The Magazine for Asian Investors
Europe’s energy dependence on Russia has hit the headlines as a result of the Ukraine crisis. Many associations in Europe are criticizing the decision to continue buying energy products from Russia, saying that this is financing the Russian war in Ukraine. However, decision-makers in Europe are aware of the dependency, and since they don’t want the lights to go out in Europe anytime soon, they are trying to make it clear that they can’t do without Russian energy sources for the time being. At the same time, they hope that Moscow will stick to the supply agreements and not try to stop deliveries despite the strict sanctions.
Energy prices have continued to rise after the COVID easing and have received a further boost since the invasion of Russian troops in Ukraine.
Energy prices have continued to rise following the COVID easing and have received a further boost following the invasion of Ukraine by Russian troops.
Crude oil prices have meanwhile surpassed $140 per barrel and TTF Dutch Natural Gas futures have increased by over 900% in one year.
However, Europe’s dependencies on Russia have come about as a result of political decisions in recent years that Moscow has been happy to see. These include the hasty decarbonization with the switch to renewable energy sources and away from reliable energy sources such as natural gas, coal, and nuclear power.
Germany, the largest economy in the EU, has shut down 14 nuclear power plants since 2011 and the last 3 plants are to be decommissioned this year. In addition, coal-fired power plants are to be shut down and the energy transition is to be shaped with natural gas. Fittingly, the Netherlands has shut down the largest gas field in Europe, which means that countries in Europe will have to live largely on energy imports. Most of these energy imports now come from Russia. This means that energy-hungry Europe has voluntarily walked into Moscow’s hands with its energy policy.
Moscow, of course, recognized this change in power and saw Europe becoming more and more dependent on it. This has now led Europe to accuse Moscow of using energy products as a weapon to achieve its goals.
It was clear from the start that Moscow would try to expand its power in Europe even further, which ultimately prompted the construction of the Nord Stream 2 pipeline. This pipeline would allow Gazprom to transport 55 billion cubic meters of gas directly to Germany.
Certification of the pipeline has now been halted, which of course is not welcomed by Moscow, which in turn is threatening that gas prices in Europe will soon be far higher than current prices. In fact, the rise in gas prices is probably again partly due to the EU countries’ own political decisions, which was evident in a rise even before the invasion of Ukraine. Here, the move away from long-term supply contracts to short-term purchases has been made in recent years, which the gas exporters naturally make themselves pay dearly for.
This has probably also led to the misery that currently prevails. Moscow knows that its steps will be punished with global sanctions, including the current situation in Ukraine. Moreover, it has already lived with sanctions for the past 25 years, so this situation is not new to Russia. Of course, given Europe’s energy dependence, Moscow knows that sanctions have a limit, and that is what the world is currently being shown.