How Russia Hung Europe to Its Oil and Gas – and Overcame US Efforts to Prevent Energy Dependence on Moscow

The Biden administration hopes that its threat to “serious economic consequences» deters Russia from invading Ukraine – an event US officials say it could be imminent.

In response, the United States said it could prohibit the export of microchips and other technologies to critical sectors like artificial intelligence and aerospace and freeze personal assets of Russian President Vladimir Putin, among other sanctions. Meanwhile, the Senate prepares its own “mother of all sanctions” — as against Russian banks and public debt — it could take effect even if Putin eventually backs down from a military confrontation.

The United States and its allies have emphasized – as shown by President Joe Biden on February 7, 2022, meeting with the German Chancellor – that they are united on the consequences for Russia in the event of an invasion.

But Russia has something that can undermine this solidarity: a network of European countries, Germany in particular, which depends on it for its energy exports, particularly natural gas. This may make them reluctant to accept harsh US sanctions.

This addiction did not happen overnight. And like I have learned while working on a book about America’s economic warfare against the USSR during the Cold War, this issue tended to divide America and its allies – in part because of the way Russia exploited the ambiguity of his intentions.

A Cold War concern

The United States has long speculated about Russia’s willingness to use trade to tie other countries’ hands – a concern that dates back to the early days of the Cold War.

For example, in the late 1950s and 1960s, as the USSR and the United States vied for post-war hegemony, each side attempted to influence countries that were not officially aligned with any of the two superpowers. Some American analysts have warned of a “Soviet economic offensive”. This included Soviet efforts to use favorable trade agreements and other economic aid to Warsaw Pact countries and neutral targets like Finland, United Arab Republic and India in a way that created a sustained dependency on Moscow, perhaps allowing for future Kremlin coercion.

Other analysts disagreed and believed that Soviet trade was largely driven by economics. So have American allies – especially Britain – who have resisted American calls to restrict strategic trade with the Soviet bloc. and other efforts to limit their Soviet commercial prospects.

These different perspectives demonstrate the ambiguity of Soviet intentions. Given the Cold War rivalry and the USSR’s status as a centralized, state-run economy, Moscow’s motives were unclear.

JFK fights a pipeline

When the Soviet Union began developing oil and gas pipelines to Europe, Europe’s energy dependence on Russia became a particular concern in Washington.

In the 1960s, Western Europe imported only 6% of its oil of the Soviet bloc. But one new pipeline planned – running from the Russian Far East, through several European countries, including Ukraine and Poland, and ending in Germany – suggested that the Soviets hoped to change that. The prospect of greater dependency, along with other strategic concerns, sounded the alarm in Washington.

In 1963, the Kennedy administration attempted to block construction of the Druzhba, or “Friendship” pipeline, by imposing an embargo on large diameter pipes to countries aligned with the Soviet Union. Knowing he could not stop the project alone, he pressured his allies – particularly West Germany, a major exporter of pipes – to join him.

While Britain refused, West Germany reluctantly agreedallowing a partial NATO embargo.

However, the pipeline was completed a year later with only minor delays.

Listen to The Conversation Weekly podcast on the geopolitics of natural gas in Europe.

Reagan’s gas bet triggers a crisis

About two decades later, the Reagan administration faced a similar dilemma.

In 1981, the Soviet Union built a gas pipeline linking Siberia to Western Europe. Seeing him as another threat, the The Reagan administration tried to persuade European allies like France and Germany to join its embargo not only on pipeline equipment for the project, but also on financing. They refused, and the United States responded with sanctions intended to prevent European companies from providing money or equipment to the project.

The gambit sparked an intra-Western crisissowing division between the United States and Europe, and culminating in the withdrawal of sanctions a few months later.

the pipeline was completed in 1984.

Wielding energy addiction as a weapon

The consequences of energy dependence on Russia began to show after the collapse of the Soviet Union in 1991 and the rise of Vladimir Putin a decade later. Unlike its Soviet predecessors, who refrained from stopping energy exports, Putin has shown a will to confuse the economic and geopolitical objectives of Russian energy policy, exerting opportune pressure on the neighbors that it justifies in terms of the market.

In the mid-2000s, for example, Ukraine was still receiving the same heavily subsidized gas shipments from Russia as when it was part of the Soviet Union a few years earlier. The “Orange Revolution” towards the end of 2004 led to the ousting of a pro-Kremlin leader, replacing it with one that sought to get closer to the West. One year later, Gazprom asked Ukraine to pay market rates for its gas.

When Ukraine refused, Russia restricted the flow of gas through the pipelines – leaving only enough to fulfill its contracts with Western European countries. For many observers, this decision seemed aimed at destabilizing the pro-Western government in Kiev. It was also later used as basis of complaints that Ukraine was an unreliable gas transit country, which helped build support for a new gas pipeline named Nord Stream that gas delivered directly from Russia to Germany.

This pipeline opened in 2011 and resulted in the annual loss for Ukraine of 720 million US dollars in transit charges. Nord Stream has also significantly increased Germany’s energy dependence on Russia, which by 2020 provided about 50% to 75% of its natural gas, up from 35% in 2015. Natural gas is used not only to power industry, but also for heating and power generation in Germany.

This pipeline is now responsible for a third party of all Russian gas exports to Europe. As a result, Russian gas exports to Europe hit a record high in 2021, despite U.S. efforts to increase liquefied natural gas exports to Europe.

Europe got a glimpse of the potential consequences of this dependency in December 2021, when Russia has reduced its gas exports to Europe as the crisis involving Ukraine escalated. Although Russia is still technically fulfilling its contracts, it stopped selling additional gas Like in the past. The following month, the International Energy Agency accused Russia of destabilizing European energy security.

Will Putin do it again?

Russia would have gathered about 130,000 soldiers on its border with Ukraine – surrounding the country on three sides.

While Putin’s intentions remain unclear, the United States is leading efforts to deter a possible invasion by showing that its Western allies are OK with devastating sanctions – including Biden’s promise to thwart a new $11 billion pipeline from Russia to Germany, known as Nord Stream 2.

But Europe – and specifically Germany – the already significant dependence on Russia for energy makes them vulnerable given the history of threatening to cut off the gas supply to its neighbors – and sometimes following. This could potentially undermine the West’s ability to execute a coordinated sanctions campaign.

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For example, an energy crisis in winter could be a disaster for Germany, and its fear could weaken the German will to act against Russia. A recent example of Germany’s potential softness towards Russia can be seen in German Chancellor Olaf Scholz’s report failure to endorse shutting down the Nord Stream 2 gas pipeline as a potential sanction for an invasion.

Russia’s use of trade and energy to create dependencies has given it a strong hand — one that the United States and its European allies have limited options to counter.

Mary I. Bruner