Politico: Why Russia Will Lose the Energy War Putin Started

Moscow will lose the energy war started by Vladimir Putin, emphasizes Agathe Demarais, global director of forecasting at the Economist Intelligence Unit, in her Politico article.

Russia has instrumentalized energy supply by turning it into an economic weapon. The strategy is evident in Ukraine, where Russian drones and missiles are bombing power plants. But it is also evident in Europe, where Moscow has shut off the gas taps and possibly blown up the Nord Stream gas pipeline.

However, the plan of the Russian president looks like it will backfire.

In the short term, Putin will indeed cause economic damage to the countries of the European Union — that is inevitable. But in the long run, Russia simply cannot win this energy war. Putin’s maneuver will only hasten the collapse of his country’s energy sector and hasten the loss of its coveted status as a global energy superpower.

The instrumentalization of Russia’s energy has three objectives. The first, which applied when the taps were still more or less open, was to create uncertainty and prevent EU countries from preparing for what was to come.

The second objective was to weaken the European economies. And on this front, Russia’s strategy is working – the eurozone will likely record a recession next year.

Putin’s third goal, meanwhile, was to fuel political divisions in Europe by spreading the idea that sanctions are causing the energy crisis. This is, of course, a reversal of cause and causation – it is Russia’s decision to invade Ukraine that is causing the crisis. However, the narrative has some resonance in the EU.

Short term, Europe is in a difficult position. The economic and social crisis is intensifying, as high energy prices fuel inflation and a cost-of-living crisis that could last two or three years. Moreover, things could get much worse than they are now. A particularly cold winter will increase demand for energy, further exacerbating social pressure.

The situation could become even more difficult in the winter of 2023-2024, as European countries managed to replenish their gas reserves this summer, while Russian gas was more or less still flowing. However, they may not be able to do so ahead of next winter.

Clearly, there is no doubt that times are difficult for the EU, but there can be some solace in the fact that Putin’s strategy is bound to fail.

Moscow’s blackmail convinced EU countries once and for all that Moscow is not a reliable energy supplier. And as a result, Europe is stepping up its efforts to wean itself off dependence on Russian hydrocarbons, with LNG infrastructure being built apace to boost imports from the United States, Australia and Qatar. The first of many new LNG terminals will also open soon in Estonia, Latvia and Finland, while negotiations are underway for new gas contracts to boost supply — from Algeria or Norway, for example. The bloc is also accelerating plans to develop renewable energy sources.

Therefore, it is beginning to appear that, within three years or so, Europe will no longer need Russian oil and gas.

In just two months from now, the bloc will halt almost all imports of Russian oil, leaving Russian oil companies in need of alternative buyers for Russian crude. This should not be too difficult as demand from China, India and many other emerging countries is still high. However, these countries will not be an ideal replacement for the European market – which has been Russia’s largest buyer of hydrocarbons – as now they will expect big discounts in the price of Russian crude.

In addition, the US could begin to impose secondary sanctions on Russian oil exports – further limiting Russia’s sales. Meanwhile, the Kremlin’s position looks even worse on natural gas. Russia exports its natural gas through pipelines, which are currently being laid to serve Europe. And building new pipelines in their place will take time and money, both of which are in short supply.

Exporting natural gas via pipeline also means signing new contracts with willing buyers. Here again, things look tough for Moscow, as China is currently the only country that could absorb more Russian gas, but Beijing is in no rush to do Russia any favors.

This is not surprising. China’s natural gas demand growth has slowed and Russia has also made it clear that it is not a reliable energy supplier. This is something Chinese leaders will not forget and will naturally seek to avoid dependence on Russian gas.

Given all this, it is not an exaggeration to let’s say things look dire for the Russian energy sector, which accounts for a third of the country’s economy, about half of its fiscal revenues and about two-thirds of its exports. The latest forecasts from the International Energy Agency (IEA) now assume that Russia’s annual receipts from energy exports will fall by more than half by 2030, down to $30 billion from $75 billion before the start of the war in Ukraine .

The IOC also believes that by 2030, Russia’s share of global gas trade will have fallen to just 15%—compared to 30% in 2021. The bottom line is clear for Moscow: Over the next decade, it will lose its status as a global energy superpower — and the Kremlin’s problems won’t end there.

Because of the sanctions, Russian energy companies no longer have access to Western financing and technology. For the Kremlin, this is an existential threat. The reserves of their current plots (of hydrocarbon extraction) are gradually being depleted, and although they have new plots in the Arctic, their development will require huge sums of money and leading Western technology. Without access to either, Russia’s energy production will decline in the coming decades.

Combined with declining demand for fossil fuels as the world shifts to renewable energy, this means that the energy war launched by Putin himself can only end badly for Russia.

Read the News today and get the latest news.
Follow Skai.gr on Google News and be the first to know all the news.