The power of interdependence: Europe’s under-rated influence over Russia

It still seems a distant prospect, but Europeans need already to consider what form their future relationship with Russia may take. A major question to confront is how, with regard to its largest neighbour, Europe can ensure it is influential, but not vulnerable; sovereign, but not an island.

Just last week, Germany’s foreign minister, Annalena Baerbock, observed that “interdependence … harbours risks”, stating that the country should “rid itself of [Russian] fossil dependency once and for all”. The European Union, meanwhile, plans to wean itself off Russian gas and oil by 2030. Given Gazprom’s decisions to limit and then suspend most of its natural gas deliveries to the EU, Europeans have no other choice than to prepare for a future without Russian gas.

Russia’s invasion of Ukraine and its economic and energy warfare may therefore have hastened a gathering backlash against interdependence – and against the once almost-unassailable idea that commerce begets peace, which events have now discredited. In many ways, the West has indeed been (wilfully) naive in its approach to Russia since 1991. But it would be wrong to conclude that, once this war is over, Europe should eliminate all economic interdependence with Russia.

As well as being economically inefficient, this would be a strategic mistake. A diversity of relationships will always be to Europe’s benefit and help make it more resilient. For example, while Russia undoubtedly wields the greatest influence over Europe in energy terms, the efforts Europeans are now making to source gas from round the world are leading them to closer relationships with some similarly problematic regimes. A Europe dependent on these states may be less able to exert influence over these their own abuses.

In addition, through the fog of war it is still possible to discern that Moscow will not want to end up dependent on Beijing. If a future Russia, ideally under new management, can conclude that it would draw advantage from a functioning economic and political relationship with Europe, this would be in Europeans’ strategic interest too.

Europeans have already shown Russia that economic blackmail is a double-edged sword.

But, even if Europe could undertake a full fossil fuel decoupling from Russia, and even if for the moment it excluded any ‘grand chessboard’ consideration of a rapprochement with the country, it would still be unwise to give up completely on interdependence. Europe needs to nurture some future leverage over Russia – even if that means accepting some degree of vulnerability in return.

Leverage in action

Europeans have already shown Russia that economic blackmail is a double-edged sword. Europe’s and the United States’ economic links with Russia enable them to disrupt its economy. The West does this mostly through export controls – by obstructing access to products and technologies on which Russia relies heavily (for example, microchips and other high-tech parts). These controls should significantly limit Russia’s capacity to wage a long and costly war.

Furthermore, once it becomes operational in the coming months, the impact of the EU’s oil embargo will also make itself felt. Oil export revenues last year contributed 36 per cent to Russia’s federal budget, and European OECD countries accounted for 60 per cent of those exports – three times more than China. Russia can sell oil on other markets, but so far it has been forced to do so at a significantly lower price. So, when the EU stops buying Russia’s crude oil and refined petroleum, it should inflict considerable financial loss on it. Indeed, recent data from the Russian Ministry of Finance indicate a significant fall in Moscow’s revenue from oil and gas exports, despite exorbitant gas prices – and before the oil embargo has even come in.  

On natural gas, Europe cannot yet rule out the prospect of a bleak winter. But even this interdependence with Russia may prove to be much less potent leverage in Moscow’s hands than many Europeans previously feared. The Russian authorities likely hoped to use gas to create such intense price volatility and supply uncertainty that European publics and governments alike would re-evaluate their stances on Ukraine. This strategy has some potential, as a recent demonstration in Prague suggested. But things seem broadly to be shifting in a different direction. Germany has made enormous progress in refilling its gas storage facilities, negotiating new deals around the world, and quickly building new LNG terminals. The EU may even achieve independence from Russian gas as early as next year, assuming Europeans succeed in limiting demand too. Gas prices might still be high – but they should be much lower than during the panic in August.

Russia remains relatively reliant on gas export revenue. Gas accounted for around 10 per cent of the Kremlin’s revenue last year, which is still a sum Russia can scarcely afford to do without. And, given that more than 80 per cent of Russia’s gas exports in 2021 went to the EU, Moscow’s “pivot to Asia” is a pipe(line) dream. So, Russia might have overplayed its hand – by not just scaring Europeans (especially Germany), but also forcing them to rethink their approach to energy dependence altogether. Such an important customer will be very hard for Moscow to replace, leaving it with limited options.

The Kremlin’s halting of gas supplies to the EU through the Nord Stream 1 pipeline could therefore prove to be “Putin’s last throw of dice”.

Principles for engagement: Proportion and prudence

European leaders seem eager to conclude that they should reduce or even eliminate their reliance on energy sources from the east. But, in doing so, they fail to consider the important lesson of interdependence as leverage – which can be easy to forget right now as Europeans look fearfully at the coming winter.

To be sure, this does not mean that Europe’s future interdependence with Russia should continue to be chiefly in the realm of fossil fuels (not least because of the green transition); nor does it mean that Berlin and some other member state capitals should escape criticism for the years of myopia on their energy relationship with Russia. Instead, policymakers should ensure that any future interdependence with Russia strengthens European security rather than undermines it.

In doing so, proportions will matter. China is believed to have an unofficial rule that it should not rely on any one foreign partner for more than 15 per cent of its supplies of a single commodity. Just before the war, the EU was importing more than 40 per cent of its natural gas from Russia – and almost a third of its crude oil. These proportions may be perfectly acceptable with a partner such as, say, Norway. But, in future, the EU will need to establish ways to better monitor its vulnerabilities and keep them in check. It will need to learn to make ‘Goldilocks’ judgments about how much exposure is ‘just right’.

In short, too much interdependence with imprudently chosen partners can be dangerous. But too little – especially when it comes to Europe’s most powerful neighbour – can also be perilous, leading to constraints on the European ability to act. Without due consideration of this in this round, interdependence risks being misunderstood for the second time since the end of the cold war.