Disquiet over Europe’s reliance on energy from Russia has intensified efforts to find new suppliers. The politicization of energy security in Europe has diverted parties from the threat posed by a continued reliance on hydrocarbons.
In January 2009, the supply of energy to a number of European states was disrupted following a price dispute between Ukraine and Russia. Although Vladimir Putin, president at the time, claimed that Russia would not behave as an energy superpower, the Kremlin’s decision to suspend gas supplies to Ukraine increased European anxiety over Moscow’s willingness to use energy as a tool in foreign policy.
As the world’s leading supplier of natural gas between 2003 and 2009—the U.S. surpassed Russia as world’s leading producer in 2010—and the seventh largest supplier of oil, Russia occupies a formidable position as an energy exporter. In contrast, many of the surrounding states of the European Union and the former Soviet Union are major importers of Russian energy. The media coverage of this ‘gas crisis’ highlighted the growing politicization of energy security within the region and on the international level. However, the focus on Europe’s access to a reliable (and relatively cheap) supply of energy, coupled with growing Russian adventurism, obscures the threat that a continued reliance on hydrocarbons has on the future of international energy security.
Russia’s growing international prominence is inextricably linked to its natural energy resources. Rapid increases in oil and gas prices in the mid-2000s enabled Russia to progress from a position of near financial collapse in 1998 to successive years of economic growth. The growing demand for Russian energy has been helped by the country’s position outside the Organisation for Petroleum Exporting Countries (OPEC) and the Middle East, where ongoing conflict undermines the reliability of supply. Europe currently relies on Russia for more than 40 percent of its gas and a third of its oil supplies—figures that are expected to increase. Meanwhile China imports approximately 10 percent of its gas from its northern neighbor.
Yet, there are key differences between eastern and western Europe in their dependency on Russian energy. Although the total amount of gas consumed by the Eastern European states is relatively small in comparison to that of Germany or Italy, they are much more dependent on Russia for their supply.
Ukraine is particularly vulnerable to disruptions from Russia. Not only is it a pivotal state in the transit of gas towards Europe, accounting for approximately 80 percent of supply (even though this is bound to decrease in the mid and long term, as new transit routes are put into service) it is also dependent on Russian gas for its own energy needs and the revenues generated from transit fees. Although the Kremlin always cites commercial reasons for the suspension of oil and gas to clients, there is growing concern in the West that Europe’s and Asia’s energy dependency is increasingly being used by Moscow as a tool to exert political pressure to bring commercial partners ‘to heel.’
A Case for Diversification
The prospect of a Russian stranglehold on Europe’s energy supply has strengthened the case for diversification of the energy supply in Europe. While there are efforts to circumvent Russia, the long lead-in to viable alternative energy sources and constructing supporting infrastructure will see continued reliance on Russia for the immediate future.
Securing the future of Europe’s energy supply is complicated by the tenuous nature of Moscow’s relations with transit countries. This was highlighted by the Russian invasion of Georgia in August 2008, where security of oil and gas transit pipelines came under the spotlight. Georgia’s transit pipelines are of particular importance to Europe as they represent the only route that does not cross Russia or Iran. However, these transit states, as well as the oil-rich Central Asian states of Kazakhstan, Azerbaijan, Turkmenistan, and Uzbekistan, fall within what Russian foreign policy has identified as a sphere of influence. Numerous U.S. and Chinese officials’ visit to these countries signal America’s and China’s “deep interest” in the energy security of the region. It reinforces the perception expressed by former Russian Minister of Defence Anatoly Serdyukov that the U.S. and China are looking to ‘muscle in’ on energy and mineral resources in the former Soviet countries of Central Asia.
A New Energy Charter for Europe
In addressing Europe’s energy needs, the EU has continued to push for the liberalization of energy markets and Russia’s ratification of the Energy Charter Treaty (ECT) and the Transit Protocol. Even though Russia signed the treaty in 1994, it officially opted out of it on October 18, 2009 and informed the depository that it did not intend to become a Contracting Party to the Energy Charter Treaty or the Protocol on Energy Efficiency and Related Environmental Aspects. It argued that ratifying it would undermine the country’s national interest, and acceding to the Transit Protocol would allow Central Asian states access to Russia’s gas and oil transit pipeline network without any agreement with Moscow. Former Russian President Dmitry Medvedev called for the negotiation of a new energy charter for Europe, one that would focus not only on consumers of energy, but also on producers and transit countries.
While Europe is dependent on Russian energy exports, Russia’s national budget is reliant on revenue raised from the sale of its oil and gas to Europe. With evidence suggesting that Russia’s resources are reaching their peak, the bilateral agreement between Moscow and China to secure a significant increase in oil trading volumes has underscored a growing concern regarding Russia’s over-extension and future energy capacity. The country also faces a growing domestic demand for energy, while the doubling of the gas price over the last 10 years has placed an additional burden on lower-income families.
Internationally, the soaring cost of energy and the move towards reducing greenhouse gas emissions has resulted in increased financial support for the research and development of alternative energy sources, including renewable sources like solar, wind, and hydropower. With significant fossil fuel reserves, there has been little investor incentive to fund finance studies to develop technology and diversify energy sources within the Russian federation, leaving the economy dangerously dependent on hydrocarbons.
The global financial crisis has taken a toll on revenue from energy exports. In a presentation to the 2009 UN Conference on Trade and Development (UNCTAD), Ivan Korolev, Deputy Director of the Institute of World Economy and International Relations, Academy of Science of the Russian Federation, indicated that Russia’s growth rate for 2009 was flat. During the next three years growth in Russia also lower than expected. This is linked to a dependence on the export price of hydrocarbons, which account for 70 to 80 percent of all export earnings. In addition to its impact on the state budget, Tatiana Mitrova, Head of Global Energy at Skolovovo Energy Centre, told at the Russia Forum in early 2012 that the financial crisis, and the rapid depreciation in oil prices, has reduced the resources available for investment in energy infrastructure modernization projects and the development of new oil and gas fields.
In response to oil prices falling from a high above $140 a barrel in July 2008, and in an effort to ensure its own energy security, Moscow has indicated a willingness to work closely with OPEC in an effort to stabilise the market. The Kremlin has also been at the forefront of plans to form a gas cartel modelled after OPEC, but so far to no avail. To this end, Moscow has been in talks with Iran and Qatar—and if the three joined forces they would control more than half of the world’s natural gas resources.
Through Gazprom, the Russian energy giant, Russia is expanding its energy network internationally. Indeed, there are indications that the state-run monopoly has set out to acquire a share of Africa’s energy assets (including nuclear), with the opening of its first African office in Algeria in June 2008. Following this was a flurry of meetings with a number of countries, including Angola, Egypt, Namibia, Nigeria, and South Africa. Before the Libyan civil war and Western military intervention, Gazprom had offered to buy all of Libya’s spare oil and gas exports. It equally expressed an interest in buying exploration licences in Nigeria, as well as the building of gas pipelines between Nigeria and Algeria and Europe and Libya.
Internationally, oil and gas have been the fundamental drivers of economic growth and development. As these hydrocarbons become increasingly scarce, competition for energy resources in Russia and the Central Asian region will result in rising tension between both the energy exporting and energy importing states. This is reflected in the new “Foreign Policy Concept of the Russian Federation” signed by Putin on February 12, 2013. The document establishes the basis of Russia’s external action at least until 2018, with a focus on the importance of access to energy resources globally and the potential for military conflict. It replaces the one endorsed by Dmitry Medvedev in July 2008.
By placing access to hydrocarbons at the centre of the federation’s energy security, Russia will continue to remain dependent on fossil fuel, not only for its energy but as a source of revenue. The sustainability of this approach needs further consideration, especially in light of the decreasing price of energy resources and its subsequent impact on the national budget, modernization projects, and the exploration and development of future gas and oil fields.
Although diplomatic efforts saw the supply of gas restored to Ukraine and other Eastern European countries, the European Commission has prioritized the connection of the vulnerable Eastern European states of Lithuania, Latvia, and Estonia to European power grids, as well as the development of the southern Gas Corridor.
Turning to alternative oil and gas exporting countries may provide a short to medium-term solution; however, Europe’s focus on reducing its dependence on Russia diverts attention from the region’s continued reliance on hydrocarbons. The southern Gas Corridor may bypass Russia and Iran, but by all indications Europe would remain overly dependent on hydrocarbon energy exports from a region that remains within Russia’s sphere of influence, although less of a firm hold than previously. Rather than the continuing prioritization of energy security linked to the export and import of oil and gas, the future of energy security for both Europe and Russia lies in the diversification of energy resources and in moving away from a dependence on fossil fuels.
Richard Rousseau is Associate Professor and Chair of the Department of Humanities and Social Sciences at the American University of Ras Al Khaimah, United Arab Emirates. His research, teaching and consulting interests include Russian politics, Eurasian geopolitics, international political economy, and globalization. He lived three years in Baku, Azerbaijan.
This article was originally published in the 2013 special annual APEC CEO Summit Magazine. Published with permission.
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Russia’s Energy Policy: Expanding Influence
October 30, 2013
Disquiet over Europe’s reliance on energy from Russia has intensified efforts to find new suppliers. The politicization of energy security in Europe has diverted parties from the threat posed by a continued reliance on hydrocarbons.
In January 2009, the supply of energy to a number of European states was disrupted following a price dispute between Ukraine and Russia. Although Vladimir Putin, president at the time, claimed that Russia would not behave as an energy superpower, the Kremlin’s decision to suspend gas supplies to Ukraine increased European anxiety over Moscow’s willingness to use energy as a tool in foreign policy.
As the world’s leading supplier of natural gas between 2003 and 2009—the U.S. surpassed Russia as world’s leading producer in 2010—and the seventh largest supplier of oil, Russia occupies a formidable position as an energy exporter. In contrast, many of the surrounding states of the European Union and the former Soviet Union are major importers of Russian energy. The media coverage of this ‘gas crisis’ highlighted the growing politicization of energy security within the region and on the international level. However, the focus on Europe’s access to a reliable (and relatively cheap) supply of energy, coupled with growing Russian adventurism, obscures the threat that a continued reliance on hydrocarbons has on the future of international energy security.
Russia’s growing international prominence is inextricably linked to its natural energy resources. Rapid increases in oil and gas prices in the mid-2000s enabled Russia to progress from a position of near financial collapse in 1998 to successive years of economic growth. The growing demand for Russian energy has been helped by the country’s position outside the Organisation for Petroleum Exporting Countries (OPEC) and the Middle East, where ongoing conflict undermines the reliability of supply. Europe currently relies on Russia for more than 40 percent of its gas and a third of its oil supplies—figures that are expected to increase. Meanwhile China imports approximately 10 percent of its gas from its northern neighbor.
Yet, there are key differences between eastern and western Europe in their dependency on Russian energy. Although the total amount of gas consumed by the Eastern European states is relatively small in comparison to that of Germany or Italy, they are much more dependent on Russia for their supply.
Ukraine is particularly vulnerable to disruptions from Russia. Not only is it a pivotal state in the transit of gas towards Europe, accounting for approximately 80 percent of supply (even though this is bound to decrease in the mid and long term, as new transit routes are put into service) it is also dependent on Russian gas for its own energy needs and the revenues generated from transit fees. Although the Kremlin always cites commercial reasons for the suspension of oil and gas to clients, there is growing concern in the West that Europe’s and Asia’s energy dependency is increasingly being used by Moscow as a tool to exert political pressure to bring commercial partners ‘to heel.’
A Case for Diversification
The prospect of a Russian stranglehold on Europe’s energy supply has strengthened the case for diversification of the energy supply in Europe. While there are efforts to circumvent Russia, the long lead-in to viable alternative energy sources and constructing supporting infrastructure will see continued reliance on Russia for the immediate future.
Securing the future of Europe’s energy supply is complicated by the tenuous nature of Moscow’s relations with transit countries. This was highlighted by the Russian invasion of Georgia in August 2008, where security of oil and gas transit pipelines came under the spotlight. Georgia’s transit pipelines are of particular importance to Europe as they represent the only route that does not cross Russia or Iran. However, these transit states, as well as the oil-rich Central Asian states of Kazakhstan, Azerbaijan, Turkmenistan, and Uzbekistan, fall within what Russian foreign policy has identified as a sphere of influence. Numerous U.S. and Chinese officials’ visit to these countries signal America’s and China’s “deep interest” in the energy security of the region. It reinforces the perception expressed by former Russian Minister of Defence Anatoly Serdyukov that the U.S. and China are looking to ‘muscle in’ on energy and mineral resources in the former Soviet countries of Central Asia.
A New Energy Charter for Europe
In addressing Europe’s energy needs, the EU has continued to push for the liberalization of energy markets and Russia’s ratification of the Energy Charter Treaty (ECT) and the Transit Protocol. Even though Russia signed the treaty in 1994, it officially opted out of it on October 18, 2009 and informed the depository that it did not intend to become a Contracting Party to the Energy Charter Treaty or the Protocol on Energy Efficiency and Related Environmental Aspects. It argued that ratifying it would undermine the country’s national interest, and acceding to the Transit Protocol would allow Central Asian states access to Russia’s gas and oil transit pipeline network without any agreement with Moscow. Former Russian President Dmitry Medvedev called for the negotiation of a new energy charter for Europe, one that would focus not only on consumers of energy, but also on producers and transit countries.
While Europe is dependent on Russian energy exports, Russia’s national budget is reliant on revenue raised from the sale of its oil and gas to Europe. With evidence suggesting that Russia’s resources are reaching their peak, the bilateral agreement between Moscow and China to secure a significant increase in oil trading volumes has underscored a growing concern regarding Russia’s over-extension and future energy capacity. The country also faces a growing domestic demand for energy, while the doubling of the gas price over the last 10 years has placed an additional burden on lower-income families.
Internationally, the soaring cost of energy and the move towards reducing greenhouse gas emissions has resulted in increased financial support for the research and development of alternative energy sources, including renewable sources like solar, wind, and hydropower. With significant fossil fuel reserves, there has been little investor incentive to fund finance studies to develop technology and diversify energy sources within the Russian federation, leaving the economy dangerously dependent on hydrocarbons.
The global financial crisis has taken a toll on revenue from energy exports. In a presentation to the 2009 UN Conference on Trade and Development (UNCTAD), Ivan Korolev, Deputy Director of the Institute of World Economy and International Relations, Academy of Science of the Russian Federation, indicated that Russia’s growth rate for 2009 was flat. During the next three years growth in Russia also lower than expected. This is linked to a dependence on the export price of hydrocarbons, which account for 70 to 80 percent of all export earnings. In addition to its impact on the state budget, Tatiana Mitrova, Head of Global Energy at Skolovovo Energy Centre, told at the Russia Forum in early 2012 that the financial crisis, and the rapid depreciation in oil prices, has reduced the resources available for investment in energy infrastructure modernization projects and the development of new oil and gas fields.
In response to oil prices falling from a high above $140 a barrel in July 2008, and in an effort to ensure its own energy security, Moscow has indicated a willingness to work closely with OPEC in an effort to stabilise the market. The Kremlin has also been at the forefront of plans to form a gas cartel modelled after OPEC, but so far to no avail. To this end, Moscow has been in talks with Iran and Qatar—and if the three joined forces they would control more than half of the world’s natural gas resources.
Through Gazprom, the Russian energy giant, Russia is expanding its energy network internationally. Indeed, there are indications that the state-run monopoly has set out to acquire a share of Africa’s energy assets (including nuclear), with the opening of its first African office in Algeria in June 2008. Following this was a flurry of meetings with a number of countries, including Angola, Egypt, Namibia, Nigeria, and South Africa. Before the Libyan civil war and Western military intervention, Gazprom had offered to buy all of Libya’s spare oil and gas exports. It equally expressed an interest in buying exploration licences in Nigeria, as well as the building of gas pipelines between Nigeria and Algeria and Europe and Libya.
Internationally, oil and gas have been the fundamental drivers of economic growth and development. As these hydrocarbons become increasingly scarce, competition for energy resources in Russia and the Central Asian region will result in rising tension between both the energy exporting and energy importing states. This is reflected in the new “Foreign Policy Concept of the Russian Federation” signed by Putin on February 12, 2013. The document establishes the basis of Russia’s external action at least until 2018, with a focus on the importance of access to energy resources globally and the potential for military conflict. It replaces the one endorsed by Dmitry Medvedev in July 2008.
By placing access to hydrocarbons at the centre of the federation’s energy security, Russia will continue to remain dependent on fossil fuel, not only for its energy but as a source of revenue. The sustainability of this approach needs further consideration, especially in light of the decreasing price of energy resources and its subsequent impact on the national budget, modernization projects, and the exploration and development of future gas and oil fields.
Although diplomatic efforts saw the supply of gas restored to Ukraine and other Eastern European countries, the European Commission has prioritized the connection of the vulnerable Eastern European states of Lithuania, Latvia, and Estonia to European power grids, as well as the development of the southern Gas Corridor.
Turning to alternative oil and gas exporting countries may provide a short to medium-term solution; however, Europe’s focus on reducing its dependence on Russia diverts attention from the region’s continued reliance on hydrocarbons. The southern Gas Corridor may bypass Russia and Iran, but by all indications Europe would remain overly dependent on hydrocarbon energy exports from a region that remains within Russia’s sphere of influence, although less of a firm hold than previously. Rather than the continuing prioritization of energy security linked to the export and import of oil and gas, the future of energy security for both Europe and Russia lies in the diversification of energy resources and in moving away from a dependence on fossil fuels.
Richard Rousseau is Associate Professor and Chair of the Department of Humanities and Social Sciences at the American University of Ras Al Khaimah, United Arab Emirates. His research, teaching and consulting interests include Russian politics, Eurasian geopolitics, international political economy, and globalization. He lived three years in Baku, Azerbaijan.
This article was originally published in the 2013 special annual APEC CEO Summit Magazine. Published with permission.
