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Home / Opinion / Views /  How Europe's energy addiction fuels Putin's war

In 1979, upheavals in the Middle East, especially the Iranian Revolution that had begun the previous year, sent oil prices up and plunged economies worldwide into a crisis. Thanks to reduced Iranian oil output, increased precautionary demand and speculative hoarding, oil prices more than doubled between April 1979 and April 1980.

After Russian president Vladimir Putin announced a “special military operation" in Ukraine, and his forces attacked the country on Wednesday night, global oil prices broke the $100 a barrel mark for the first time since 2014. Prices have steadily risen for more than two months as the threat of Russian military action became apparent. Some projections suggest that in the worst-case scenario prices could as high as $120-140 per barrel.

Russia’s economy is just about as large as half of California’s. But if it decides to, Russia can derail the global recovery, and even plunge the world economy back into crisis. For, it is the world’s third largest exporter of oil and the second biggest exporter of natural gas. Any move by Russia to cut back its oil and gas exports will send prices higher, affecting all economies, including India.

For India, Russian supplies account for a very small percentage. However, the 27-nation European Union’s dependency on Russia is high, especially for gas, supplying it with more than 200 billion cubic metres, or 40% of Europe’s gas needs. About a third of Russian gas supplies to Europe usually travel through pipelines crossing Ukraine.

That’s why Western countries have so far left Russian exports of oil and natural gas out of their responses to the invasion of Ukraine. While other adversaries such as Venezuela and Iran under White House sanctions cannot sell oil legally in world markets, Russia is likely to escape similar limitations because if the Kremlin retaliates by cutting back fuel sales, rising energy costs will hurt European economies and grow Russia’s.

And so, nothing that is happening on the ground in Ukraine right now risks the flow of oil and gas to global oil markets. In fact, in the 24 hours after Putin signed a decree recognizing the rebel-held territories in eastern Ukraine as republics, later deploying Russian troops there in order to “maintain peace" on Tuesday, making invasion a near certainty, the EU, the UK and the US bought Russian oil and natural gas worth more than $600 million. Putin may not be as irrational as is commonly believed.

The US and UK sanctions target Russian banks and individual oligarchs, while the EU has blacklisted more politicians. German Chancellor Olaf Scholz has halted the country’s approval process for the ready-for-use Nord Stream 2 pipeline. None of this disrupts oil and gas supplies from Russia. The stopping of Nord Stream 2 doesn’t affect current supplies, as it isn’t operational yet.

It does affect prices, though. Adding to the first Nord Stream pipeline that has supplied from Russia, under the Baltic, to Germany for a decade now, the second one would have doubled gas supplies to the country. Gas reserves in the EU are running low because though 2021, Russia sold less than normal. Deliveries flowed at only a quarter their normal rate, prompting European Commission President Ursula Von der Leyen to accuse Russia’s state-owned gas giant Gazprom of “deliberately trying to store and deliver as little as possible while prices and demand are skyrocketing".

The EU’s trying to get LNG by ship from the US, Algeria, Qatar and elsewhere, but that’s not going to be an effective solution.

Putin assured on Tuesday that “Russia, for its part, intends to continue uninterrupted supplies of this raw material, including LNG, to world markets." Russian energy minister Nikolai Shulginov has been assuring that long-term gas contracts help curb price volatility and that Russian energy companies are “fully committed" to fulfilling existing agreements.

While Russia may have withheld its gas exports to orchestrate Europe’s energy crisis, it is unlikely – even in the event of a full-scale conflict – to press a total gas cut-off that would deprive it of revenue that funds a third of the Kremlin’s budget. All the same, Europe’s dependence on Russian oil and gas exports is helping fund the Kremlin's war machine.

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