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Europe leaps towards energy autonomy as sanctions undercut Russia


Before the invasion of Ukraine, Russia was Europe’s main source of energy.

It supplied 29 percent of the European Union’s oil imports and 43 percent of its gas imports. Moscow was about to activate the twin Nordstream 2 pipelines, which would have increased gas exports to the EU by a third.

This energy relationship collapsed last February when Russian troops entered Ukraine’s eastern Donbas region.

Germany, which had maintained the Nordstream 2 pipelines for 15 years against United States objections, said it was ending the process of certification for commercial use.

After Russia launched its full-scale invasion of Ukraine on February 24, 2022, Dutch oil company Shell said it was pulling out of $3 billion joint projects with Gazprom, Russia’s gas monopoly, jeopardizing Gazprom’s ability to develop its fields. paralysed.

British oil company BP said it would divest itself of a $14 billion stake in Russia’s state-owned oil giant Rosneft.

Since then, the EU has tried to de-fund Russia’s war by penalizing coal and oil imports, while Russia has tried to weaken EU-NATO unity by cutting off natural gas flows.

But the energy levers that Russian President Vladimir Putin would use to dampen Europe’s response to his invasion were broken instead.

“When Russia attacked Ukraine, a working hypothesis was that Europe … would be divided by energy blackmail,” Greek Foreign Minister Nikos Dendias told reporters on the anniversary of the Donbas invasion.

“This hypothesis was completely inaccurate. The EU has a new unifying narrative and support to Ukraine is steady, lasting and growing,” said Dendias.

According to Sir Michael Leigh – the former Director-General for Enlargement at the European Commission, who now directs the European Public Policy Program at Johns Hopkins University – there is now a “real determination on the European Union side to drastically reduce dependency reduction” of Russian oil and gas.

“We got a big dose of realism in German and European energy policy, and this has put a foothold in the energy transition,” Leigh told Al Jazeera.

That transition has been tossed about by the recent crises. In 2020, during the recession of the coronavirus pandemic, the EU raised €270 billion ($287 billion) to finance renewable energy.

After the invasion of Russia, it strengthened its ambition and set a target of obtaining 45 percent of total final energy consumption from renewable sources. Several EU governments have set even more ambitious targets.

Recent analysis by Ember, an energy think tank, suggests that Europeans have moved even faster than their governments.

Ember estimates that electricity from solar photovoltaics and wind reached a record 22 percent of the mix in the EU last year, up one-fifth from 2021, with two-thirds of the solar increase coming from solar photovoltaics energy on the roof, not from power plants.

“The energy transition in Europe is not coming from the top – what we are seeing is from the bottom up,” Dave Jones, head of electricity insights at Ember, told Al Jazeera. “Individuals are interested in generating their own energy and doing their part in the energy crisis to face Russia as an aggressor and a threat to Europe,” he said.

“If people want to go the extra mile, they can act outside the policy,” says Jones, who believes solar and wind will take another fifth lead this year and may outperform the EU’s 2030 targets.

Renewable energy has a clear attraction for Europe, which is poor in hydrocarbons. In addition to being clean, it ensures onshore energy production at virtually constant prices.

Has Europe punished Russia?

An export tracker from the think tank Bruegel shows that Russian sales of mineral fuels to the 27 EU countries fell gradually from $18 billion a month last year to $8 billion in December 2022.

They threaten to fall even further.

The EU only banned Russian coal imports last August. It was not until December that it imposed an embargo on Russian crude oil. These sanctions had no effect for the full year, economists say.

“For most of 2022…only about 8 percent of the value of Russian energy exports was subject to sanctions,” wrote Maria Demertzis, a senior fellow at Bruegel. In fact, Russia benefited from skyrocketing energy prices caused by the war, earning $120 billion more from hydrocarbon exports last year than in 2021, according to a 2022 Bruegel report, despite a 25 percent drop in overall gas exports.

By contrast, Bruegel believes Europe paid a trillion euros ($1.06 trillion) more for its energy last year than it did in 2021. The International Energy Agency puts that price tag even higher, saying that energy-importing countries paid $2 trillion more, mainly in Europe.

Russia enjoyed its power to drive up gas prices.

Former Prime Minister Dmitry Medvedev gleefully predicted prices of $5,000 per cubic meter.

When Gazprom suspended operation of the Nordstream 1 pipelines to Northern Europe on August 31, it caused a run on the euro, which fell to a 20-year low and was worth less than a US dollar for the first time since 2002.

But this year will be different, says Demertzis.

The EU banned refined Russian oil products this month.

Together with the measures taken last year, she estimates that 40 percent of Russia’s energy exports will be sanctioned.

What does this mean for the Russian economy?

Janis Kluge, a senior associate at the German Institute for International and Security Affairs, has estimated that the Kremlin’s tax revenue from oil and gas was $5.8 billion in January — about half its January 2022 level, and well below the $10 billion in average monthly revenue Russia has budgeted for oil and gas taxes this year.

The Russians had predicted a more difficult year in 2023. An internal report from the Russian government that was viewed by Bloomberg last September identified three growth scenarios. In two of them, the Russian recession deepened this year and pre-war growth did not return until 2030.

One of Russia’s vulnerabilities was its IT sector, which was considered uncompetitive without Western components and technology. Another weakness was energy.

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“With reduced access to Western technologies, a wave of foreign business investment and demographic headwinds ahead, the country’s potential growth will shrink to 0.5-1.0 percent over the next decade. After that, it will shrink even further, to just above zero in 2050,” said Alexander Isakov, a Russian economist at Bloomberg.

“These sanctions are working, they are weakening the Russian economy and depriving it of critical technologies,” said the President of the European Council Charles Michel said.

The great unknown

The energy war between the EU and Russia has brought the world a windfall.

Russia cut its oil by a third from market prices to move it last year, making it an attractive proposition for emerging economies. China, India and Turkey have all increased their use of Russian fossil fuels, replacing much of the revenue the EU is missing out on.

This year, the Institute of International Finance said it tracked record crude oil shipments leaving Russian ports.

Does this mean Russia is circumventing EU sanctions?

In January, the International Monetary Fund (IMF) said Russia’s economy contracted only 2.2 percent last year, despite previous expectations of a 7.6 percent decline, and predicted the economy would contract 0.3 percent this year. to grow.

“Russian crude export volumes are not expected to be significantly affected as Russian trade continues to be diverted from sanctions to non-sanctions,” the IMF said.

Not everyone shares the IMF’s view. The World Bank expects the Russian economy to contract by 3.3 percent this year and the Organization for Economic Co-operation and Development by 5.6 percent.

Part of the uncertainty is that no one knows for sure how effective the West will be at curbing Russia’s fossil fuel trade with unsanctioned countries, which make up 59 percent of the world’s population.

In an exercise never attempted before, the EU and the Group of Seven (G7) are flexing their geopolitical muscle by refusing to insure tankers carrying cargoes of Russian oil to any destination in the world if those cargoes exceed $60 a barrel cost.

The Helsinki-based Center for Research on Energy and Clean Air estimated that during the first month the EU ban on Russian crude oil and the global price cap cost Russia just over $5 billion in export revenue.

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After such encouraging early signs, the EU and G7 doubled price caps for third parties. An EU summit on Feb. 9 announced new limits of $100 per barrel on premium petroleum products (diesel, kerosene and petrol or petrol) and $45 per barrel off petroleum products (fuel oil, naphtha), effective April 5.

Russia has responded by threatening to cut oil production by half a million barrels a day in March, which could raise prices globally, but that is a double-edged sword that also affects Russia’s main ally, China.

“We need to look at the knock-on effects of it all,” Leigh said. “Given the reduced prices for Asia, and prices in Europe have fallen, Russian revenues will fall significantly. Add that to military spending and Russia’s debt position. The Kremlin has been paranoid about debt and unwilling to release cash reserves but maybe it should review that now.”

Given that the West’s financial doors are closed to Russia and $300 billion of Russian sovereign assets in Europe are frozen, Russia could find it difficult to finance its war in the long run.


Merry C. Vega is a highly respected and accomplished news author. She began her career as a journalist, covering local news for a small-town newspaper. She quickly gained a reputation for her thorough reporting and ability to uncover the truth.

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