Since Russia invaded Ukraine on February 24, 2022, it may surprise many that Russian gas continues to flow into Europe. This ongoing trade supports Moscow’s military efforts against Kyiv. Europe’s reliance on Russian energy imports has consistently weakened its responses to Russia’s earlier occupations of Georgia in 2008 and Crimea in 2014. Remarkably, most Russian gas exports to Europe still travel through Ukraine. Industry estimates suggest that Moscow earns approximately $3.2 billion annually from these exports, while Kyiv receives around $1.1 billion.
In a significant development, Ukrainian Prime Minister Denys Shmyhal announced last week that his government would not extend its gas transit agreement with Russia beyond this year. This decision raises questions about whether Russian gas exports to Europe will cease or if alternative arrangements will be made.
A senior source involved in energy security within the European Union (E.U.) indicated to OilPrice.com that one option being considered is a gas swap deal with Azerbaijan. This plan would involve sending Russian gas to Azerbaijan, which would then export the same amount to Europe. Such arrangements echo tactics used by Iran to bypass sanctions on its oil, merely changing the labels on shipments.
The Russian government has shown public and private support for continued gas exports to Europe. Last week, Deputy Prime Minister Alexander Novak mentioned proposals from E.U. partners to maintain Russian gas purchases after this year, stating, “the ball is in the court of Ukraine and the E.U.” Maintaining energy exports to Europe provides significant revenue for the Russian economy and serves Moscow’s geopolitical interests.
The ongoing gas trade keeps Russia connected to several E.U. member states, potentially enabling further influence in the future. An E.U. source stated, “Russia has used its abundant gas and oil supplies over the past twenty years to gain substantial control over key elements of the European Union’s politics and economy.” By 2022, the E.U. had become so reliant on Russian energy that its primary concern in the immediate aftermath of the invasion was ensuring the continuation of these imports, as highlighted in the source’s recent book on the global oil market.
In March 2022, President Vladimir Putin issued a decree requiring E.U. buyers to pay for Russian gas in rubles or risk supply disruptions. A document from the European Commission, dated April 21, outlined that E.U. companies could still fulfill contracts by paying in euros or dollars. The E.C. clarified that existing sanctions did not prohibit engagement with Russia’s Gazprom or Gazprombank, aside from specific refinancing prohibitions.
Recognizing the potential for inaction by the E.U., the U.S. and its key European allies, the U.K. and France, moved quickly to secure alternative energy deals. The E.U. had imported 155 billion cubic meters of gas from Russia in 2021, accounting for about 45% of its gas imports and nearly 40% of its total consumption. Germany relied on Russian gas for roughly 30-40% of its energy needs, depending on the season.
As a result, liquefied natural gas (LNG) became a focus for the U.S., U.K., and France, which sought rapid agreements with top LNG exporter Qatar, followed by similar arrangements with other friendly producers. The U.S. significantly increased its own LNG production, becoming the world’s largest exporter by the end of 2022, shipping around 119 billion cubic meters, with two-thirds sent to Europe.
This ongoing reliance on Russian gas complicates the E.U.’s commitment to fully eliminate imports. It is a crucial aspect of Russia’s strategy to exploit any divisions between Europe and the U.S. within the NATO alliance. Former U.S. President Donald Trump has criticized the contradiction of European nations funding Russia’s military with energy imports. Meanwhile, Germany has shown hesitation to align with U.S., U.K., and French energy sourcing policies. Following the U.S. exit from the Iran nuclear deal in 2018, Germany’s former Foreign Minister Sigmar Gabriel cautioned that American actions could drive Europe closer to Russia and China.
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