Eugene Chausovsky
As natural gas prices have surged throughout Europe and as the United Kingdom has faced fuel shortages, there has been an increasingly heated battle between Russia and the West over energy supply. Officials in the European Union and United States have blamed Russia for purposefully holding back natural gas exports to Europe for political purposes, while Russian President Vladimir Putin has accused the West of sowing “hysteria and confusion” with its drive toward energy decarbonization. Only in recent days has Moscow hinted at a willingness to raise export volumes to Europe, albeit with strings attached.
There is a long and bumpy road ahead for the global energy transition from existing fossil fuels to alternative energy and suppliers sought by the United States and EU—one that is likely to benefit traditional suppliers like Russia in the interim. This reality will require the West to be both innovative and pragmatic in its policies toward Russia to meet the energy challenges that lie ahead.
Moscow has long used energy as a geopolitical tool. From selective natural gas cutoffs to negotiating long-term contracts with advantageous take-or-pay clauses, Russia has spent much of the past decade making use of its energy resources in its ambitions to divide the West and carve out a sphere of influence throughout the former Soviet periphery and well beyond. Russia has in the past cut off natural gas supplies to pro-Western countries like Ukraine and offered generous price discounts to allied states like Belarus.
But these measures eventually prompted a response from the West. The EU passed regulations in 2009 to separate transport and supply control, meaning that companies like Russia’s Gazprom could no longer simultaneously dominate the sales of natural gas and their transmission networks, while the United States and EU targeted Russia’s energy sector with sanctions. In the meantime, the increased use of liquefied natural gas, imported by tanker, as an alternative to piped natural gas enabled countries like Poland and Lithuania to diversify their sources away from Russia and negotiate much more favorable contracts with Moscow. The shale revolution, which created access to significant deposits of oil and natural gas through hydraulic fracturing and horizontal drilling techniques in the United States, enabled Washington to become an increasingly important natural gas exporter itself, all of which weakened the use of energy as a geopolitical tool for Moscow.
Add to this the West’s increased focus on climate change and global efforts toward decarbonization—which are particularly pronounced in the EU in the form of the European Green Deal—and the energy revolution seemed to present an existential threat to Russia as an energy exporter.
Recent developments have proved otherwise. Even with the growing focus on renewable energy, fossil fuels are still likely to play a dominant role in the energy mix for at least the next few decades as the transition takes place and natural gas consumption grows. According to S&P Global Platts Analytics, Russia is set to maintain its role as the dominant natural gas exporter to the EU until at least 2040, with its market share set to rise to a record high of 38 percent in 2035. Thus, despite the sustained geopolitical tensions between Moscow and the West and with the EU’s focus on decarbonization, Russia is likely to remain the primary natural gas provider to Europe for the foreseeable future.
At the same time, Europe will face increased market competition. Russia is expected to increase its natural gas exports to not only Europe but also China, which has become a major consumer of Russian natural gas, just as Moscow and Beijing have grown closer in their great-power competition with the United States. China, along with other growing markets in Asia, could thus provide Russia with insurance against demand risk in Europe while enabling Moscow to continue to use energy for its geopolitical goals.
Nevertheless, even China cannot serve as a guaranteed long-term market for Russian energy exports. Beijing, too, is trying to decarbonize and diversify its energy supplies to address the challenges of climate change. At the same time, evolving technologies like green hydrogen could create more avenues for countries to meet their energy needs beyond fossil fuels. This could create a more challenging environment for Russia in the long term, with both of its major markets in Europe and China no longer needing Russian energy to the same extent. This, in turn, will present geopolitical challenges for Russia, both in terms of its domestic politics, given that energy exports make up about 50 percent of Russia’s total budget revenues, and in terms of its regional and global power ambitions.
However, in the short to medium term, Europe is likely to remain increasingly dependent on Russia for energy and vulnerable to its geopolitically driven tactics, such as selectively supplying friendly states and freezing out those that are not. The construction of the Nord Stream 2 pipeline to Germany and the TurkStream pipeline to Turkey has given Moscow more transport options to Europe and more room for maneuver, as evidenced by Gazprom’s recent long-term deal with Hungary that circumvents Ukraine as a transit state. Ukraine has attempted to rally the EU and United States to block such projects, though it has not been successful in doing so. Kyiv has accelerated its own integration efforts into the EU energy grid as a result.
For both the EU and United States, making further progress toward decarbonization is a crucial component to mitigating the threat of Russia’s use of energy as a geopolitical tool, but it is hardly enough to meet the energy challenges the West faces in the medium term. The United States and EU should certainly invest in emerging energy technologies and pursue diversification efforts, but they must be more pragmatic when it comes to Russia to avoid further energy shortages and disruptions.
Western leaders should also recognize that punitive measures such as sanctions have been limited in their effect against Russia and drive increased alignment between Moscow and Beijing in other areas of geopolitical competition. Russia will be a major energy player in Europe for decades to come, and the West must take both the technical and geopolitical implications into account to achieve a more secure energy future.
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