Russia will lose Putin’s energy war

In the short term, Putin will indeed cause economic damage to the countries of the European Union, it is inevitable. But in the long term, Russia simply cannot win this energy war. Putin’s move will only hasten the demise of his country’s energy sector and precipitate the loss of its coveted status as the world’s energy superpower, writes Agathe Demarais, director of global forecasts at the Economist Intelligence Unit, in an article for POLITICO. .

Russia’s weaponization of energy serves three purposes. The first, which applied when the gas pipelines were still more or less open, was to create uncertainty and prevent EU countries from preparing for the future.

The second objective was to drain European economies. And on that front, Russia’s strategy is working, the Eurozone is likely to experience a recession next year.

Meanwhile, Putin’s third goal has been to stoke political divisions in Europe by spreading the idea that sanctions are the root of the energy crisis. This is of course a reversal of cause and effect – it is Russia’s decision to invade Ukraine that is at the root of the crisis. However, this narrative has gained traction in the EU.

Europe, in a difficult situation

In the short term, Europe is in a difficult situation. An economic and social crisis is intensifying, while high energy prices are fueling inflation and a cost of living crisis that could last two or three years. Also, things could get much worse than they are right now. A particularly cold winter would increase energy demand, further aggravating the situation.

The situation could worsen further in the 2023-2024 winter season, as European countries managed to replenish their gas stocks this summer, while Russian gas was still more or less flowing. However, European states may not be able to do so until next winter.

Obviously, there is no denying that times are tough for the EU, but there may be some consolation in the fact that Putin’s strategy is about to backfire.

Moscow’s blackmail has convinced EU countries once and for all that Moscow is not a reliable energy supplier. As a result, Europe is stepping up efforts to shake off dependence on Russian hydrocarbons, rapidly building LNG infrastructure to boost imports from the United States, Australia and Qatar. The first in a long line of new LNG terminals will also open soon in Estonia, Latvia and Finland, and new gas contracts are being negotiated to boost supply – from Algeria or Norway, for example. Also, the community block is accelerating its plans for the development of renewable energies.

In about three years, Europe will no longer need Russian oil and gas

In just two months, the EU will stop almost all imports of Russian oil, leaving Russian oil companies in need of alternative buyers for Russian crude. This shouldn’t be too difficult as demand from China, India and several other emerging countries is still high. However, these countries will not be a perfect substitute for the European market – which was once Russia’s biggest buyer of hydrocarbons – as they will now expect steep drops in the price of Russian crude.

In addition, the United States could start imposing secondary sanctions on Russian oil exports, which could further limit Russian sales.

Meanwhile, the Kremlin’s position looks even worse when it comes to gas. Russia exports its gas through pipelines, which are currently positioned to serve Europe. And building new pipelines in their place will take time and money, both of which are scarce resources.

Exporting gas through pipelines also means signing new contracts with ready-to-buy buyers. Again, things look tough for Moscow, as China is currently the only country that could absorb more Russian gas, but Beijing is in no rush.

It is not a surprise. Gas demand growth in China has slowed and Russia has also shown itself to be an unreliable energy supplier. This is something Chinese leaders will not forget and will naturally seek to avoid becoming dependent on Russian gas.

Russia will lose its status as the world’s energy superpower

Given all this, it is no exaggeration to say that things are looking bad for Russia’s energy sector, which accounts for a third of the country’s economy, around half of its tax revenue and around two-thirds of its exports. The latest forecast from the International Energy Agency (IEA) now assumes that Russia’s annual revenue from energy exports will more than halve to $30 billion by 2030 from $75 billion. dollars before since the start of the war in Ukraine.

The IEA also estimates that by 2030, Russia’s share of global gas trade will fall to just 15%, from 30% in 2021. The track record for Moscow is clear: Over the next decade, it will lose its status as the world’s energy superpower. , and the Kremlin’s problems will not end there.

Due to the sanctions, Russian energy companies no longer have access to Western financing and technology. For the Kremlin, this is an existential threat. The reserves of its current energy fields are gradually being depleted, and although it has new fields in the Arctic, their development will require huge sums of money and advanced Western technology. Without access to any of these, Russia’s energy production will slowly decline over the next few decades.

Coupled with a drop in demand for fossil fuels as the world turns to renewables, all this means that the energy war that Putin himself has started can only end badly for Russia.

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