Over the past decades Russia and Europe have established strong energy relationship that has created a situation of strong interdependence – the EU needs Russian energy resources to cover its energy needs, but Russia needs access to the EU market to be able to monetize its energy resources. It is often argued that a strong interdependence creates positive framework conditions for cooperation between various types of actors and lowers the possibility of conflict between them. However, this strong energy interdependence between Russia and the EU has not prevented the outbreak of war on the European continent.
Putin’s decision to use military power to stop Ukraine’s rapprochement with Western institutions sent shock waves through Europe. The EU, the USA and other members of the Western community responded to these Russian actions by imposing a set of economic sanctions to signal their positions, coerce Russia to return to the diplomatic path and to constrain Russia’s ability to continue its military intervention in Ukraine.
The sanctions imposed by the West against Russia has not yet had a visible effect on Russian actions and the West considers therefore to impose new sanctions that would make Russia more willing to change its behaviour. One of the ideas discussed in Western capitals is the imposition of sanctions on the Russian energy sector, prohibiting – in the most dramatic case – the import of energy resources from Russia.
New episode of The World Stage
In this episode of NUPI’s podcast series The World Stage you can listen to Jarand Rystad, CEO of Rystad Energy, the leading global energy consultancy firm discussing the question of what the EU and Norway can do to reduce the EU’s dependence on energy supplies from Russia. He is joined by NUPI’s Research Professor Jakub M. Godzimirski who has conducted several studies on Russian, European and Norwegian energy policy and shares his insights on Russian energy sector’s importance in Russian and European strategic context. This interesting and timely discussion is moderated by NUPI’s Director Ulf Sverdrup.
Why is this important?
There are at least four reasons that make this discussion on Russian-EU energy relations important.
First, as all other countries Russia and the EU members need energy to cover their energy needs: Russia uses slightly more than 50 percent of energy produced in Russia for this purpose and the EU must import more than 60 percent of energy to cover its own energy needs.
Second, Russian energy sector is the backbone of the country’s economy. Roughly speaking and depending on the level of energy prices on global markets, Russian energy sector represents approximately 20 percent of Russia’s GDP, generates approximately 40 percent of budget revenues and more than 60 percent of export revenues.
Third, being a major producer of energy, producing almost two times more energy than it needs to cover its own energy needs, Russia also plays an important role as supplier of energy on the global and regional market. In fact, Russia is the biggest global energy exporter, which makes many countries dependent, to various degrees, on supplies of energy coming from Russia. This provides Russia with an opportunity to establish not only economic but also political relations with these countries, giving Russia also a certain political leverage when dealing with them.
Fourth, the EU is the most important market for Russian energy exports – according to official EU data in 2019 – the last pre-crisis year – Russia supplied more than 40 percent of coal imported to the EU, 27 percent of oil import and more than 34 percent of gas. The share of gas from Russia in EU imports increased to more than 40 percent in 2021. What makes the EU/Europe even more important is the fact that more than 80 percent of Russian piped gas and more than 50 percent of Russian oil was exported to this area, generating huge revenues for Russian energy producers, and to the Russian state. In 2021 the EU paid almost 100 billion Euro for energy imported from Russia – or 270 million Euro per day.
When the EU considers today to reduce its dependence on supplies of energy from Russia – or to stop buying Russian energy at all – this would have grave economic consequences for Russia, because, especially when it comes to gas, Russia would face serious problems with redirecting its flows of energy to other markets, for instance to China. But the EU also will have to adopt various costly measures to make itself completely independent from Russia in energy terms.
Listen to the episode on Spotify, Apple’s podcast player or Acast to learn more about choices that both Russia and the EU face when opening this new chapter in their energy relations.