Europe, Russia Ensnared in 'Energy Cold War,' Experts Say
Just like old times.
Europe and Russia have become locked in an “energy cold war,” experts say, walking a razor’s edge between mutual economic dependence and “mutually assured economic destruction.”
“If someone makes a wrong move on this economy or energy war game, everyone can lose,” says Paul Sullivan, a professor of economics at National Defense University and an adjunct professor at Georgetown University. “Europe depends on the Russians. The Russians depend on Europe. The question is who’s going to blink?”
The situation grew ever more precarious Thursday when Russian President Vladimir Putin threatened to completely shut down the country’s gas pipelines to Ukraine — and, by extension, parts of Western Europe — if Ukraine didn’t pay off the $2.2 billion it owes the Russian-owned gas giant Gazprom.
Yet as much as a gas freeze would cripple the Ukrainian economy and hurt Western Europe, it would also affect Russia — and the consequences for both sides, if allowed to fester, could ultimately prove disastrous.
A gas pipe-line runs in Sevastopol, Ukraine, on March 4, 2014.The Russian gas giant Gazprom said it would sharply raise prices in April.
A gas pipe-line runs in Sevastopol, Ukraine, on March 4, 2014.The Russian gas giant Gazprom said it would sharply raise prices in April.
“It could get very out of hand here,” says Charles Ebinger, senior fellow and director of the Energy Security Initiative at the Brookings Institution.
Russia supplies about 30 percent of Europe’s natural gas, courtesy of a network of pipelines that thread the continent. Russia, meanwhile, is “heavily dependent on sales of oil and gas for revenue,” former senior White House energy adviser Jason Bordoff says.
In fact, oil and gas revenues accounted for more than half of the country’s federal budget revenues in 2012 and over 70 percent of its total exports, the U.S. Energy Information Administration said, citing the consulting firm PFC Energy.
“Russia, it’s a petro-state,” Sullivan says. “They’re undiversified, and Putin knows that. He’s a smart guy —he’s a thug, but he’s smart.”
That doesn’t mean, though, that Russia wouldn’t cut off gas supplies if pressed. Already, the state-controlled company Gazprom said last week that it would nearly double the price of gas to Ukraine, and Russia entirely shut down gas exports to Ukraine in January 2006 over a pricing dispute.
“We’ve seen Russia use its monopoly position with natural gas in Europe as a weapon in the past,” Bordoff says. “It’s a credible threat.”
[READ: Senate Committee Takes Up Power Grid Security]
It's one big reason why U.S. lawmakers have themselves sought to harness oil and gas as a weapon — or at least a tool — in American foreign policy. Amid a huge domestic production boom, a growing number of congressmen have called for the U.S. to lift tight restrictions on crude oil exports, which are currently prohibited to most other countries except Canada, and to also speed up approval of liquefied natural gas (LNG) exports.
"It's important for Europe to increase its energy security, diversity of supply, competition in the market, and U.S. exports of natural gas can play an important role in achieving that," Bordoff says.
Exporting LNG, though, requires the approval and construction of expensive terminals, and the first isn't expected to come online for at least another year or two. Any agreement on expanding crude oil exports, meanwhile, isn't expected to happen until after this year's elections. And even if gas and crude oil exports are approved, they may just bypass Europe for Asia, where prices are higher.
Also complicating matters are international negotiations over Iran’s nuclear program and Syria’s civil war, both of which involve the U.S., Europe and Russia, plus the ongoing economic recession.
A Turkish coast guard boat, far left, sits outside a liquefied natural gas import terminal in Marmara Ereglisi in western Turkey. U.S. lawmakers hope to speed-up LNG exports to Europe to reduce the continent's reliance on Russia.
A Turkish coast guard boat, far left, sits outside a liquefied natural gas import terminal in Marmara Ereglisi in western Turkey. U.S. lawmakers hope to speed-up LNG exports to Europe to reduce the continent's reliance on Russia.
“Youth unemployment in Spain and Greece is around [50 to 60] percent — if gas is shut off, what are those kids going to think?” Sullivan says. “European leaders have to think about a thousand different variables before they can make any move with or against the Russians.”
What’s more, Western intelligence agencies have had trouble anticipating Putin’s next move. The wily Russian president has restricted the executive decision making process to himself and a very tight circle of close advisers, eliminating opportunities for foreigners to peek behind the curtain.
U.S. strategists, as a result, now must change their tactics in favor of a stronger response.
“I’m not talking about warfare as boxing, now, not landing punches,” said Brig. Gen. Michael S. Groen, director of intelligence for the U.S. Marine Corps. “I’m talking about warfare as judo, where it’s all about position and leveraging your opponent.”
It’s an apt analogy for Putin, himself a former KGB officer and much-publicized judo expert. Under his leadership, the Russian government has mastered the use of economic and political intimidation to achieve its goals.
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