The supply of gas and oil from Russia remains one of the main topics in the world media even after eleven months of the war in Ukraine. But Russian President Vladimir Putin’s hopes of putting pressure on Europe through the use of energy as a weapon are failing.
India and China have become the biggest buyers of Russian oil as Western countries limit purchases and impose sanctions.
As Bloomberg reports, “Mild weather, a wider array of suppliers, and efforts to reduce demand are helping, with gas reserves still nearly full and prices tumbling to pre-war levels. After the sharp turnaround over the past month, Europe is likely already through the worst of the crisis.”
Bloomberg also says, «The combination of conditions — including China’s Covid woes blunting competition for LNG cargoes — would take the edge off inflation, stabilize Europe’s economic outlook and leave the Kremlin with less leverage over Ukraine’s allies, if they persist.»
«While a cold snap or delivery disruptions could still throw energy markets into disarray, optimism is growing that Europe can now make it through this winter and next,» they noted.
What was Russia’s position in the world gas markets before its invasion of Ukraine?
According to statistics from the International Energy Agency (IEA) Russia is the world’s second-largest gas producer, after the United States, producing 761 billion cubic meters (bcm) in 2021, or 18% of the world’s gas output. Russia is the world’s largest gas exporter, with exports amounting to around 250 bcm in 2021, with 210 bcm exported through pipelines. In addition, Russia exported more than 40 bcm of liquefied natural gas (LNG), making it the world’s fourth largest LNG exporter after Australia, Qatar, and the United States.
Share of Russia in European Union and United Kingdom gas demand, 2001-2021. Source: https://www.iea.org/reports/russian-supplies-to-global-energy-markets/gas-market-and-russian-supply-2
In 2021, Russia supplied 32% of the total gas demand in the European Union and the United Kingdom, up from 25% in 2009. However, Russia was already reducing gas exports to Europe in the months before its invasion of Ukraine.
What does Russia say about it?
The Kremlin rejects any hints that Russia uses gas or oil as a weapon of political pressure.
Dmitry Peskov is a Russian diplomat and the press secretary for Russian President Vladimir Putin
The spokesman of the President of the Russian Federation, Dmytry Peskov, said, «Russia does not use oil and gas as a tool of pressure on other countries and rejects all relevant accusations of the West.»
He stated, «We completely reject any insinuations or direct statements that the Russian side is using gas or oil as a weapon of political pressure. This is not the case. Russia consistently fulfills all its obligations.»
Ukrainian position: energy carriers are used as a weapon
Ukraine proves the opposite point of view. The former adviser to the head of the Office of the President Oleksiy Arestovich said during a broadcast with the Russian opposition lawyer and journalist, Mark Feigin, that Putin uses gas as a weapon. At the same time, there are several countries in Europe that block sanctions against Russian energy carriers.
Former Advisor to the Office of the President of Ukraine Oleksiy Arestovich
According to him, sanctions against the energy sector of the Russian Federation in the EU are blocked not only by Hungary, but also by Croatia. He noted that the sixth package of sanctions, which was approved on June 3, 2022, is causing a lot of discussion in Europe, as the previous ones were implemented without problems.
«Do you remember how many discussions there were about the fact that Russia uses gas and oil as a weapon. Now there is no need to prove it. Here it is clearly… I think that the Europeans will take a full sip of energy relations with the Russian Federation and understand that it is unreliable supplier. There are rules in any war, but here they are trying to use gas as a weapon. In simple words: «We will freeze you for your support of Ukraine, for your position on Russia». This is a pure weapon,» said Arestovych.
On December 3, 2022, the EU Council decided to set the ceiling price for oil exported by Russia at $60 per barrel.
The President of Ukraine, Volodymyr Zelenskyy, during a speech in the US Congress, December 22, 2022
The President of Ukraine, Volodymyr Zelenskyy, criticized the EU’s decision to set the price of Russian oil at $60 per barrel. The extreme price for Russian oil, which was set in the European Union, is «frivolous and quite comfortable for the budget» of Russia, President Zelenskyi said in an evening address on December 3, 2022.
Earlier, Volodymyr Zelenskyy called to limit the price of Russian oil to $30-40 per barrel.
The reaction of the European Union
An article from The Economist states, “Before the war, Russia supplied 40-50% of the EU’s natural-gas imports. In August, Mr. Putin turned off the taps on a big pipeline to Europe. Fuel prices surged, squeezing the economies of Ukraine’s allies… so far, Europe has weathered this shock well, stockpiling enough gas to fill storage sites. But the rise in wholesale energy costs has still reached many consumers. Even though market fuel prices have declined from their peaks, real average residential European gas and electricity costs are 144% and 78% above the figures for 2000-2019.”
The article also states: “These costs pale in comparison with the horror Ukrainians have endured. But they still matter, because the colder the temperatures people experience, the more likely they are to die. And if the historical relationships between mortality, weather, and energy costs continue to apply—which they may not, given how high current prices are—the death toll from Mr. Putin’s «energy weapon» could exceed the number of soldiers who have died so far in the fight.”
Von der Leyen, High Representative of the European Union for Foreign Affairs and Security Policy Josep Borrell, Prime Minister of Slovakia Eduard Heger, Prime Minister of Ukraine Denys Shmyhal and Mayor Anatoly Fedoruk in Bucha, April 8, 2022.
President of the @EU_Commission, Ursula von der Leyen has accused Russian President Vladimir Putin of using energy as a weapon by cutting energy supplies.
She said in a recent tweet: «Putin is using energy as a weapon, cutting supplies and manipulating our energy markets.»
She also emphasized: “He will fail. Europe will win.»
Opinion of the Secretary of State of the United States of America
«Putin thought he would divide the Ukrainian people and quickly absorb the nation into Russia, but the Kremlin’s attempts to forcefully impose its will on Ukraine have further rallied its people around the defense of their sovereignty and the preservation of a free and open democracy,» said US Secretary of State Anthony Blinken.
Antony Blinken is an American government official and diplomat serving as the 71st United States secretary of state since January 26, 2021
Anthony Blinken noted that Putin believed that his invasion of Ukraine would demonstrate the power of the Russian military, and instead turned to North Korea and Iran for the necessary supplies, «while Ukraine’s military capabilities continue to strengthen thanks to its leadership, the courage of its fighters and the strong support of allies and partners»
Anthony Blinken said, “He also noted that Western sanctions have seriously weakened the Russian economy and that is why Russia is resorting to energy blackmail to try to deprive Ukraine of EU support. «As Russia fails to achieve its goals on the battlefield and becomes increasingly isolated on the world stage, President Putin is resorting to cruder tools to try to deprive Ukraine of support. He is using energy as a weapon against European countries resisting its aggression, increasing costs for families, enterprises and entire countries».
An expert’s opinion on the state of energy in the European Union and the Russian Federation
The Ukrainian Review took a comment from the expert of the Institute for Energy Research Yuriy Korolchuk. Here are the main theses:
- The European Union will not be able to give up Russian gas so easily. This is 150 billion cubic meters of gas per year. That is, they need that gas to meet their own needs.
- EU countries have already reduced gas reserves in the industrial sector. They actually shrunk, partly stopped working, partly stopped earning. In this way, they solved the problem, but only in a fragmentary way.
- Today, alternative sources of energy cannot replace gas and oil, as it is extremely expensive to produce. They use accumulative systems, that is, they need accumulators, materials for which also need to be purchased, and it is not cheap. That is, today the technologies of using alternative energy sources are not yet sufficiently developed to be able to completely replace gas and oil.
Sanctions: it’s not just economic losses
Russia did not suffer great economic losses and made a lot of money from the sale of oil.
The fall in GDP amounted to only 3% (the IMF gives only 2.2% in general), although in the previous months, a greater fall in the Russian economy was predicted. Moreover, the International Monetary Fund, in its forecast for 2023 and 2024, believes that the Russian economy will grow by 0.3% and 2.1%, respectively.
World Economic Outlook (2023). Source: https://www.imf.org/en/Publications/WEO/Issues/2023/01/31/world-economic-outlook-update-january-2023
However, the losses of the Russian economy from sanctions, if not yet critical, are there. According to Bloomberg estimates, which they made back in the spring, Russia’s income from oil and gas in 2022 should have been about $285 billion. This would exceed the 2021 figure by more than one-fifth. Add in other goods, and it more than makes up for the $300 billion in foreign reserves frozen under sanctions. However, «the calculus may change completely, however, in case of an embargo on energy sales».
Sanctions work slowly but surely. Russia has lost access to technologies, and the purchase of a large range of goods is possible only through «gray» schemes, therefore, in the long term, this will be of great importance for the development of the economy. For now, the Russian Federation can still sell oil and gas through gray schemes and to Asian countries.
Conclusions
Russia is the world’s largest gas exporter and also the world’s second gas producer after the United States. Considering the current situation caused by the war in Ukraine, it is necessary to understand that Russia uses its energy carriers as an instrument of influence and pressure on EU countries. But, taking into account the above studies, expert statements, and statements of political figures of Western countries, there can be no doubt that the gas and oil map of the Russian Federation will be beaten.
Danylo Kondysiuk
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