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June 19, 2024





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The European Union, and Germany most particularly, have gotten themselves into a self-inflicted energy shortage disaster in becoming heavily dependent upon Russian natural gas and oil while at the same time opposing the Putin government’s Ukraine invasion, which they have good reason to fear may spread to NATO countries.

Meanwhile, China stands ready to pick up and exploit its market share.

Germany, a dominant EU economic power, relied on Russia for more than half of the natural gas and a third of the oil it burns to power factories, heat homes, and fuel trucks, buses, and cars. To make matters even worse, roughly half of Germany’s coal imports which are essential to its steel manufacturing, come from Russia as well.

As for natural gas, as recently as 15 years ago, EU member countries produced more gas than Russia exported. Also, paradoxically, although Europe’s gas reserves are smaller than Russia’s, they may have as much technically recoverable shale gas as the U.S., which their governments won’t allow being developed.

Regarding oil, Germany has relied on Russian deliveries for about 35% of its supply via dedicated pipelines for decades since its ports have limited capacity to host supertankers from other suppliers. Germany also lacks pipelines for coast-to-coast transport, and the country has allowed most of the containers used to move it by train to be scrapped.

Angela Merkel’s 16-year reign as German chancellor accelerated this Russian dependency, influencing her country to shut down nuclear and hydrocarbon-fired power plants in favor of highly subsidized unreliable and intermittent windmills and solar arrays.

By the time Putin’s troops invaded Ukraine, Germany was already paying Russia about $208 million for energy daily, curbing its enthusiasm for Western financial sanctions that followed.

Given that its primary source of revenue is oil, not gas, Russia is in a strong economic position to exploit its natural gas stranglehold as wartime policy leverage. Germany, by contrast, counted on Russia for about 65% of its natural gas imports — and the EU about 40% — as recently as last year.

Wily former KGB operative Vladimir Putin is playing a cat-and-mouse game that places Germany — and by extension the EU and NATO — at a significant disadvantage.

That calculus calibrates the imposition of energy rationing and rolling blackouts that will both undermine European public support for Ukraine and set NATO allies against one another, against the big downside of sacrificing its reputation as a reliable supplier over more than five decades and losing that market to alternate sources.

The most promising option for Putin appears to be a combination of the two strategies, namely to keep European governments off balance as Russia manipulates gas flows to maintain economic blackmail leverage over the West while simultaneously bolstering Russian revenues to help fund its war in Ukraine.

Although Kremlin-controlled energy exporter Gazprom PJSC, the German Nord Stream 1 pipeline’s majority shareholder, pledged that Moscow “has always fulfilled and will fulfill all of its obligations,” a June shutdown of the 760-mile system for “routine” maintenance served as a stark warning.

Even before that maintenance on a main turbine began, in June, Gazprom cut deliveries on the pipeline to 40% of its capacity, blaming Canadian sanctions against Russia that had initially prevented the return of the equipment being repaired there.

Russia is also stepping on other European pipelines — including one that traverses Ukraine — along with gas shipments to Germany through a third route after placing sanctions on the owner of the Polish section of the Yamal-Europe pipeline.

Belatedly awakening to harsh realities, Germany and other EU economies have embarked on a crash course to diversify away from Russia’s dependence. Having reduced Russian gas imports by half this year, they have proposed a wistful intent to cut Moscow out of the energy mix entirely within five years.

Let’s wait and see how that goes, and how far a recently released EU plan for member countries to voluntarily curb their gas consumption by 15% over the next eight months will get them toward that goal.

Europe faces a stiff challenge in socking away enough to get through next winter, causing the International Energy Agency to urge all steps possible to refill storage caverns now while there is time to do so.

German energy giant and distressed natural gas utility company Uniper has already virtually declared a shortage emergency after being forced to withdraw fuel from storage sites to replace cutbacks in Russian deliveries. The company also urgently needs supplies to sell in order to avert bankruptcy.

As the EU desperately casts about seeking other suppliers, it is currently scooping up nearly a third of the world’s exported liquefied natural gas (LNG) at the same time that recently energy-independent America is also seeking foreign imports.

Having kneecapped domestic fossil energy production and sought bailouts from Saudi Arabia, OPEC+, Venezuela, and Iran, our current administration is even siphoning emergency supplies from the U.S. Strategic Petroleum Reserve.

Even more ironically, the biggest long-term beneficiary of this short-sighted EU-U.S. climate alarm-premised lunacy isn’t Russia, but rather China, by far our most dangerous economic and military adversary.

Beijing offers a huge and growing market for Moscow oil and gas, with the latter being only temporarily limited by pipeline infrastructure. Unlike crude, which can be loaded onto boats and shipped to narrow markets, rerouting EU gas to Asia will require a few years, along with large investments that will inevitably tie the two countries closer together.

The long-term consequences of this tightening alliance will have menacing military and economic repercussions for years to come, not only for the West, but also for Russia.

Flipping trade relationships from a meekly dependent EU to an overwhelmingly more powerful and globally ambitious China as their main customer will clearly give Beijing the upper hand for control.

The stakes in this game of bullying brinksmanship are a whole lot bigger than worrying about your SUV’s influence on climate change as our greatest existential threat.

More concerning, our present leaders who imagine otherwise aren’t apparently even present at that gaming table where the most serious and skilled players are Russia and China … neither of which have our best interests at heart.

Right now, the hustler dealing the cards is in Moscow.

As Richard Morningstar, founding chairman of the Atlantic Council’s Global Energy Center, has noted, Putin “can play games with Europe: shutting down, opening up some, still making significant revenues because of the price. He’s an ex-KGB guy. He’s a tactician. He’s playing mind games and hopes he can bring Europe to their knees while still making some money.”

Image: AP


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