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

The Biden administration is hoping its threat of “serious economic consequences” will deter Russia from invading Ukraine – an event that US officials say may be imminent.

In response, the United States said it could ban the export of microchips and other technologies to critical sectors like artificial intelligence and aerospace and freeze the personal assets of Russian President Vladimir Putin, among others. penalties. Meanwhile, the Senate is preparing its own “mother of all sanctions” – such as against Russian banks and public debt – which could go into effect even if Putin eventually backs down from a military confrontation.

The United States and its allies have stressed – as seen during President Joe Biden’s meeting on February 7, 2022 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, that depend on it for energy exports, especially natural gas. This may make them reluctant to accept harsh US sanctions.

This addiction did not happen overnight. And as I 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, the United Arab Republic and India in a way that created a sustained dependency on towards Moscow, possibly allowing future coercion from the Kremlin.

Other analysts disagreed and believed that Soviet trade was largely driven by economics. So did American allies – especially Britain – who 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 from the Soviet bloc. But a planned new pipeline – starting in the Russian Far East, passing 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, have raised alarm bells in Washington.

In 1963, the Kennedy administration tried to block the 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 agreed, allowing a partial NATO embargo.

Nevertheless, 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 this as another threat, the Reagan administration tried to persuade European allies such as France and Germany to join its embargo not only on pipeline equipment for the project, but also on funding. They refused, and the United States responded with sanctions intended to prevent European companies from providing money or equipment to the project.

The scheme sparked an intra-Western crisis, sowing division between the United States and Europe, and leading to 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 his Soviet predecessors, who refrained from stopping energy exports, Putin has shown a willingness to confuse economic and geopolitical goals in Russian energy policy, exerting timely pressure on neighbors which he justifies by market terms.

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 him with one who sought to get closer to the West. A year later, Gazprom asked Ukraine to pay the full market price 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 the basis for claiming that Ukraine was an unreliable gas transit country, which helped build support for a new pipeline named Nord Stream that brought gas directly from Russia to the UK. ‘Germany.

This pipeline opened in 2011 and resulted in an annual loss for Ukraine of US$720 million in transit costs. Nord Stream has also significantly increased Germany’s energy dependence on Russia, which in 2020 supplied around 50% to 75% of its natural gas, up from 35% in 2015. Natural gas is used not only to supply industry, but also for heating and to produce electricity in Germany.

This pipeline is now responsible for a third 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 reliance in December 2021, when Russia cut its gas exports to Europe as the crisis involving Ukraine escalated. Although Russia is still technically fulfilling its contracts, it has stopped selling additional gas as it did in the past. The following month, the International Energy Agency accused Russia of destabilizing European energy security.

Will Putin do it again?

Russia is believed to have amassed around 130,000 troops on its border with Ukraine – surrounding the country on three sides.

As Putin’s intentions remain unclear, US leads effort to deter potential invasion by showing Western allies on board with devastating sanctions – including Biden’s promise to thwart new $11 billion pipeline dollars running from Russia to Germany known as Nord Stream 2.

But Europe’s – and particularly Germany’s – already heavy reliance on Russia for energy makes them vulnerable given Russia’s history of threatening to cut off supplies. in gas from its neighbors – and sometimes to follow up on it. 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 failure to approve the shutdown of 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.