Europe's Gas Crisis and Russian Energy Politics: Experts Respond

The Slavyanskaya compressor station operated by Gazprom, the starting point of the Nord Stream 2 offshore natural-gas pipeline, TASS via RFERLAmidst a perfect storm of conditions leading to increased gas prices and greater demand, Russia is leveraging its role as a major energy supplier to put pressure on Europe. As Benjamin Schmitt notes below, the crisis has been brewing due to "a colder-than-normal spring, calmer-than-normal summer (leading to a drop in electricity production from EU wind turbines), and an unanticipated jump in global demand (especially from Chinese energy consumers) driven by a faster-than-expected market recovery post-COVID-19." 

Russia has seemingly taken advantage of these conditions, exacerbating the price hike and causing fear of severe shortages as the colder months approach. Rather than supplying additional gas along its existing routes in response to greater demand, as it normally does, Russia has strictly adhered to contracted amounts, thus effectively reducing the amount of gas flowing to Europe. As Hanna Hopko points out, this is not due to an incapacity to deliver the extra gas, but rather a choice; Ukraine’s government officials argue that "the recent surge in gas prices is nothing more than Russia's blackmail to enforce the launch of its political project, Nord Stream 2, on its terms," she writes.

Since Russia moves a large amount of its gas exports through Ukraine—an important deterrent to violence on Ukrainian territory that is at risk if Nord Stream 2 is operationalized—Europe's gas crisis is Ukraine's crisis, too. We asked experts to consider whether and how Russia is weaponizing energy. 

These five experts—Margarita Balmaceda,  Daniel Fried, Hanna HopkoKristine Berzina, and Benjamin Schmitt—address how Putin is making links between the supply of gas volumes to Europe and the certification of Nord Stream 2; what options policymakers have to respond; how Russia is using this crisis to expand its malign influence and disinformation campaigns; and what challenges and opportunities this crisis presents to Ukrainian economic and national security interests. Their comments reflect the most recent developments as of November 1, 2021. 

   

Margarita Balmaceda
Kremlin overplaying its hand could serve Ukraine

It is hard to avoid the impression that policy-makers in Moscow are creating artificial scarcities  in order to speed up the certification of Nord Stream 2. Gazprom has hinted at its confidence on certification by having the first of Nord Stream 2’s two strings filled with technical gas (natural gas that is used to power compressor stations in natural gas pipelines) already on October 18. In the short term, the need to nudge/assure increased supplies (in Gazprom’s playbook, through Nord Stream 2) is likely to trump concern about the governance, competition, and regulatory issues at stake. (On a much smaller scale, we saw this with Moldova, which on October 29 signed a new five-year agreement with Gazprom after seeing its daily natural gas supplies dwindle to a third after issues on (rather murky) unpaid debts with Gazprom. Despite some reassurances from the EU, supply issues and possible price concessions trumped the issue.) In the longer term, however, the reputational damage to Gazprom has been done. Such artificial scarcities followed by (pressure for) the speedy adoption of questionable-governance schemes remind me of the January 2006 Ukrainian-Russian natural gas crisis, when a cutoff in supplies related to contractual issues was used as an opportunity for a “new” entity, intermediary Rosukrenergo, to  appear on the horizon “as if on a white horse” to “save the situation”  by offering “lower” prices (Balmaceda 2013, 125), with serious long-term detrimental effects. 

Can we speak of an “artificial scarcity” in this case? We have some indirect evidence of this. Gazprom has not increased transit capacity bookings for November via Polish or Ukrainian pipelines. And, as I write these lines on October 30, news of the halt of supplies through the Yamal-Europe pipeline via Poland to Germany—though unclear whether a very temporary or longer-term one—again calls into question Gazprom’s intentions. 

The crisis has heightening tensions between the pillars of EU energy policy: market liberalization, energy supply security and, more recently, decarbonization. Despite Russia’s announcement of a CO2 neutrality goal by 2060, Gazprom would like natural gas to remain a keystone in European energy supplies. We also know that attempts to break Russian near-monopoly supplies through supplies of US natural gas in the form of liquified natural gas (LNG) are also problematic from a CO2 perspective, as it requires so much energy to bring to extreme low temperatures and to maintain these (see Balmaceda 2021, 56), and making some LNG, from an entire-value-chain EROI (energy return on investment) perspective, is not much better than other fossil fuels such as coal. This reminds us of how important it is to understand the materiality of different energy resources, not only to understand the ways they may be used as foreign policy “weapons,” but also the way they may be used as a defense against such weaponization. The crisis also puts nuclear power—where Russia has been key, as in the Paks project in Hungary—back at the center of the decarbonization conversation. 

Despite the obvious challenges, the Kremlin’s overplaying its hand this time also represents an opportunity for Ukraine, as it lays bare the use (and/or exacerbation) of a supply crisis as pressure for Nord Stream 2 certification. It may be a bit too late, but it may also help the European Union take Ukraine’s concerns more seriously in the future. 

Sources cited/further reading: 

Balmaceda, M. M. (2013). The politics of energy dependency : Ukraine, Belarus, and Lithuania between domestic oligarchs and Russian pressure. University of Toronto Press. 

Balmaceda, M. M. (2021). Russian Energy Chains: The Remaking of Technopolitics from Siberia to Ukraine to the European Union. Columbia University Press. 

Gustafson, T. (2020). The Bridge : Natural Gas in a Redivided Europe. Harvard University Press.

Margarita BalmacedaProf. Margarita M. Balmaceda (PhD, Princeton University) is Professor of Diplomacy and International Relations at Seton Hall University and an Associate at the Ukrainian Research Institute and the Davis Center for Russian and Eurasian Studies at Harvard University. Concurrently, she heads the Study Group on “Energy Materiality: Infrastructure, Spatiality and Power” at the Hanse Wissenschaftskolleg (Germany). She is also head of the Academic Advisory Board of the Forschungsstelle Osteuropa at the University of Bremen. Her past research (supported by a Marie Skłodowska-Curie Fellowship from the EU, among others) has focused on the energy politics of energy-poor states. Her books on the issue include: The Politics of Energy Dependency: Ukraine, Belarus and Lithuania Between Domestic Oligarchs and Russian Pressure (Toronto: U. of Toronto Press, 2013), Living the High Life in Minsk: Russian Energy Rents, Domestic Populism and Belarus’ Impending Crisis (Budapest: CEU Press, 2014), and Energy Dependency, Politics and Corruption in the Former Soviet Union (London and New York: Routledge, 2008). She has conducted extensive research in Ukraine, Russia, Belarus, Lithuania, Moldova, and Hungary. Her latest book project, Russian Energy Chains: The Remaking of Technopolitics from Siberia to Ukraine to the European Union, was published this summer by Columbia University Press.
   

Daniel Fried
Russia is weaponizing energy and the response so far is silence

Yes, Russia is weaponizing energy. Don’t take my word for it, just listen to what Putin is saying. And threatening. In plain sight. Opponents of Nord Stream 2 have been saying for years that the gas pipeline project is a strategic, not merely commercial, project, intended to advance Russian energy leverage over Europe and especially over Ukraine. These critics have been proven right (again). The Biden Administration’s decision not to try to kill Nord Stream 2 with sanctions is defensible: the pipeline was almost complete and a sanctions escalation might alienate Germany without killing the project. The US alternative was to release a joint statement with Germany (last July) about European energy security.

Germany and the US should start making that joint statement real. The joint statement—with its decent though non-binding language—means in essence that Germany and the US now own the problem. Both governments pledged in their joint statement to respond to Russian energy aggression. And that is again upon us. Amos Hochstein, the able US energy security advisor, knows this and is probably trying to pull together options. So far, however, the Administration has been silent on these Russian efforts (with the exception of Amos himself, who has publicly noted that Russia could and should sell more gas to Europe, a true but not terribly operational statement). 

Russia is using this energy crisis to advance its efforts to put pressure on Ukraine (and Moldova), increasing its leverage. The Kremlin seeks to weaken Moldova’s pro-European President. More broadly, the Kremlin seeks to halt European efforts to push back on Russian monopolistic behavior in energy.

While the US and Europe have been quiet so far, pressure is building for a stronger response. The European Energy Commissioner Kadri Simson has, helpfully, publicly spoken of opening an investigation of whether Gazprom’s behavior amounts to a violation of EU law (monopolistic behavior and market distortion). That’s one way of getting the Kremlin’s attention.

Daniel FriedAmbassador Daniel Fried is currently a Weiser Family Distinguished Fellow at the Atlantic Council. He is also on the Board of Directors of the National Endowment for Democracy and a Visiting Professor at Warsaw University. In the course of his forty-year Foreign Service career, Ambassador Fried played a key role in designing and implementing American policy in Europe after the fall of the Soviet Union. As special assistant and NSC senior director for Presidents Clinton and Bush, ambassador to Poland, and assistant secretary of state for Europe (2005-09), Ambassador Fried crafted the policy of NATO enlargement to Central European nations and, in parallel, NATO-Russia relations, thus advancing the goal of Europe whole, free, and at peace. Ambassador Fried helped lead the West’s response to Moscow’s aggression against Ukraine starting in 2014: as State Department coordinator for sanctions policy, he crafted US sanctions against Russia, the largest US sanctions program to date, and negotiated the imposition of similar sanctions by Europe, Canada, Japan, and Australia.  While a student, he lived in Moscow, majored in Soviet studies and history at Cornell University (BA, magna cum laude, 1975), and received an MA from Columbia’s Russian Institute and School of International Affairs in 1977. He joined the US Foreign Service later that year, serving overseas in Leningrad (human rights, Baltic affairs, and consular officer), and Belgrade (political officer), and in the Office of Soviet Affairs in the State Department.
   

Hanna Hopko
Putin's gas strategy pulls Europe away from the US and endangers Ukraine

Russia’s weaponization of energy is part of the Kremlin's divide and rule strategy. It’s important for Moscow to dominate the EU energy market and influence political decisions. As Ukraine’s government officials say, the recent surge in gas prices is nothing more than Russia's blackmail to enforce the launch of its political project, Nord Stream 2, on its terms. 

There is no lack of capacity to bring gas to Europe. The Ukrainian gas transit system has an annual capacity of 146 billion cubic meters, of which Gazprom only booked a bit more than 40 billion cubic meters in 2021. Despite this available capacity and record gas production in Russia this summer, Russia indicated that “early completion of the certification” for Nord Stream 2 would help “cool off the current situation.” Russia is intending to reroute existing supplies, not to bring new gas to the market. Energy is again used as a weapon to destabilize Ukraine, the EU, and make them dependent on the Kremlin. 

Russia has been constructing a series of bypass pipelines, including Nord Stream 2 and TurkStream, during Putin’s rule. The emphasis is on the Putin regime's goal of using them as infrastructure weapons, instruments of depriving neighboring countries of transit revenues for their independent geopolitical orientations and foreign policy, and furthering European dependence on Russian energy resources, which is a continuation of Soviet policy. 

Nord Stream 2 is a culmination of Putin’s 20-year program of reconfiguration of the Eurasian pipeline network, aimed at disconnecting the EU from the U.S. and shifting the focus on a Eurasian model of cooperation of Europe with Russia and China. The U.S. Congress’ demand to stop the completion of Nord Stream 2 is a move in the right direction, i.e., not to allow Russia to increase its control over the Baltic Sea operational zone, as it has already achieved to a large extent in the Black Sea.

One of the key elements of energy security in Europe is to ensure the security of supply via diversification of routes. The alternative transportation corridors from Russia to the European Union through Ukraine should remain operational. I believe that the EU together with partners (such as Ukraine) should start working on a new European energy strategy, based on the interests of all European Union Member States and taking into account new geopolitical realities and EU climate goals. 

The Biden administration should not have waived sanctions on Nord Stream 2. The administration made a conscious decision to protect the project in order to allow the Kremlin to complete it. The “bad deal” enabled “the killer” to use gas for geopolitical advantage, especially against Ukraine, Poland, and the Baltic States. The terms of that agreement and the measures it offers to prevent Moscow from using the pipeline as leverage are vague. They are reminiscent of the disastrous “assurances” in exchange for Ukraine's voluntary renunciation of nuclear weapons in the Budapest Memorandum. The US-German statement jeopardizes the assistance that the U.S. previously invested in transatlantic security and Ukraine’s transformation, and it foresees no effective security guarantees for the countries affected by the project.

Indulging Germany on Nord Stream 2 also hinders U.S. efforts to rally the democratic world against authoritarian nations and corruption. This decision gravely contradicts the White House anti-corruption memorandum, issued on June 3, 2021: “Corruption... provides authoritarian leaders a means to undermine democracies worldwide.” Allowing Gazprom to finish and operationalize the kleptocratic project Nord Stream 2 means no less than gifting the authoritarian leader Vladimir Putin an extra tool to undermine democracies across Europe. 

If Nord Stream 2 becomes operational, Ukraine will lose a critical deterrent against escalated Russian aggression and the Kremlin's hands will be untied to engage in large-scale offensives against Ukraine. This would give Russia a greater ability to blackmail Ukraine and Europe by stopping or reducing gas deliveries and creating the conditions for Russia to sabotage and significantly damage the Ukrainian gas transmission system or segments of its own transmission system in order to make any gas transit through Ukraine impossible.

Hanna HopkoDr. Hanna Hopko, Chairwoman of Democracy in Action: International Conference. Ms. Hopko is a recognized Ukrainian expert in national security and international relations. Between 2014 and 2019, she chaired the Foreign Affairs Committee of Ukraine’s Parliament. At present, she is heading the civil society National Interests Advocacy Network (ANTS) that helps regional self-governance bodies with their foreign relations strategy. With a PhD in social communications, Ms. Hopko also works with the Borys Grinchenko University’s Institute of Journalism in Kyiv. In cooperation with the Anticorruption Action Center, Ms. Hopko is the Chair of the Democracy in Action: Conference initiative. @HopkoHanna
   

Kristine Berzina
Putin wants Nord Stream 2, but his end goal is bigger

Russia is exerting its influence in Europe by reducing natural gas deliveries, putting Europe in a tight squeeze. Gas transit along major overland pipelines have dropped significantly, and on November 1st, gas flows into Germany along the Yamal pipeline fell to zero. Households and industry alike have seen steep increases in prices, and some European industry is shutting down in response. How can Europe get out of this mess? President Putin has an answer: by certifying the Nord Stream 2 pipeline. For Russia, the solution to Europe’s energy problems is always more Russian gas. 

Energy is important to Russia for two reasons. First, gas sales are critical for the Russian economy and the government’s ability to deliver basic services to the population. The present spike in global natural gas prices, which is driven by an increase in Asian demand, means that Russia can sell gas at higher prices and fill its coffers more quickly.

But the second, more troublesome, purpose is that Russia can exert control over natural gas flows to influence Europe. In 2006 and 2009, Russia stopped gas transit across Ukraine and left Europeans in the cold. The European Union has passed significant legislation since 2009 to disincentivize Russia cutting off gas supplies outright, and countries built LNG import facilities to counter such a threat, but that still leaves Russia significant room to inflict pain. This year, Russia has continued to meet its contractual obligations but is not meeting Europe’s demand. Moreover, this falls below Russia’s ability to deliver. If Russia merely wanted to make itself richer, it could sell more gas while the price is high. 

The threat of cold winters and lost industrial production is an enticing weapon for Russia to use against Europe. Neither households nor industry can tolerate very high energy prices for long. And European governments have fallen due to high energy prices in the past decade. For Russia, increasing energy prices and threatening cut-offs is an effective way to get European policymakers’ attention and push through its preferences.

There is no clear definition for an energy weapon, and the joint statement on Nord Stream 2 by the United States and Germany did not define it. A complete gas cut-off would almost surely fall into that category. Today’s situation – putting Europe into a tough place while presenting an out in the form of a new pipeline – is not as clear-cut, but it leans toward that designation as well. Why? The answer hinges on intent. 

Intent should be a significant factor in the determination of using energy as a weapon. When considering how to conceptualize and define foreign interference, my colleague Etienne Soula and I argued that intent, as well as transparency, should be meaningful factors. These considerations also apply to Russian energy manipulation in Europe. When Russia helps cause a gas crisis in Europe, and officials link this to their desire to get Nord Stream 2 approved, Europe could argue that Russia is using energy for political rather than commercial intent.  

Causing disruptions in the energy markets serves Moscow’s political purposes in the case of Nord Stream 2, but energy manipulation is unlikely to stop if the pipeline is approved. Energy crises in Europe also serve a bigger agenda in Moscow. President Putin is using the current energy crisis to argue that Europe’s energy system is the source of the problem. The Alliance for Securing Democracy’s analysis of Russian state-backed media and diplomatic and official accounts found that in mid-October, Russian sources argued a nuclear and natural gas-based energy mix would be a better solution. Similar arguments are likely to continue as Russia’s major energy markets pursue a greener energy path. 

The United States and Europe need to expand their understanding of energy weapons to include the gray area short of energy cut-offs and develop a nuanced toolbox for responding to a variety of Russian energy manipulation tactics. And importantly, Europe needs to continue to diversify energy sources away from those provided by ill-intentioned adversaries. The present conflict between Europe and Russia may center around Nord Stream 2, but further disagreements are inevitable. Europeans should not suffer cold or grave economic hardship as a result. 

Kristine BerzinaKristine Berzina is a senior fellow and head of the geopolitics team at the Alliance for Securing Democracy in the German Marshall Fund's Washington, D.C. office. Berzina works on building transatlantic cooperation to counter authoritarian interference in democracies. In this role she focuses on U.S.–EU relations, NATO, digital technology, disinformation, and energy topics. She received her master’s degree in international relations from the University of Cambridge and her bachelor's in political science and history from Yale University.
   

Benjamin L. Schmitt
Germany has caved to Russia's energy flex, but it's not too late to reverse course

The Russian Federation under President Vladimir Putin has had a long and sordid history of using energy as a political weapon against the Transatlantic community – particularly Ukraine. The Kremlin’s actions over the past several months, explicitly linking an increase in gas supply deliveries to EU storages in exchange for a rapid certification of the Moscow-backed Nord Stream 2 pipeline only reinforce this stark reality.

As I argued for CEPA last week, the current gas crisis across the EU was not solely initiated by Kremlin energy market actions. Key crisis contributors include a colder-than-normal spring, calmer-than-normal summer (leading to a drop in electricity production from EU wind turbines), and an unanticipated jump in global demand (especially from Chinese energy consumers) driven by a faster-than-expected market recovery post-COVID-19. However, for the past several months, Kremlin-controlled Gazprom took steps that actively tightened the market further, declining to follow its expected annual practice of sending additional gas flows along existing routes (including the Belarus-Poland-Germany Yamal pipeline, or the Ukrainian gas transmission system where spare capacity exists) beyond contracted volumes to its gas storage facilities in Europe ahead of the onset of winter.

As far as motive, Kremlin and parliamentary officials in Moscow have left European energy security analysts with hardly any mystery to solve. Konstantin Kosachyov, a Representative of Russia’s Federation Council expressed not-even-remotely veiled disdain for EU energy diversification policies when he chortled that “we cannot ride to the rescue just to compensate for mistakes that we didn’t commit,” while seemingly linking further Russian gas exports to alleviate the crisis with undefined “mutually beneficial agreements.” Meanwhile, Kremlin’s envoy to the EU, Vladimir Chizhov, linked an increase in Russian gas exports to Europe with a change in Brussels’ policy approach to Moscow, warning EU officials to “change adversary to partner and things get resolved easier...when the EU finds enough political will to do this, they will know where to find us.” And most directly, on October 21st, Russian President Vladimir Putin linked Gazprom’s future decisions to a rapid German certification of Nord Stream 2, declaring that “if the German regulator hands its clearance for supplies tomorrow, supplies of 17.5 billion cubic meters will start the day after tomorrow.”  Add to this headlines last week from the Financial Times documenting how “Gazprom offered Moldova new gas deal in exchange for weaker EU ties” – underscoring Moscow’s continued ire aimed at the pro-EU policies pursued by Moldovan President Maia Sandu and her government.

In all these instances, linking the delivery of gas supplies with various geopolitical and regulatory demands appears to cross any reasonable threshold of a state using energy as a political weapon. Which leads to the inevitable question: where is the Transatlantic response? After all, as a part of a July 2021 joint statement between the United States and Germany, both governments agreed that “should Russia attempt to use energy as a weapon or commit further aggressive acts against Ukraine, Germany will take action at the national level and press for effective measures at the European level, including sanctions, to limit Russian export capabilities to Europe in the Energy sector, including gas, and/or in other economically relevant sectors.”

The response from German government officials still in Chancellor Angela Merkel’s caretaker government falls far short of fulfilling Berlin’s commitment under this joint statement. Thus far, there has been a deafening silence from German officials to define Moscow’s actions and statements as the very epitome of energy weaponization. More concerning, amidst Europe’s gravest gas crisis in recent memory, the German Federal Ministry for Economic Affairs and Energy (BMWi) released an assessment on October 26th issued to the German Federal Energy Regulatory Authority (Bundesnetzagentur) declaring that the Ministry had “come to the conclusion that the issuing of [Nord Stream 2] certification does not endanger the security of the gas supply to the Federal Republic of Germany and the European Union.” 

Really?

The BMWi announcement came just three business days after Polish gas firm PGNiG submitted the latest of several international comments to the BMWi assessment process. In the press release of its comment, PGNiG “underlined the risks for security of gas supplies to the European Union resulting from launching of this pipeline.” Furthermore, the announcement came just two business days after Putin’s linkage of quick Russian gas increases should Nord Stream 2 be quickly certified. Moreover, on October 27th, just one business day after the BMWi announcement, Putin announced he had ordered Gazprom to finally increase gas transfers to EU-based storage facilities (though Gazprom’s market actions have yet to follow through with this announcement).

With such a timeline, and in the absence of forceful repudiation by German officials of malign Kremlin energy declarations, it is hard to avoid at least the public perception that Moscow’s energy pressure may be working. This potential should give officials in Berlin pause. Such a perception can undermine confidence in independent Western regulatory institutions and liberalized market policies that Kremlin officials so publicly seem to disdain through their statements and actions.

In addition to regulatory perception, the stakes for Ukrainian, and thereby European security, could not be higher. In recent days, Russian gas flows via the Yamal pipeline and the Ukrainian gas transmission system have sharply dropped or reversed, culminating in reports on November 2nd that Gazprom declined to book any additional capacity via Ukraine or Poland through the first three quarters of 2022. Simultaneously, reports emerged this week that the Kremlin has ceased its export of thermal coal to the Ukrainian market in a move that will exacerbate Kyiv’s own energy crisis, and analysts worry may be designed to pressure the Ukrainian government into a situation where it would have to consider importing coal from the Donbas region for the first time since fighting began in Eastern Ukraine in 2014. And all of this amid reports of a buildup of Russian military forces near Ukraine.

It is still not too late for German policymakers to reverse course. The time has come for Berlin to finally fulfill its commitments to the Biden Administration to seek EU sanctions to stop Kremlin projects like Nord Stream 2 before they can be further weaponized to undermine Transatlantic democratic norms and security interests. Failing action from Berlin, the Biden Administration needs to use all the tools at its disposal – including the imposition of mandatory Congressional sanctions aimed at stopping Nord Stream 2 – to make sure that it continues to lead the broad majority of the Transatlantic community that has deep concerns with Russian malign energy activities.

BL SchmittDr. Benjamin L. Schmitt is a Postdoctoral Research Fellow at Harvard University; a Senior Fellow for Democratic Resilience at the Center for European Policy Analysis (CEPA); and a Rethinking Diplomacy Fellow at the Duke University Center for Global and International Studies.
 
   

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