The West had bet on the assumption that Russia would not turn off the energy tap to Europe. Most international analysts had estimated that if Europe reduced its imports, Russia would find new customers. In fact, some have called for a windfall tax on Gazprom’s natural gas, believing that Russia has no realistic alternative.
For now, Europe is vulnerable to the whims of Russian President Vladimir Putin. Gas supply through Nord Stream 1, Russia’s largest gas pipeline to the West, has been reduced to just a fifth of its capacity, as prices are once again approaching record highs seen just after the invasion of the Ukraine by Russia. The question is: is Moscow bluffing or wanting to play the game to the extreme?
Russia has been looking east for some time now. However, it is questionable whether Eastern markets, which have lower purchasing power, can offset the country’s exports to Europe. Even more debatable is whether Moscow can quickly develop the infrastructure needed in countries like China or India.
Europeans have recycled clichés about the need to diversify their energy sources for years. They should have acted on them
Meanwhile, if the past is any guide, common sense can always be eclipsed by an unpredictable Putin who has shown he is quite willing to sacrifice his country’s economic interests on the altar of his geopolitical ambitions. After all, Gazprom’s revenues have tripled from a year ago as a surge in European demand and soaring prices have widened profit margins. This gave the Kremlin room to experiment, at least temporarily.
With the incursion into Ukraine being the culmination of his personal strategy, the future that Putin has in store for his people certainly looks bleak. All of this, however, is the future. Meanwhile, Europe faces the present with no convincing Plan B in sight. A transition to renewable energy will take time, while calls to reduce energy consumption will weigh on growth. As things stand, it looks like the best thing would be a mild winter, which would also alleviate gas rationing issues.
Gazprom’s cheap gas has supported European economies for decades. However, the continent’s reliance on Russia has shown that economics and geopolitics go hand in hand. Europeans have recycled clichés about the need to diversify their energy sources for years. They should have acted accordingly. Because, for the moment, they are only playing a catch-up game.