It's not Russia wielding an 'energy weapon' - it's Europe

The always-ominous words “winter is coming” have suddenly become even more menacing. Much of Europe may have been sweltering in a heatwave, but its governments and consumers have been looking ahead with trepidation. Prices of gas and oil have been soaring, and the fear is that Russia might cut off supplies of gas to the continent entirely, leaving whole countries with acute shortages and having to find supplies elsewhere.

Perhaps the biggest problem for Europeans at present is the difficulty of reading Moscow’s intentions. Russia halted the flow of gas through the main Nord Stream 1 pipeline in early July for what it said was the usual summer maintenance. This time, though, European customers worried that the cut-off could be permanent, as retaliation for sanctions imposed by the EU, the UK and the US following its invasion of Ukraine. In the event, that particular concern proved unfounded. The gas started flowing again, although at a lower rate than before.

Then on July 27, the supply was cut to just 20 per cent of capacity, with Russia citing a technical issue. Some EU leaders are sceptical of that explanation and suspect the Kremlin of playing politics. Whatever the truth, world gas prices rose again; they are now 450 per cent higher than they were this time last year.

Price rises on this scale – which most governments and energy companies are passing on to consumers in some form or other – threaten to become a big liability for practically every European government in coming months. That includes the government of the UK, which imports only 4 per cent of its gas from Russia, but is at the mercy of world price movements as much as anyone else. One popular British consumer pundit, Martin Lewis, has even gone so far as to warn of protests in the streets.

Blaming the price rises on Russia’s actions in Ukraine reduces the political cost for governments a little, because of the widespread sympathy for Ukraine felt across most of Europe. But Europeans’ readiness for sacrifice will have its limits. If the choice is continuing to slash dependence on Russian gas for heating, or more flexibility and warmer homes, governments could come under pressure to drop their pledge to forsake Russian gas. And the colder the winter, the sharper Europe’s dilemma could be. Opinion polls in Germany already show public resolve weakening, as warnings of possible rationing – and prices – rise.

The accusation from EU governments and Ukraine is that Russia is resorting to the “energy weapon”. But this is not quite true. If anyone has been wielding an “energy weapon” in recent months, it is Europe – or, at least, it is Europe that applied it first, when it vowed back in March to reduce its reliance on Russian gas by a massive two thirds in the space of a year. It followed up in June by announcing a partial embargo on Russian oil to come into force in six months. Any cut-off by Russia would be a response.

It has also to be said that it marks quite a departure on the part of Europe to target its energy relations with Russia. For most of the post-Soviet years, western sanctions left Russia’s energy sector largely untouched – something that appeared to reflect the UK’s interests in Russian oil and gas (through Shell and BP), and the extent to which much of Europe, including the Baltic States and Hungary, was still dependent on Russian oil and gas.

But it was Germany that faced the sharpest dilemma as the war escalated in Ukraine. Not only was it reliant on Russia for 55 per cent of its natural gas, but this was a trade that Chancellor Angela Merkel and before her Gerhard Schroeder had deemed to be of political, as well as commercial, importance. So key was the gas trade to German-Russian relations that Germany had stood by the development of the new Nord Stream 2 pipeline, despite pressure, including from the US, to call a halt.

Germany’s energy policy changed overnight on February 24. The new government of Olaf Scholz suspended the operation of the now complete Nord Stream 2 pipeline, and joined the rest of the EU in committing itself to drastic reductions in purchases of Russian oil and gas. Post-Merkel Germany – in the shape of Mr Scholz’s SPD, Green and FDP coalition – along with much of German public opinion, now views the country’s reliance on Russian gas as a grievous mistake that endangered not only Germany’s, but Europe’s security.

This is a dramatic turnaround, and not without unintended consequences. So far at least the effects from the EU including energy in its sanctions regime have been almost the reverse of what was intended. Russia has had little difficulty finding alternative customers for its oil and gas, while global prices soared, allowing Russia to earn considerably more from selling either the same amount, or less. This is not to say there will not be longer term damage to Russia from European energy sanctions, but in the short term much of the harm has been to European consumers. Europe’s commitment to its climate change targets also risks being derailed, as Germany in particular looks to coal and nuclear in its efforts to replace Russian gas.

There have, however, been some more positive surprises in Europe’s response. The EU has so far maintained more solidarity than might have been expected, most recently in a joint pledge to reduce demand for Russian gas by 15 per cent overall. The actual effect of what is a voluntary agreement with opt-outs could be patchy, but the appearance of unity has held.

Europe is also better equipped than it once was to cope with interruptions, even a total cut-off, in Russian supplies, having enabled a system of reverse-switching between pipelines. This was designed for the eventuality that Russia would impose selective cut-offs on some countries, but it introduces more flexibility in potentially sharing supplies.

Perhaps the biggest surprise is that Russia has not so far retaliated against the EU by summarily cutting off energy supplies. Not only that, but Russian gas has continued to flow uninterrupted to, and through, Ukraine. Could Russia perhaps be waiting for the cold to set in to maximise the pain? Does it worry perhaps about losing its reputation as a reliable supplier? Or could it be that Moscow, despite benefitting from soaring prices and new markets in China and Iran among others, cannot quite bring itself to write off Europe as a market for its energy? Its intentions may be clearer, once winter has come.