'History & Geopolitics' Suggest Russia May Reclaim Its Role as EU's Key Gas Supplier

Amid the massive energy crisis that has been fueled by western sanctions imposed on Russia because of its special military operation in Ukraine, in October, the European Commission proposed a new package of measures to fight increasing energy costs, which includes mandatory joint purchases of 13.5Bln cubic meters of gas.

Geopolitics and a quick glance at what history can teach us show that for all the bullish rhetoric being churned out by the European Union about never returning to “business as usual” with Russia on gas imports, a recent US media report has suggested that "never say never" is an expression worth remembering.

No matter what plans policymakers in the US, EU and their allies may concoct and what mechanisms they may conceive to “wean” themselves off Russian energy, Moscow may yet return to its previous role as the EU's key gas supplier, the report reckoned.

It cited a poll of executives and policymakers at a recent gathering organized by the Oxford Institute for Energy Studies. Asked whether they believed it was possible for the EU ever to consider making Russia its chief gas supplier, the response showed an even split of 40 percent “yes”, and 40 percent “no”, with just 20 percent undecided.

Before the Ukraine crisis and the sanctions unleashed against Moscow over its special military operation in the neighboring country, Europe received approximately 40 percent of its gas from Russia. This “energy bridge” weathered the Cold War, the collapse of the Soviet Union and numerous ups and downs in geopolitics.

However, after Russia launched a military operation in Ukraine on 24 February, the West responded by imposing comprehensive sanctions against Russia, with the EU pledging to end its dependence on Russian energy supplies. On 20 July, the European Commission proposed a new regulation on coordinated reduction of gas use across the bloc as a means to “wean” itself off Russian gas supplies and withstand the spike in prices. Although the proposal sparked much debate in Greece, Poland, Hungary and other EU nations, the member states agreed to the plan, pledging to cut natural gas consumption by 15 percent from August 2022 to March 2023.

Furthermore, EU countries have been discussing the introduction of a price cap on gas supplies from Russia, similar to the $60 per barrel cap for Russian seaborne oil introduced by the G7, the EU and Australia, which came into force on 5 December.

The plan was unveiled by the European Commission in late November, with the European Commission proposing a "safety price ceiling" of 275 euros ($289) for TTF gas futures. However, on 24 November, the EU energy ministers failed to reach an agreement on the issue and scheduled a new meeting. The plan has since triggered fissions among member states. Germany, Denmark and the Netherlands side with those urging a wary approach, whereas countries such as Poland, Belgium, Italy, and Greece argued for an increasingly aggressive stance.

“There is no consensus at this moment on how it needs to work and on the numbers. Security of supply is important to the continent as a whole. We have to keep gas flowing to Europe,” Tinne Van der Straeten, Belgium’s energy minister was cited as saying.

Russian Energy Minister Nikolay Shulginov warned that the introduction of a price cap on Russian gas could further destabilize the international energy market and affect both producers and consumers of gas.

"The idea to impose a price cap on gas, which is supported by a number of EU countries, threatens to destabilize energy markets further, leading to negative consequences for both consumers and producers of gas," the minister said during his speech at a ministerial meeting of the Gas Exporting Countries Forum (GECF).

The Ukraine conflagration and the punitive restrictions have led to disruptions to supply chains and a surge in energy prices worldwide. Western countries and their allies have been facing a massive energy crisis and struggling to fill their gas reserves.

With dwindling pipeline exports, the share of Russian gas received by Europe is predicted to plummet in 2023 to less than 10 percent, with a cited scenario modeled by the International Energy Agency (IEA) suggesting gas exports to the European continent from Russia could reach zero by 2028. This was ostensibly to come in the wake of increased LNG imports and boosted solar and wind generation. The Russian-European gas trade rift would be “permanent”, the IEA was cited as predicting.

But there are differing views on the matter in European capitals. The leader of the German state of Saxony Michael Kretschmer said in November that rejecting Russian gas for good would be “historically ignorant and geopolitically wrong”.

Germany should “look to Russia once this war is over” to secure its energy supply, added the Christian Democratic Union (CDU) politician. He also urged using “diplomatic means” to resolve the Ukraine conflagration.

Even earlier, in September, Kretschmer said:

“We see today that we cannot do without Russian gas. Our sanctions played a role in causing the shortage. We have to try with all our might to bring this conflict to an end to restart economic cooperation with Russia. Weapons must be silenced.”

The “price” of the matter is also a hefty argument in favor of Russian gas. Berlin is currently paying €140 ($180) per megawatt hour to import gas, added the US report, pointing out that this sum is close to seven times more than the average costs between 2010 and 2020. Germany has been forced to dip into its coffers to spend billions in subsidies to cushion the cost blow for its consumers and companies.

The report recalled that Iraq made a “comeback” to the oil trade after the United Nations’ full embargo in 1990, with the US importing as much Iraqi crude by 2001 as in early 1990 with Saddam Hussein still in power at the time, despite being demonized by Washington. Speculating whether events might follow a similar “comeback” scenario in the case of Russian energy, it added that there was no cheaper gas for Europe than Russia’s. Particularly if the continent still hoped to ensure that its industries remained competitive.