Who is the loser of the energy struggle behind the war in Ukraine?

The Paper's reporter Chen Qinhan

On February 24, Russia launched a "special military operation" and smoke broke out in Ukraine. The Russian-Ukrainian conflict not only triggered geopolitical turmoil, but also set off a huge wave in the global energy market.

According to Reuters reported on the 24th, after the Russian army entered Ukraine, the price of natural gas and oil in the United Kingdom and the Netherlands, European electricity and other commodities soared. The price of Brent crude oil in the international market touched $100 per barrel on the 24th, a new high since 2014. At the same time, Ukraine has cut off its energy system connections to Russia and Belarus and turned on independent operation mode.

Before Russia launched a military operation, Western sanctions were already hurting energy. U.S. President Joe Biden announced on February 23 that sanctions would be imposed on Nord Stream 2 AG, which is responsible for building Nord Stream-2, whose parent company is Russia's state-owned gas giant Gazprom AG. A day earlier, German Chancellor Schoelz said it was suspending the approval process for the Nord Stream-2 gas pipeline.

The U.S. government is in communication with other gas-producing countries to secure energy supplies, which is seen as a precursor to a new economic war against Russia. Russian President Putin promised on the 22nd that he would continue to supply natural gas to the global market.

Since the end of the Cold War, Russia's energy-based economy has become closely intertwined with the European economy. If Western sanctions lead to the interruption of Russian gas exports to Europe, Russian economic losses are inevitable, and the European gas gap will be difficult to fill in time.

In the late 1970s and early 1980s, turmoil in the Middle East caused energy prices to soar, triggering a global recession. At present, what are the consequences of the energy struggle behind the Russian-Ukrainian conflict?

Timing for Russia

Why did Putin choose to "do it" at this time? This is a question that experts from all sides are guessing, and while there are many answers that can be given from a geopolitical perspective, there are others who try to find a driver for the flow of wealth in the energy market.

On Feb. 23, David Froome, a former contributor to former U.S. President George W. Bush's speech, wrote in Atlantic magazine that the real explanation for Putin's timing choice was the weakness of world energy markets in the late 2010s and the new tightening in the 2020s. When the world economy began to recover from the epidemic, Russian gas prices began to rise steadily, leaving the country holding large amounts of dollars, euros and gold. "These assets now exceed $630 billion, which is a considerable asset for a country with a GDP of only $1.5 trillion."

Looking back at the three years before the COVID-19 outbreak, Russia's dominance over its Western European gas customers has weakened and its financial resources have decreased. Since last winter, european gas prices have soared, and Russia's influence over its gas customers is self-evident.

Biden's global energy adviser, Amos Hochstein, warned late last year that Russia could use natural gas as a political tool, and Putin refutes Moscow's claim that moscow is politically motivated to squeeze supplies.

The gas industry is the backbone of Russia's economy and the main source of foreign exchange earnings in the country's total budget, and leaving the European market means huge losses. Even as Russia's confrontation with the West intensifies, Putin has not threatened to disrupt gas supplies.

Al Jazeera quoted economists as saying that in theory, if Russia cuts off the supply of natural gas, the biggest loss is the loss of energy as a weapon, as a means of protecting national interests and resisting the pressure of unfriendly policies of EU countries. In terms of consumption, Asia is still the most promising market in Russia.

According to the New York Times reported on the 23rd, in recent months, geopolitical risks have risen, and the flow of natural gas from Russia to Europe has dropped sharply, most of which has been filled by LNG transportation in the United States and other places. Russia's military action against Ukraine could lead to a sustained spike in gas and oil prices.

One in every 10 barrels of oil in the world comes from Russia. After Putin announced on the 24th that he would carry out special military operations in the Donbass region, the international oil price rose to more than $100 per barrel for the first time in more than 7 years. Energy expert Robert McNally told U.S. media that if Russian forces try to occupy most or all of Ukraine, the price of oil per barrel may rise by another $20, which will mean that the supply of oil in the oil market will slow down in the next few years, and the price will also rise.

Reuters reported on the 24th that some financial sanctions that Western countries are still considering, including restricting transactions with major Russian banks, may affect Western payments for oil and gas.

Germany faces the "brave new world"

Since the late 1960s, West Germany has pursued an Eastern policy, betting that energy interdependence will bring peace, involving the construction of a network of gas pipelines. However, these pipelines have not appeased Europe, and without Russian energy, European citizens will have a hard time surviving the winter, and Putin already understands how much leverage this gives him.

The crisis in Ukraine was sudden, and the Nord Stream-2, which has great economic potential, has put political pressure on Germany. During Scholz's visit to Washington on Feb. 7, Biden clarified the U.S. position on Nord Stream 2: "If Russia invades Ukraine, Nord Stream-2 will be shut down." Scholz expressed support for the United States at the time, but cautiously left a retreat in wording, saying only that "we can be assured that we will not take inconsistent action."

According to Eurostat, about 50% of the gas supply in the entire European Union comes from Russia, half of Germany's natural gas is imported from Russia, and once the Nord Stream-2 gas pipeline is opened, Russia's gas shipments to Germany will double.

In 2020, when Scholz was still finance minister, he told German media that the US sanctions on Nord Stream-2 were interference in the internal affairs of Germany and Europe. At this time, the situation in Ukraine was suddenly tense, and Germany suspended the ratification process of Nord Stream-2.

Germany's decision will not immediately affect Europe's energy supply, as the pipeline is not yet operational. Still, the German government, which for decades has tied its own energy market to Russian supplies, would now pay a high price for an emergency shift.

German Vice Chancellor and Economy Minister Robert Habeck said in an interview with German media on the 23rd that even without Russian natural gas, Germany can get enough energy. But he also acknowledged that if Russian supplies are cut off, the initial gas shortage will definitely push up energy prices.

"Europeans will soon have to pay 2,000 euros per thousand cubic meters of gas, welcome to brave new world!" Medvedev, vice chairman of the Federal Security Council, warned on the 22nd that the price of natural gas in Europe will double.

Of course, Europe also has other options, but as a pioneer in the energy transition, it is difficult for Europe to "reverse" the recovery of coal. Another option is LNG, which three German coastal cities had planned to build dedicated LNG sea terminals to handle deliveries, but none of them materialized.

EU Energy Commissioner Cardri Simson said on the 23rd that EU officials have been trying to reach agreements with natural gas producers in the United States, Qatar, Azerbaijan and other places to ease the restrictions on natural gas supply, but this takes time, and the price is not cheap.

Fortunately, winter in Europe is coming to an end and demand for heating gas will decline. But the use of natural gas in industry, agriculture and power generation does not diminish as the weather warms.

The United States stirs up the energy landscape

"Through his actions, President Putin has provided overwhelming impetus to the world, keeping it away from Russian gas and other forms of energy." Biden said in a statement on the 23rd. The United States has long said that it is looking for an alternative source of Russian gas for Europe, but the price problem has to be faced by the Europeans themselves.

U.S. oil historian Daniel Yekin told Bloomberg on the 24th that Russia is an energy superpower, but the development of the liquefied natural gas market, especially the U.S. LNG market, has weakened Russia's "position."

However, for Europe, the upfront costs can be very high regardless of which country's LNG is purchased, as the necessary infrastructure needs to be built. Spain has many terminal reception stations needed to receive LNG, but there are few pipelines connecting the rest of Europe.

The Qatari government said on the 22nd that it is "almost impossible" for any country to completely replace Russia's supply of energy to Europe, and most of the liquefied natural gas has been limited to the existing contract.

In 1948, U.S. supplies broke Russia's grip on Berlin. Today, there are Americans who believe their energy could help Germany wean itself off its dependence on Russia.

The Wall Street Journal's commentary article on the 23rd said that the United States is best to promote Europe to sign a long-term contract for natural gas, "Environmentally conscious Europeans should note that buying U.S. natural gas is more beneficial to the environment, because there are stricter regulations in methane capture and environmental priorities, and the Russian energy industry pays little attention to these." ”

On issues related to energy and its supply lines, the United States and Russia have more than once competed for "hegemony." Russian experts told Al Jazeera that the United States chose to add fuel to the Ukraine crisis after failing to terminate Russia's long-term gas contracts with European countries, one of the most important reasons was to undermine Gazprom's position.

The energy crisis affects the whole body, and the United States cannot stay out of it. If the European Union and the United States impose further sanctions, it may prompt Russia to reduce oil and gas exports to the West, forcing prices to continue to rise. Biden has pledged to take steps to curb rising oil prices, and one of the potential options is a return to the Strategic Petroleum Reserve, but the effect has been limited.

But the most painful thing won't be the United States. Samantha Gross, director of the Energy Security and Climate Initiative at the Brookings Institution, told Foreign Policy magazine: "Whether it is Western sanctions on Russia's energy sector or Russia's retaliation for sanctions, in the end Europeans have lost more than we have." ”

Responsible editor: Li Yiqing Photo editor: Jiang Lidong

Proofreader: Liu Wei