Is the Ukraine conflict a Western European gas shortage risk?

There is a risk of a Western European gas shortage if Ukraine channels off deliveries for its own use following a cut-off of supplies from Russia, warns Josep Braml, a foreign affairs expert who works for the German Society for Foreign Policy based in Berlin.

Foreign policy refers to how one state deals with another state, i.e., the government’s plan of action in dealing with other nations.

Braml wrote in an article published in the latest issue of ifo Schnelldienst (in German):

“There is a danger that Kiev – as in 2006 – may believe that its European friends are duty-bound to show solidarity and lay claim to energy supplies destined for Europe should Russia cancel deliveries.”

Russia has exclusive bilateral agreements with European firms and could use its energy-based power to play European state and energy companies off against each other, Baml explains.

Europe’s diversification plans undermined

The author writes that Europe’s efforts at diversification (Nabucco) were undermined by the Kremlin’s pipeline plans (Blue Stream).

Western European gas shortage risk
One third of Russia natural gas destined for Europe goes through Ukraine.

Braml notes:

“In view of the interdependencies between Russia and Europe, the West threatening to hit the Russian regime where it hurts most by doing without oil and gas imports seems counterproductive.”

“That said, it is to be hoped that Europeans will use this crisis to lower their dependency on energy imports. Although longer-term efforts are required to achieve this goal, it is high time that a start was made.”

A Russia-China natural gas deal?

Russian leaders are negotiating with potential Asian customers in their quest to reduce their dependency on Europe for energy exports. Experts believe that Russian President Vladimir Putin is close to signing a natural gas deal with China ahead of his state visit to the country.

Russia earns approximately $100 million per day from the sale of gas to its European customers, equivalent to about 3% of the country’s output. If China and Russia do sign a deal, Russia’s position in the face of current and potentially growing economic sanctions from the West will be much stronger.

Braml says that Putin is currently well-advised not to alienate his country’s major customers.

Putin needs energy income to remain in control

Braml concludes:

“The stability of the Russian regime, whose social and economic policies leave much to be desired in the eyes of its citizens, depends heavily on revenues from energy exports.”

“Should the volumes of oil and gas, or the price that they command, fall notably, this would pose a serious threat to Putin’s autocratic rule. Russia’s leaders will therefore attempt to increase its customer base.”

In April, Standard and Poor’s downgraded Russia’s rating to BBB-, which is just above “junk” status.

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