Don’t count on Putin being an economic rationalist when it comes to Europe’s gas

PutinThe Europeans have been grumbling for years about their dependence on Russian gas. They even watched helplessly five years ago when Moscow threatened to cut off supplies to Ukraine over unpaid bills. Since then, Europe did make some effort: mainly more interconnections to allow gas to be switched between pipelines so as to avoid the 2009 situation when the closing of the pipeline via Ukraine hit countries further down that line. But, in essence, they did not do enough; if they had, then the European newspapers would not this week be featuring multiple hand-wringing articles about what Europe can do to lessen that dependence on the whim of Moscow. Gas now flows from North Africa but not nearly enough. Shale has largely stalled.

Taking 2012 figures, the dependency issue is real and, in the view of some commentators, dangerously so. In the days since Russian troops moved into the Crimea, many analysts have suggested that Putin’s territorial ambitions are far from sated. They fear he might move to subjugate at least the industrial heartland of Ukraine (the eastern part of that country) and then begin to eye the Baltic states. Latvia, Lithuania and Estonia are all members of the European Union; two of them have adopted the euro. But would that deter Vladimir Putin? Given his obvious contempt for Western political resolve on the Crimea issue (or, really, the lack of it), he could make life very difficult for the Baltic states. They get 100% of their gas from Russia (as do Finland, Bulgaria and the Czech Republic). Estonia, Latvia and Lithuania tick the same boxes as Crimea: they were historically part of Tsarist Russia, have large Russian-speaking populations who feel aggrieved that they are not under Moscow’s control (and those countries were promptly invaded by Stalin after the Soviet Union entered the Second World War).

Remember, too, that Putin has described the collapse of the Soviet Union as “the greatest geopolitical disaster of the 20th century”, an extrordinary perspective on a century that included two world wars (not to mention the 1917 Russian revolution).

Even some of Europe’s larger econimies rely on Russian gas, Germany to the tune of 35.7% of its needs, France 15.6% and Italy 28.1%. As The Times of London has reminded us, in 2009 Russia cut off the gas to Ukraine – but that also hit Bulgaria which was supplied by the same pipeline; the keepers at the zoo in Sofia had to bring in electric heaters to keep the animals alive once the gas was cut off.

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How great is Berlin’s resolve going to be if the EU wants to toughen sanctions against Russia? The interruption to its gas supplies from Russia would hit hard at Germany’s economy, already faced with energy issues resulting from the phasing out of nuclear power. As The Times put it, “Europe remains cowed by Russia because of its energy dominance”.

It is clear that liquefied natural gas is one answer. Poland and Lithuania are building LNG terminals but much of eastern Europe, the biggest of customers for Russian gas, has no capability for importing LNG. Britain, too, is in the mix: Gazprom is scheduled to start sending gas to the British utility from October. Britain’s Foreign Secretary, William Hague, wants more LNG terminals and a thrust into shale gas. Britain so far has two LNG terminals (at Milford Haven and Isle of Grain).

In all, one-third of Europe’s gas comes from Russia. That gas provides 14% of Russia’s export earnings. Rationally, neither side would want to upset that applecart. But, as we saw in both world wars, economic pragmatism ran a very distant second to national pride and territorial ambition.


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Robin Bromby

About Robin Bromby

Robin Bromby is a journalist, author and sometime publisher who has had titles issued by mainstream publishers, including Doubleday, Simon & Schuster and Lothian Books. Robin began as a cadet journalist in 1962 with The Dominion, the morning paper in Wellington, New Zealand. He also worked for the NZ Broadcasting Corporation, TV1, the South China Morning Post, The Herald (Melbourne), the Sunday Times (Wellington), The National Times (Sydney) and, since 1988, he has been first a staff reporter and now columnist for The Australian and has been a Senior Editor for InvestorIntel since the onset.

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