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It is difficult to overstate the importance of yesterday’s headline that Russia has closed the Nord Stream 1 gas pipeline to Europe until sanctions have been lifted from Russia. In fact, I was writing a different article but stopped to address this important news. ABSI this week takes an overview of the implications of this escalation in European geopolitics.
Russia is a European energy superpower. In 2021, Russia was the single largest export of oil and natural gas to the EU, accounting for ~45% of gas imports to the region, according to IEA data. PJSC Gazprom is the publicly-traded, majority state-owned, corporation that has monopolised gas production and sales in Russia. From Gazprom, gas is imported to Europe through 13 pipelines, the most notable being Nord Stream 1 which came online in 2011 and links Russia directly to Germany through the Baltic Sea. In 2022, Nord Stream 2, a replication of the original pipeline, was slated for commissioning but has since been blocked due to the Russian invasion of Ukraine.
European Gas Pipelines
Source: Planete Energies
In 2006, the head of the US Senate’s Foreign Relations Committee, Senator Richard Lugar, had the foresight to state that “the most likely source of armed conflict in the European theatre and the surrounding regions will be energy scarcity and manipulation”. Today, some 16 years later, he may be on the cusp of being correct. Yesterday, 5th Sept, Gazprom announced the indefinite shutdown of Nord Stream 1 cutting off Germany from the annual supply of 55 billion cubic metres of natural gas. Historically, the pipeline has been used as a political bargaining chip with ill-timed “technical faults” plaguing the pipeline in its ~10-year history. However, the Kremlin are not mincing words this time stating that the pipeline will not resume in full until the “collective west” lifts sanctions on Moscow. This has struck fear into the hearts of struggling EU citizens with the gas price spiking 30% on the news.
Natural Gas Price
Source: Trading Economics
The endgame is nigh, as it appears Putin has put his Queen into play on the geopolitical chessboard. The move to curtail gas supply to Europe, as the season change from energy-light summer to the intensity of warming the house in winter, is going to force Europe out of a holding pattern on Ukrainian foreign policy. Governments in the EU, in particular Germany which relies on Russia for 55% of its gas and where the Nord Stream pipeline imports, will need to decide the cost they’re willing to pay to support Ukraine. In response, the EU can do one of three things:
- Ramp up hostilities against Russia and directly get involved in the war with the outcome of forcing a regime change in Russia. This outcome is highly unlikely given the nuclear deterrent that Russia possesses and the potential allies they can recruit.
- Effectively continue the same policy of indirectly helping Ukraine whilst continuing to diversify the energy mix and subsidise energy imports from alternative sources. A more likely scenario but changing the energy mix and supplier base doesn’t happen overnight.
- In my opinion, the most likely outcome is that the EU sanctions against Russia are dropped in exchange for the supply lines to reopen, resulting in adequate energy supplies for winter and price declines. While the EU altruistically wants to support Ukraine, individual governments know that energy deficiency in winter and energy prices putting their own citizens into poverty is a recipe for revolution. Last weekend, over 70,000 people protested in Prague over energy prices and a desire for a more militarily neutral stance towards Russia in the hope of securing energy supply.
Source: BBC
Unfortunately, while most of the world is in accord with the condemnation of the invasion of Ukraine by Russian forces, Putin has played a better geopolitical game. The dropping of sanctions on Russia doesn’t help the Ukrainian cause, but it certainly isn’t a fatal blow. Undoubtedly, the Ukrainian people will continue to fight for their freedom and the west will develop alternative ways to support them without the use of sanctions. Sadly, in this instance, Russia has won the fight but they haven’t yet won the war.
Read the Conversation:
Jack Colreavy:
“ Massive news overnight with Russia coming out and saying they will suspend supply of natural gas through the Nords Stream pipeline indefinitely. This is huge, huge news because that is, by far, the biggest gas pipeline into Europe. There are other gas pipelines and they will continue to supply Europe with natural gas.
Europe relies on Russia for about 45% of its natural gas needs, but this is a huge blow to the European Union and it sends natural gas prices naturally sky high. So what this does is it, Really forces the European Union to move out of their holding patent and to reassess their stance on the Euro-Ukrainian conflict.
In my opinion, I think the European Union will capitulate to Russia. They will drop the sanctions in order to increase the supply of gas from the country because as they embark on a very energy-intensive winter, the prospect of high energy prices and lack of supply leading to potential blackouts is a recipe for revolution in those countries.
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