counterproductive.  Some might point out that Russia’s cutback on energy supplies to Ukraine and Belarus suggests that Moscow does sometimes behave counterproductively.  It should be remembered though, that these cutbacks occurred in the context of pricing and payment disputes between Russia on the one hand and Ukraine and Belarus on the other.  Ukraine and Belarus had been paying (or more accurately, not even paying) below world market rates for Russian gas.  Moscow, understandably, wanted them to pay higher prices.  As a consequence, Moscow reduced direct gas supplies to these countries.  However, the diversion by Ukraine and Belarus of gas intended for customers further west, was also responsible for the brief gas shortages in Europe.

Moscow has — again, understandably — been frustrated that its gas exports to Europe can be held hostage by its impecunious and unreliable neighbors, Ukraine and Belarus, through which existing pipeline routes cross.  Moscow’s desire to build pipeline routes to the north and the south that bypass them makes commercial sense not just for Russia, but also for its European customers.  Russian opposition to the American-backed alternative southern gas pipeline also seems to be more commercially than politically motivated.  If European nations were really afraid of Russia gaining undue political influence over them, they would be more supportive of the American-backed alternative.

Those who do fear that Russia is gaining undue influence in Europe, however, point to this episode as proof that Moscow is succeeding.  While it does not make sense, they argue, for these nations to become too dependent on Russian gas supplies, Gazprom’s wealth allows it to influence European decision-makers to make choices that benefit themselves as individuals and benefit Gazprom, but not their own countries.  The fear that Russia is gaining undue influence in Europe, then, is not just related to purported Russian attempts to achieve this, but to the fear that European decision-makers are susceptible to these attempts.

This may well be a legitimate concern.  It should be noted, though, that while east European countries are far more dependent than west European ones on Russia for gas supplies, east European governments have not been in the least shy about criticizing Russian policies and defying Moscow on a wide range of issues.  And if greater dependence on Russian gas has not resulted in political deference to Moscow in Eastern Europe, less dependence on Russian gas in Western Europe need not either.  For whether or not its European customers are amenable to Moscow’s policies, Gazprom still wants — indeed, needs — them to buy gas from it.

The views expressed in this article are the author's own and do not necessarily reflect Fair Observer’s editorial policy.


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