What if Russia cut off oil and gas supplies to Europe? | War in Ukraine

According to Anessa Kimball, professor in the Department of Political Science and director of the Center on International Security at Laval University, if Russia slows down or cuts off the supply of oil and gas to the West, this measure will be seen as an escalation aimed at breaking the cohesion of the allies.

Russia is the world’s third largest oil producer and the second largest exporter. Its exports of about 5 million barrels per day of crude oil account for about 12% of world trade, and its 2.85 million barrels per day of petroleum products account for about 15% of world trade in refined products.

It sure is a pressure lever they have in their toolboxsays Mrs. Kimball.

According to Mark Manger, a professor atMunk School of Global Affairs & Public Policy from the University of Toronto and co-director of Global Economic Policy Labto try to understand what Russia plans to do, we must distinguish between the export of gas and that of Russian oil.

Remember that the Europeans (and particularly Germany, Italy, Lithuania and Hungary) import about 40% of the gas they consume from Russia.

While Europe is heavily dependent on Russian gas, this export only brings in 7% of the gross income of Russia’s economy.% of export value”,”text”:”It might be tempting for Russia to cut gas supply, because it won’t hurt them if they lose 7% of export value”}} “>It might be tempting for Russia to cut off the gas supply, as it won’t hurt them if they lose 7% of the value of exportsexplains Mr. Manger.

This is why Russia is thinking of using gas as a bargaining chip to rebalance the situation, adds Ms. Kimball.

But since the financial impact on Russia would not be significant, Europe can hardly threaten Moscow to stop gas imports.

Even if the European Union continues to buy gas from Russia, Mr. Manger does not believe that this calls into question the sanctions. It’s minor [comme source de financement] for Russia.

The Nord Stream 2 gas pipeline terminal in Lubmin, Germany. Germany suspended the pipeline certification process following Russia’s invasion of Ukraine.

Photo: The Canadian Press/AP/Michael Sohn

Moreover, Europe could hardly find new sources of gas quickly and at reasonable prices. Mr. Manger recalls that this gas is used not only for heating and electricity, but also for the production of fertilizers. Already, potash prices have risen. These countries cannot really wean themselves off this source of gas in the short term.

Another consideration for Russia: it could hardly sell this gas elsewhere, because it does not have the necessary infrastructure to transport it. Moscow wants to build gas pipelines to China, but it will take several yearssaid Mr. Manger.

The oil weapon

In contrast, about 60% of Russia’s exports come from the sale of oil.

Thus, oil exports drive the economy in Russia, and have done so for a very long time, says Mr. Manger. This has been the case since the Soviet era, he says, adding that this dependence on oil exports is one of Russia’s greatest weaknesses. Moreover, about 60% of Russia’s oil exports are destined for Europe.

Even though Europe imports almost a third of its oil from Russia, it could find oil elsewhere, Mr. Manger and Mrs. Kimball say. There is no shortage of oilrecalls Mr. Manger. We can easily increase the rate of production and transport the oil by ship.

He believes that the United States could convince the Saudis to increase their oil production, which would not only offer Europe another source of oil, but also reduce the price of a barrel of oil, which have been at their highest since 2014, when Russia annexed Crimea.

Without a European market and with a reduced oil price, Russia’s income would drop significantly.

« This would bring the Russian economy to its knees. »

— A quote from Mark Manger, professor at the University of Toronto

Ms. Kimball agrees. According to her, an intervention by the Organization of the Petroleum Exporting Countries (OPEC) is another way to cut off some funding from Russia.

And as with gas, Russia will find it difficult to export its oil elsewhere. It depends largely on the Black Sea ports, routes which are currently disrupted by the invasion in Ukraine.

Additionally, some countries, such as the UK and Canada, have closed their ports to all Russian ships. Yes, the Russians can continue to export to China, but China may demand a reduction in prices. After all, the Chinese are not in the charity business.

In Mozyr, Belarus, pipelines that transport oil from Russia to Europe.

Photo : Archyde.com / Vasily Fedosenko

Already concerted actions against Russia

On Tuesday, the International Energy Agency (IEA) announced that the 31 member countries will release 60 million barrels of crude from their reserves to deal with high oil prices exacerbated not only by the pandemic, but by fears of supply from Russia.

Ministers today decided that energy supply should not be used as a means of political coercion or a threat to national and international securitycan we read in the press release of theInternational Energy AgencyOUCH.

Canada has announced that it is banning imports of Russian oil. This announcement is more symbolic, since Canada has not received a shipment of Russian crude oil since 2019. However, Canada imports certain refined petroleum products from Russia.

The oil industry accounts for more than a third of Russia’s federal budget revenue, and although Canada has imported very little in recent years, this move sends a strong messagePrime Minister Justin Trudeau said at a press conference this week.

But despite these actions, the price of oil is likely to rise further, especially if the war persists, warns Mr. Manger. The use of strategic oil reserves will not be able to stabilize the price forever.

Putin doesn’t need to turn off the taps completely to punish the West. JPMorgan Chase bank has also warned that the price of oil could reach $150 a barrel if Russian exports were cut in half.

Given that the global economy is still weakened by the pandemic, Ms. Kimball wonders if the West will be able to absorb the economic repercussions that Russia wants to impose. This is a risk for Russia, but it must be taken into account that Putin may be ready to take much more financial consequences than other countries. He doesn’t try to please everyone. So his room for maneuver is quite wide.

However, Mr Manger believes that Russia is playing a dangerous game in threatening to stop the flow of oil and gas to Europe, and that it risks causing its economy to crumble in the long term.

« I think Russia completely overestimated its power. [Elle a tenu] taken for granted that the West was not ready to assume an economic cost to stop this war. »

— A quote from Mark Manger, professor at the University of Toronto

Could Russia lose Europe as a market?

Russia has a long history of reliable oil and gas supply. Even at the height of the Cold War and during the annexation of Crimea in 2014, the supply was always maintained.

On the other hand, Mr. Manger thinks that the West and Europe have less and less confidence in the stability of this supply. No one believes it nowsaid Mr. Manger.

This is a long-term vulnerability for President Putin. If he militarizes the energy supply, it will only accelerate the energy diversification of Europe and the West away from Russian energysaid Daleep Singh, US deputy national security adviser on the airwaves of CNBC.

This war is pushing several European countries to accelerate their energy transition and to diversify their energy sources more quickly.

For example, says Mr. Manger, the chancellor of Germany gave a speech on Sunday in which he said his country will accelerate the achievement of a “net zero emissions” economy and build natural gas terminals that could serve importing green hydrogen.

This is a fundamental change which basically means that, even if there is no short-term and even medium-term solution, Germany will try to wean itself off Russian imports.

In Canada, Alberta Premier Jason Kenney said Tuesday that the invasion of Ukraine demonstrates that democracies, like Canada, need to be more energy self-sufficient. We must reduce our dependence on the energy of the oil of conflict, of war. Every barrel of Russian oil now supplies Putin’s war machine. I believe the invasion quickly changed the urgency [pour le Canada] build infrastructure, including pipelines and liquefied natural gas exports from Canada to the rest of the world.

Russia, he says, could wreck its economy if it chooses to cut off oil and gas supplies to Europe.