Threatening Russia Where It Hurts: Limiting Its Energy Sales to Europe
The Biden Administration declared If Russia invades Ukraine on Wednesday, the nearly completed Nord Stream 2 gas pipeline from Russia to Germany would be blocked. On Thursday, German officials noted the project could face sanctions if Russia attacks. This threat is a long overdue change in policy in the face of Vladimir Putin’s aggression. But the administration and European leaders must go much further.
The Nord Stream 2 project, which passes under the Baltic Sea, is designed to allow Russia to double its natural gas exports to Germany and the rest of Western Europe along this route, which bypasses Ukraine and other countries that may interrupt the stream. What matters to Russia is money, and its great vulnerability is its heavy dependence on energy revenues. Energy revenues now represent nearly 60% of all the goods and services that the country sells abroad.
So far, however, the United States and European countries, worried about disrupting Europe’s energy supply, have largely kept the energy sector out of sanctions talks. This is understandable since Russia provides more than 40% natural gas imports from the European Union. However, imposing sanctions on Russia’s energy exports could be one of the most effective hammers against Putin’s regime.
But it’s not enough to threaten Russia with future revenue cuts it hasn’t even begun to enjoy. And, even now, Russia is not using the full capacity of its existing export pipelines. Putin thinks he has a strong hand to play because the West lacks both a plan and the will to reduce its dependence on Russian energy supplies. It’s time to prove him wrong.
It will be difficult to have a quick impact, of course, as Russia has a stranglehold on European gas supplies and is one of thecheapest producers of oil and gas. This is why an effective sanctions policy must begin with a credible timetable for the gradual reduction of Russian imports in particular – it must reduce the demand for Russian exports while ending access to Western technology which Russia has often need for its supplies. So far this has not been articulated, and any long-term pain for Russia seems too abstract.
To loosen Russian control over the natural gas market, European governments must use a diverse set of tools. A much stronger use of antitrust actions could help erode Russia’s ability to earn high profits from its Western sales. When these markets are tight, as they are today, Russia can withhold supplies to drive up prices, which generates more revenue to fund Russian aggressive campaigns. Cutting access to the technology needed to export gas in liquid form via tankers, an area with huge growth potential for Russia, will also help.
In the short term, Europe would also benefit from a more diversified gas supply outside the continent. This will mean providing government subsidies for European gas imports by ship, such as the United States and the Persian Gulf, and larger subsidies for greener energy alternatives.
The revival of the idea of a single European gas buyer – who could ensure that what Europe buys does not come from Russia – is overdue and would be politically more viable with the shock of a Ukrainian invasion. The plan and funding should be coordinated by the European Union and NATO to underscore that this is a common security need for the West as a whole. Ironically, getting through this crisis and putting more pressure on Russia will require encouraging new gas source developments at a time when Europe is trying to reduce its consumption of conventional fossil fuels.
In the longer term, Europe must reduce its dependence on hydrocarbons, which it is beginning to do. This process needs to be accelerated, for reasons of national security, not just climate policy. This means investing more in alternatives to conventional natural gas, including hydrogen.
Along with actions on gas, Western allies need a united front to reduce oil imports from Russia. While oil is a global commodity and chaos in oil markets when prices are already high would be unwelcome, a long-term plan to cut imports could focus the pain on Russia while sending clearer signals to the market. global. Tighter controls on access to the Western banking system will make Russia a financial pariah, increasing its operating costs.
Moscow must recognize that the escalation in Ukraine will seriously damage its economic fortunes. At the present time, this lesson has not been given with enough emphasis.
Threatening to block the Nord Stream 2 pipeline is a start, but won’t have much effect on its own. For this to be serious, we need to come up with a credible plan to rid ourselves, including the United States, of Russian oil and gas (even while paying subsidies to consumers). We should do it now to improve our deterrence posture rather than after the Russian tanks have crossed Ukraine.
Michael O’Hanlon is a senior fellow at the Brookings Institution. David Victor is a professor at UC San Diego and a nonresident senior fellow at Brookings.