Europe can help Ukraine by ending Russia’s energy stranglehold
The writer is the former chief executive of Naftogaz
European leaders must learn from past mistakes and help end war in my country by using one of the most powerful tools at their disposal: energy sanctions.
First, some background. Ukraine achieved full independence from Russian natural gas imports after the Maidan uprising of 2013-14. It has not bought a single cubic metre of natural gas from Russia since 2015. All imported volumes come from the European market through Poland, Slovakia and Hungary.
During the winter of 2014-15 the Kremlin tried to block Ukraine’s European gas imports by cutting the supply of natural gas to the EU. This move failed to have any tangible impact on Ukraine, although Gazprom, the Russian state-owned energy group, lost almost $5.5bn in the process.
It was disappointing that the summit of EU leaders held in Paris on March 10-11 failed to produce a decision on energy sanctions against Russia, but not surprising. I remember clearly the doubts expressed by European Commission officials in 2014 about our plan to become independent from Russian gas. There was also scepticism when we warned western political leaders that as soon as the Nord Stream 2 gas pipeline was completed, giving Gazprom enough transit capacity to circumvent Ukraine, Vladimir Putin would launch a full military invasion of our country.
Fifteen years working at Naftogaz, the Ukrainian state-owned energy company, gave me some insight into the thinking of the Russian president and his gang in the Kremlin. Two points, in particular, are relevant to the debate around energy sanctions.
First, Putin is convinced that Europe is too weak to risk its own comfort and thus will never be willing to stop buying Russian energy. Second, he is a bully. Putin does not respect the weak and corrupt, but fears the strong and brave. He also will not be discomfited by measures he regards as reversible. Temporary measures, such as the freezing of Russian assets, will only persuade him to hit Ukraine harder.
Several things follow from this. It is clear that Russian aggression will not stop with Ukraine unless there is strong retaliation from the west. Beyond the military domain, the most obvious target for such retaliation is Russian energy exports, which account for roughly 36 per cent of the country’s total budget revenues, most of which are used to fund military expenditure.
Europe should move fast to replace Russian energy supplies permanently. Yes, Europe is heavily dependent on energy supplied from Russia. But guess what? The dependence goes both ways. Moreover, the EU’s Green Deal, which commits the bloc to becoming carbon-neutral by 2050, means the balance of bargaining power has shifted decisively from fossil fuel producers to consumers. European governments must use that advantage to sanction Russian energy exports in a way that will not damage their own economies.
Liquefied natural gas is the obvious target. In 2021, total Russian LNG supply amounted to less than 8 per cent of global supply. Almost half was imported by Europe. But a full EU embargo on imports of Russian LNG would carry negligible risk, as these volumes could easily be replaced by increased production in 2022 by other suppliers.
Petroleum products are almost as easy a target as LNG. The critical product is diesel fuel. Europe imports roughly 15 per cent of its total consumption from Russia. This can be replaced by increased domestic production, and additional imports from North America and Asia.
Crude oil is more complicated. The prospects for short-term success here may be affected by the behaviour of other potential suppliers. But I am convinced that, if producers believe Europe is serious about a crude oil embargo against Russia, there will be strong competition to replace Russian oil and secure long-term relationships.
An embargo should be enforced gradually, with an immediate halt to seaborne Russian crude imports, followed by a phasing out of pipeline crude imports over the next nine months.
Pipeline natural gas poses the most difficulties, since it comprises 40 per cent of total EU imports. The best approach is the tried and tested Iranian sanction model: natural gas is allowed to flow from Gazprom to Europe, but all proceeds are kept in special escrow accounts in European banks until certain conditions are met by Russia.
I understand that a crude oil embargo and pipeline natural gas sanctions may require further analysis. But there is no reason for the EU not to place an immediate embargo on supplies of Russian LNG and petroleum products. Russia’s energy stranglehold has lasted for too long. This will save lives — not only in Ukraine.