Putin’s energy blackmailing leaves him out in the cold as Europe looks South

  • The energy shutdown did not yield the expected outcomes for Putin, as the EU reduced its dependence on Russian gas and fuel prices returned to pre-war levels. 
  • The EU’s response to the energy crisis involves energy-saving measures, reduced gas demand, and preparation for an accelerated energy transition with interim measures from countries like Norway and the US. 
  • Europe’s increased LNG demand has led to price inflation, impacting emerging economies, and potentially causing energy shocks and price fluctuations.

Why is Putin’s heat level cold?

Answer: Fuel prices returned to pre-war levels while Russian oil and gas export revenues declined. 

After Vladimir Putin’s invasion of Ukraine in February of 2022, the US and EU imposed swift sanctions on Russia, prompting Putin to restrict gas supplies to the EU, which relied on Russia for around 45% of its gas imports. The situation escalated in the summer of 2022 when Putin halted gas deliveries through the Nordstream pipeline to Germany, resulting in a continent-wide energy crisis.

Despite Putin weaponizing his energy sources, the EU experienced a less severe energy crisis than predicted, with fuel prices returning to pre-war levels within a year. Before the war, gas prices at the Dutch Title Transfer Facility (TTF) stood at €69.5 per megawatt-hour (MWh), but skyrocketed to an unprecedented €342 MWh in late August 2022. This gas price volatility hurt the region’s economy by causing higher inflation and interest rates. However, contrary to predictions, rolling blackouts were averted as gas storages remained sufficient, and by early 2023, gas prices had normalized, reaching €65/MWh in February and dropping below €30/MWh in May, marking a two-year low.

In addition, Putin’s anticipation that an energy crisis in Europe would undermine support for Ukraine did not unfold as he had foreseen. The energy disruption caused by Russia did lead to economic losses and imposed a financial constraint on EU member states, impacting their ongoing support for Ukraine’s defence. By February 2023, Europe’s expenditure on the energy crisis approaches the staggering sum of €800 billion to protect households and businesses from skyrocketing energy expenses. However, the impacts were not as substantial as initially expected by Putin as the EU remains committed to maintaining its support for Ukraine.  

Putin’s weaponization of energy also backfired as the EU’s diversification away from Russian fossil fuels led to a decrease in funds available for sustaining the war. The Russian economy has suffered due to the loss of the EU as its largest customer, with earnings from oil and gas exports experiencing a downturn. Exports to Europe have declined by 80% compared to pre-invasion levels, resulting in a significant decrease in Russia’s oil and gas export revenues. The International Energy Agency (IEA) estimated a monthly decline of $12 billion in January 2023, reflecting a 40% decrease in Russia’s export revenues.

Despite redirecting its market to China, India, and Turkey, Russia’s GDP still shrunk by 2.1% in 2022 and is expected to decline further in 2023 and 2024. Notwithstanding the high demand from those countries, Putin will face significant challenges in compensating for the absence of the EU as its primary purchaser as such emerging economies will likely expect Russia to maintain its discounted prices as last year.  

Putin’s weaponization of energy results in short-term economic consequences for EU countries. Nevertheless, in the long run, his energy squeeze would ultimately fall short of achieving his intended objectives as the EU continues to move away from Russian oil and gas. 

Who is changing Putin’s heat level?

Answer: The EU reduced dependence on Russian gas and diversified energy sources through coordinated policies and a mild winter.

Putin’s weaponization of energy failed to produce the expected outcomes as the EU quickly coordinated their energy policies and managed to bring agreement among the 27 countries in the Union to reduce their reliance on Russian gas. LNG imports via sea routes now make up 25.7% of the EU’s gas imports, with significant investments in infrastructure for imports from the US, Nigeria, and Qatar. Norway and Algeria have become alternative gas suppliers, surpassing Russia’s share, accounting for 24.9% and 11.6% of the EU’s gas imports, respectively. Russian LNG and gas now constitute 24.6% of EU imports, declining from nearly 50% pre-war, and this dependence is projected to further decrease in 2023 and 2024. 

However, a recent investigation shows that Azerbaijan and Türkiye may serve as indirect routes for Russian oil entering the European Union market, potentially undermining the effectiveness of the EU’s sanctions. The penetration of large volumes of Russian crude oil, which is a bigger source of revenue than gas, provides additional financial resources for Putin to sustain the ongoing war.  

In addition to diversifying away from Russian fossil fuels, EU countries also implement energy-saving measures, with home and business owners scaling back consumption and governments reducing heating and lighting in state institutions. These measures contributed to a record-breaking 13% drop in gas demand in 2022. 

Finally, the mild winter in Europe helped to push down gas demand and prices in 2022. Due to the effects of global warming, Europe had the second warmest winter on record, with only a cold snap in December. This made it easier for households and businesses to keep their heaters down. 

What is driving Putin?

Answer: Putin aims to pressure the EU to lift sanctions, reduce military support to Ukraine, and fuel unrest in EU countries.

Putin’s weaponization of energy has two objectives. First, he wants to pressure the EU to lift sanctions and reduce military assistance to Ukraine. By disrupting gas imports, Putin aims to hinder the EU’s industrial activities and weaken its economies, hoping to sway their decision-making and prompting them to lift economic sanctions. Despite the eurozone recession caused by inflation and energy prices, the EU has remained steadfast in its sanctions and support for Ukraine.

Second, the energy crisis is a vehicle for Putin to fuel political and social upheaval in EU countries. The energy crisis exacerbates unrest and political divisions within Europe as it fosters the narrative that Western sanctions are the root cause of the current energy shortage. Soaring energy bills have led to waves of protests primarily in Western Europe. However, these protests are mostly against the government’s failure to safeguard the population from the energy crisis, rather than being directed against the support provided to Ukraine. The EU has remained largely united, with Greece and Hungary being the exceptions opposing further sanctions against Russia.

What does this mean for you?

Answer: A permanent shift from Russian gas in the EU, accelerated energy transition, energy shocks, and impacts on emerging economies due to Europe’s increased LNG demand. 

EU residents have to prepare for a permanent departure from Russian gas dependency, as the Union shows no inclination to revert to previous energy policies. Small businesses may continue relying on Russian gas, but overall dependency will significantly decrease. An accelerated energy transition is expected, with interim measures from countries like Norway and the US. Energy networks in EU countries remain vulnerable to shocks and price fluctuations, particularly as the Union relies on LNG for a quarter of its gas imports. China’s post-COVID recovery as the top LNG importer will further drive demand and price volatility.

Europe’s surging LNG demand impacts the developing world, including countries like South Africa and Bangladesh. Inflated prices driven by Europe’s robust demand for LNG as a replacement for Russian pipeline exports pushes many emerging economies into an energy crisis and compel them to rely on dirtier forms of energy.

Finally, people in China and India have seen a rise in Russian gas as the two countries are now new emerging markets for Putin. China and India have shifted their reliance to heavily discounted Russian crude, replacing Saudi Arabia with Russia as their primary supplier.

Quynh Dinh

Writer & editor