The Kremlin’s energy warfare

Russia’s decision to cut off gas supplies to Poland and Bulgaria is a thinly veiled threat to Germany and all of Europe. Moscow claims that the move is a response to Warsaw’s and Sofia’s refusal to comply with President Vladimir Putin’s demand that they pay for Russian energy in roubles. But the demand is in breach of Gazprom’s contracts with Poland and Bulgaria. And, if the two countries had complied with it, they would have violated their own sanctions on Russia. Nonetheless, Poland and Bulgaria have prepared for this situation. They will be able to cope thanks to their full gas storage facilities and interconnectors to alternate supply routes, as well as the support they will receive from other EU member states.

Moscow’s rationale for the move may relate to the panic the cut-off has sparked in energy markets as traders speculate about who might be next. It is likely designed to alter Europeans’ calculations as they consider imposing more drastic sanctions on Russia (including on its energy exports), with the added benefit of punishing Poland and Bulgaria. Like Putin’s demand that Europeans pay for imports of Russian energy in roubles, the cut-off seems intended to divide them in their approach to Russia, particularly the speed with which they decouple from the country.

The halt in Russian gas deliveries to Poland and Bulgaria, then, is a particularly grave instance of economic coercion. As European capitals weigh how far they can go in sanctioning Russian energy exports, Moscow is trying to achieve its political goals by changing their threat perceptions. A halt to all Russian gas exports to Germany would probably have dire consequences for the German and European economies. Factories would have to curb production or even close. It is possible that some key industries could be lost forever. In fact, the move would be so consequential that it is hard to assess the full range of consequences.

While Moscow is openly escalating its economic warfare in Europe, it would be wrong to assume that it is doing so from a position of strength. Russia is going further than the Soviet Union ever felt it had to: the latter could have used energy exports as leverage over Europeans during the cold war, but refrained from this grave escalation. Putin now seems to feel he needs to use this last big lever of his. Nonetheless, the best outcome for the Kremlin is not total economic war but that its threats coerce the European Union to weaken its sixth package of sanctions on Russia (which will probably include new measures targeting its energy sector). Although Putin appears willing to tolerate a severe decline in the Russian economy to achieve his goals in Ukraine, revenue from energy exports is Russia’s last big economic lifeline.

Therefore, Russia’s new effort at economic coercion might be partly a bluff – meaning that the EU need not change its approach to the sixth sanctions package. An immediate halt to Russian energy exports to Europe would be unlikely to alter the Russian military’s behaviour in Ukraine, and would significantly weaken Germany and Europe. But the move against Poland and Bulgaria does not change this situation. Europeans should stay united and call Russia’s bluff. They need to plan for a situation in which Moscow cuts this last lifeline. Putin might do it but, if he does, it would be a sign of desperation – not of strength. The better Europeans are prepared to deal with this scenario, the less likely it is to come about.

Regardless of what Moscow decides to do, the EU should end its energy dependence on Russia as quickly as possible and start to sanction Russian oil exports now. This is because the sides are now in a race to become sufficiently independent to exert economic pressure on the opponent.

Putin announced in April that Russia should diversify its energy exports away from Europe and towards Asia, Africa, and Latin America. The Russian government will reportedly present a plan for how to achieve this by 1 June. In 2021 Russia accounted for around 27 per cent of the EU’s oil imports and more than 40 per cent of its total gas consumption. OECD Europe absorbs around 60 per cent of Russia’s oil exports, while China absorbs 20 per cent – far more than any other Asian country. China is looking to become less dependent on Western suppliers such as Australia and the United States for its gas imports – most of which take the form of liquified natural gas (LNG). And economic development and population growth mean that Asia accounts for an increasing share of global energy markets.

However, Russia has access to far better infrastructure for exporting energy to Europe than to Asia. And Western sanctions could hamper its efforts to expand its LNG projects. All this means that Russia’s declared pivot to Asian markets will likely be an unpredictable process that takes several years. African or Latin American markets are even further away and would need to be served by ship. Sanctions on Russian vessels and maritime insurance will also complicate this option.

Meanwhile, the EU’s attempts to end its energy dependence on Russia will be limited by global supply and the time it takes to build new infrastructure. Political pressure to stop buying oil and gas from Russia is mounting in the EU, but the bloc has not achieved a consensus on how to achieve this yet.

If China and India were to substantially increase their imports of Russian oil and gas, Europe would have to react by pressuring them diplomatically and, further down the line, imposing secondary sanctions on them – but this would not be in the interests of the EU, China, or India. European Commission President Ursula von der Leyen’s trip to Delhi on 24 March and the recent announcement of an EU-India Trade and Technology Council show that Europe is trying to engage in broad strategic cooperation with India. This includes cooperation on renewable energy – which can strengthen the EU’s energy security by reducing its dependence on fossil fuel imports.

The EU has started to build up its economic security architecture, not least with its proposal for an Anti-Coercion Instrument. Russia is now waging an energy war against Europe. There could hardly be a stronger reminder of how important it is for Europe to quickly make progress on economic security.