Likely energy scenarios in the aftermath of Russia's war with Ukraine
Russia’s invasion of Ukraine on February 24 unleashed a full-scale war with effects far outside Europe. At risk of becoming the longest warfare in the region since World War II, it has already shifted international relations and security approaches globally. With Russia an important player in global energy markets, the war may have severe and long-term repercussions for global energy relations and national energy policies. Here, are some likely scenarios.
As soon as Russia invaded Ukraine, the West looked for ways to contain Russia, especially with economic sanctions. Energy supplies—amounting to $246 billion and accounting for half of all Russian exports last year—were among the most considered options. Two key factors hindered quick and effective energy sanctions against Russia.
The first is Russia’s significance as an energy exporter. As of 2020, it was the largest natural gas supplier in the world, accounting for 197.7 billion cubic meters (bcm) of pipeline exports, and 40 bcm of liquefied natural gas (LNG). It was also the second-largest global exporter of both crude oil and oil products. With such considerable export volumes coming from Russia, finding other producers to make up for Russian supplies was a challenge that could not be taken lightly.
Second, some countries have relied on Russian energy sources for a long time, and thus have become deeply dependent on Russia for their energy security. Solving this dependency is inhibited by extensive infrastructural bottlenecks, requiring time for many countries supporting the sanctions to decrease their energy imports from Russia.
For example, according to already announced plans, the European Union will need until the end of 2022 to refuse 90 percent of the oil it imports from Russia. From my own assessments, it will take at least two to four years for the EU to stop importing Russia’s natural gas. Since 2018, the share of Russian gas imports in the EU has varied from 40 to 54 percent, and the volume of imports in some years was comparable to the capacity of all large-scale LNG terminals in the EU combined. The EU also relied on importing Russian LNG. Other LNG exporters simply are not capable of increasing production and exports quickly enough to be able to replace the volumes supplied by Russia. Similar bottlenecks exist regarding pipelines—there are not enough existing pipelines and other facilities to deliver the necessary volume in a timely manner.
Russia’s Behavior in the Midterm
Since the West needs time to decrease the volumes of Russian supplies, Russia will try to use this time to get the sanctions lifted or released and return to business as usual. Traditionally, the Kremlin believes that different leverages can be used, including market manipulations, blackmailing, and bribes. There should be no illusion that Russia—led by a former KGB officer—will try any action to achieve its aim. They hope to be at least partly successful. The Kremlin will pretend that sanctions do not affect the Russian economy, including its energy sector, and will spend reserves to try and prove it.
Russia may also resort to provoking crises in fragile regions—such as Africa and the Middle East—or in Western countries to distract attention from Ukraine and weaken the West’s commitment to sanctions. They may resort to official bribes, offering concessions in exchange for lifting recent energy and banking sanctions, similar to what Vladimir Putin proposed to Italy’s prime minister, Mario Draghi, to help with solving a food crisis.
When it comes to energy markets, Russian behavior will also likely include steps to achieve two goals. First, to raise energy prices. Higher prices will help Russia save revenues even when decreasing the supply volume. In 2021, Gazprom—the majority Russian-state-owned, multinational energy-company—earned a record-high profit because of the gas rally in Europe, which was caused by numerous factors. Russian companies could have softened the rally with extra supplies, but refused because they were seeking more revenues. Gazprom behaved similarly in 2012, the crisis was shorter then, and the spike in prices was less severe. The second goal is to demonstrate Russia’s energy dominance, or even persuade the world of the “inevitability” of Russian energy supplies. Decreasing supplies or blackmailing alongside halting supplies may work to achieve both goals.
European countries will either use the reserves to decrease energy imports from Russia and withstand Russia’s attempt of energy pressure, or the Kremlin’s blackmailing will win again.
In May, Russia imposed sanctions against the Polish gas transit route, and used only 40 percent of the volume already booked and paid for from the Ukrainian route after Kyiv refused to organize transit through uncontrolled territories. These steps immediately suggested Moscow’s intention to play a crooked game with gas supplies. Later, Russia announced a decrease in supplies from the Nord Stream pipeline, blaming sanctions for delays in equipment repair.
High prices and a lack of gas to store before winter may affect consumers, and in theory, could push governments to negotiate with Russia on energy supplies and soften sanctions policy. Just one country—Hungary—demanded a softening of the oil embargo. However, if Russia decides to blackmail countries, more could follow suit.
Knowing that by the end of 2022 Russia may lose almost all the EU’s oil market, why wouldn’t it try to halt supplies and pretend that it was not Moscow’s fault? This may be the logic that finds the West in a bind of high prices, an energy shortage as winter descends, and industrial producers also suffering from losses. This, the Kremlin may believe, could push European governments to negotiate.
After Russia annexed the Crimea Peninsula and unleashed the war at Donbas in 2014, it looked like European states would change their energy policy and attitude toward Russian energy dependency. The South Stream pipeline project was canceled in late 2014, and the EU planned to diversify gas supplies. The EU has not learned a lot since then; in 2015, it signed an agreement on the Nord Stream 2’s construction, and a year later came the one on the TurkStream. Europe did not decrease its dependence on Russia.
The Future Role of Russia in Energy Markets
The Kremlin probably expects the same scenario this time around. However, it is more likely that this war will wholly change the long-term prospect of energy relations, inclusive of Russia’s role in global energy markets. If most EU nations considered Russia to be a reliable energy partner before, now officials have referred to Russia’s behavior as energy blackmail, as seen in reference to Russia halting supplies to Poland and reduced supplies via the Nord Stream pipeline. Therefore, it’s very likely that in the long-term, the EU will keep its energy transition away from Russia on track or even accelerate it.
Restricted access to technologies will be another factor threatening Russia's energy dominance.
The question is what happens in the midterm: European countries will either use the reserves to decrease energy imports from Russia and withstand Russia’s attempt of energy pressure, or the Kremlin’s blackmailing will win again.
The EU must expeditiously seek new LNG suppliers and expand its regasification fleet. Even so, there are ways to resist Russia’s pressure. For example, it is possible to decrease energy consumption and improve energy reserves during the summer and winter with changed temperature standards. And Germany still has the potential to use its closed coal power plants, and postpone the plan to phase out nuclear power plants—three units were shut down in early 2022, and three more are still planned for closure at the end of the year. Importing more electricity from Ukraine (after the country synchronized with the European power grid in 2022) may also be helpful, and according to officials, is capable of replacing 17 percent of Russian gas imported to the EU.
If Russia achieves success in blackmailing throughout 2022–23, it will not be all about European states; countries differ in their potential to resist energy pressure. More important, some have strong public support to break up with Russia, mostly based on historical memory, fear of Russian military power, and hybrid attacks. If Moscow manages to maintain its energy dominance over some European states now, it will be an impetus to accelerate the energy transition process and weaken its dependence on Russian energy later. Before its unprovoked invasion of Ukraine, Russia was preparing to participate in the EU’s energy transition, supplying low-carbon hydrogen and renewable gasses or trading emission quotas. Their actions have weakened Russia’s opportunities. And the potential for blackmail may prevent Russian participation in the EU’s energy transition for decades.
The rapid loss of the European market—within two-to-three years—may have disastrous effects on Russian energy. Most of the gas Russian produces is traded with Europe, and about a fifth of its crude oil is exported. Existing infrastructure bottlenecks limit the possibility of sending all unused gas and oil to other markets, for instance, in Asia. An expansion of these corridors needs time.
This may make it necessary to close some oil and gas production sites. And most of these sites will not be able to return to production in a few years, when infrastructure is developed and demand rises, mostly for economic reasons for old wells and fields. Under sanctions, Russia will lack modern technologies to develop its energy sectors. Key Western oil and gas service companies already have suspended operations in Russia. Moreover, the Russian economy cannot substitute imported oil and gas industry equipment.
Restricted access to technologies will be another factor threatening Russia's energy dominance. But in this case, companies from the states that do not support sanctions may enter Russian markets. It is reasonable to expect Chinese or Indian companies to invest in Russian energy. China and India—huge energy-consuming economies—will need Russian oil and gas. But it is risky for Russia to be the main energy supplier of these huge economies, as it could create a dependency that leaves Russia beholden to countries with their own interests.
In both cases—if Russia’s energy sector shrinks because of sanctions and voluntary refusals, or if “Russia-friendly” states invest in it—Russia’s ability to use energy as a weapon risks serious weakening. There will be much fewer opportunities to apply energy pressure or finance geopolitical ambitions with energy revenues. Additionally, energy revenues are an important part of Russia’s general income; in 2021, energy revenues made up half of all export revenues. Losing energy dominance may weaken Russia as a geopolitical power more generally.
We cannot exclude a scenario when, a few years down the road, Russia’s ruling elites change and a new government blames the previous one, then proposes to resume energy business as usual, or even participate in the European energy transition in the future. But even so, most of the prospects for Russian energy dominance were immediately undermined by its unprovoked war against Ukraine.
Based in Kyiv, Andrian Prokip is a senior associate with the Kennan Institute at the Woodrow Wilson International Center for Scholars. He also serves as an energy expert with the Ukrainian Institute for the Future.
Cover photo: Pipes at the landfall facilities of the 'Nord Stream 2' gas pipline are pictured in Lubmin, northern Germany, on Feb. 15, 2022. AP Photo/Michael Sohn.