The sanctions taken against Russia by EU countries are generating a major “boomerang effect,” one which could lead to a global energy crisis. The shock will probably be felt by the EU economy this winter and afterwards. It is therefore at this time that crucial political questions will arise regarding the expediency of the EU countries’ policy towards Russia, writes Valdai Club expert Jacques Sapir.
“War is coming back to Europe” is the new mantra. However, war didn’t come back just because of Ukraine. There have been previous winters of war in Europe, linked to the bloody disaggregation of Yugoslavia. However, war in Ukraine, with all its geopolitical consequences, is a true game changer. Even if some reassuring talks are given in the EU about prospects for this winter, the fact that it is destined to be difficult, and likely cold and dark, is a naked truth. Sanctions have dramatically damaged the energy relationship between Russia and the EU. Europe will face the consequences of an energy drought, one which doesn’t just affect gas but coal and oil as well, without the ability to turn to quick alternatives (no offense to Margaret Thatcher).
To understand the extent of the issue, we have first to understand the extent to which the EU is dependent on Russian energy. This situation didn’t come at once and from nothing. Some people have been blaming leaders, like Ms. Merkel. But this is to large extent unfair. The main reason behind this dependence is the fact of cold-blooded economic computations where cheap energy from Russia has been seen by different EU countries as a possibility, and even a condition, to improve their economic competitiveness in the world. The decision to use Russian gas, oil and even coal was made in the 90’s and early in the 2000’s. This choice became critical for some countries, like Germany, as they began to feel the pressure of competition by Asian countries (China mostly) and tried hard to maintain their competitive edge. The dramatic Fukushima accident and its political legacies in Germany helped of course to freeze a political consensus on an energy mix which made the country highly dependent of Russian energy. But event without horse-trading with the Grünen this mix made sense just for economic reasons.
This led to a situation which can be best described using Eurostat data.
Now, with the war in Ukraine, sanctions taken by EU countries are provoking a global energy crisis. People are forgetting that supplies stopped because the EU countries introduced economic and financial sanctions and refused the solution proposed by Russia. What was forgotten too was that these sanctions didn’t change Russia's key role as a supplier of various raw materials. Political and economic facts didn’t mix easily. This crisis has then been particularly painful in the EU countries where energy prices have risen to a considerable extent, already prompting some small and medium enterprises to stop activity (more than 1,200 in Germany alone).
With Russian hydrocarbon deliveries cut, possible means of substitution have been investigated. It’s possible to replace gas with LNG. However, the volume of Russian pipeline gas had been three times that of imported LNG. In addition, regasification facilities are few in number and already working at more or less full capacity. Substituting Russian gas with LNG would involve building three times the number of existing facilities, which would take between 3 and 5 years. It would also involve the construction of a major fleet of LNG carriers; another expensive, time-consuming process. Incidentally, LNG is intrinsically more expensive than pipeline gas. Even when complete substitution is complete, EU countries will have to pay 25% to 33% more for the gas they will get. That will not improve economic competitiveness.