EU energy autonomy and "crisis" of sanctions against Russia: between blockades and new alternatives. Aanalysis by Dionis Cenușa

Op-Ed
	The opportunity to import cheaper Russian gas can always return to the list of preferable options of the political class in the EU countries and their neighbors. Such a scenario is very likely if the post-pandemic economic recovery is compromised by disastrous socio-economic consequences of Russian aggression against Ukraine ...
Dionis Cenuşa, Senior Contributor

Deepening sanctions against Russian aggression in Ukraine and ensuring energy security are two key priorities of the European Union (EU), which are currently developing strong interdependence. The sanction to the Russian energy sector is the only measure that the EU has to drain the financial resources that keep Russia's war machine active against Ukraine, in which some 300 million dollars were spent daily in April alone. Stopping the war is becoming the main objective of sanctions, although the punishment of Russia for invading Ukraine, as well as the freezing of Russian financial resources for the future reconstruction of Ukraine abroad in the postwar period, also have enormous relevance.

The food crisis exacerbated by the paralysis of shipping through Ukrainian ports (18 in total), caused by Russian military action (more than 90 days), is putting pressure on Brussels to develop creative ways to apply the most sensitive sanctions in the energy sector. Restrictions on Russian oil imports have been blocked over Hungarian objections for most of May. Hungarian Prime Minister Viktor Orban has demanded compensation of up to 18 billion euros in exchange for the oil embargo. Finally, to overcome this impasse, the EU has decided to target Russian oil in stages, starting with what is delivered by sea. At the EU summit on May 30-31, new sanctions, including in the energy sector, are expected to be adopted as part of the sixth sanctions package. If this happens, the establishment of the oil embargo against Russia will be a new step towards the energy autonomy of the EU.

Is there a crisis of sanctions policy against Russia?

As the EU sought unity on Russian oil sanctions, Moscow accelerated its search for new clients in Asia, offering prices up to 30% below the market (RBC, May 2022). According to figures from previous years, the oil exported through the "Drujba" pipeline accounted for almost half of the volume exported by sea (1.57 million tons). For now, Russia's federal budget manages to rack up record revenue. In March, the federal budget increased about 35% (or $55.2 billion), largely due to oil and gas exports. However, in the long term, offshore oil production is in jeopardy due to the exodus of foreign direct investment and the lack of technology for new production, caused by sanctions.

While the restrictions adopted in the first five sanctions packages hit the Russian economy (IPN, March 2022), they failed to derail Moscow's plans to undermine Ukraine's territorial integrity. In May, Russia began preparations for the annexation of the recently occupied Ukrainian territories: Kherson, Zaporozhzhye and Donetsk (Mariupol). Thus, the simplified "passportization" procedure for the population of the occupying territories was carried out, de facto holding it hostage. This allows Russia to extend social payments to new Russian citizens in Ukraine's regions, flagrantly violating Ukraine's sovereignty. In addition, the Russia-controlled civil-military administrations in Kherson and Zaporozhzhye have announced that it will integrate the regions into Russia, with the intention of repeating the precedent of Crimea in 2014. At the current stage, the emphasis is on the monetary and linguistic transition in favor of the ruble and the Russian language, respectively, in a process of subtle economic integration with Russia and "re-Russification" of the media-educational space.

Increasing the security of the European energy sector is a necessary precondition for rationalizing sanctions against Russia. In addition to stopping the war, sanctions must take into account new developments in Ukraine, such as the forced and illegal integration of Ukrainian territories into Russia, as well as the world food security situation. Therefore, European energy security is in a highly interdependent relationship with sanctions, which require greater political attention, intra-European and transatlantic coordination. Sustainable solutions must be identified to avoid bottlenecks similar to those created by Hungary in relation to the oil embargo or Greece regarding the shipping of third countries under the European flag carrying Russian oil.

Another way of simplifying sanctions policy against Russia may come from the European Commission's recent suggestions on criminalizing deviations from European sanctions. In particular, it was proposed to supplement the provisions of article 81 (1) of the EU Treaty by adopting a new directive, which would include "violation of sanctions" in the list of offenses against the EU. Currently, article 81 (1) interprets the following crimes as crimes committed against the EU: terrorism, trafficking in human beings, sexual exploitation of human beings, money laundering, etc. These changes in European legislation pave the way for the development of a type of “secondary sanctions”, which are currently practiced by the US against third countries that do not comply with US sanctions.

EU energy autonomy from Russia: accelerating diversification

To retaliate against Western sanctions, Russia is exploiting the EU's dependence on Russian energy exports (see details of natural gas contracts between EU companies and Russia). The Russian side uses the introduction of the mechanism of payment for gas in rubles, applied to those included in the list of "unfriendly states", as counter-sanction. The same tool was used in an attempt to break intra-European unity in the new energy sanctions package. The risk of being cut off from the gas supply is extremely high, which is why the EU is already in the process of drawing up a "crisis plan". This could even include the dosed distribution of gas to industry sector at a European level. The joint gas procurement mechanism, to which the candidate countries of the Western Balkans will have access, as well as the Eastern European countries that can receive gas through existing gas pipelines (Ukraine and Moldova), is also under development.

Although the EU and member states are looking for alternative sources to substitute Russian gas, most European companies have started to pay according to the new payment scheme requested by Russia, following the limits established by the European Commission. Companies that did not comply were sanctioned. The most recent case is the cessation of gas supply to Finland, which has affected 10% of the country's energy consumption. The EU and the US have called Russia's actions against Finland "energy blackmail" (White House, May 2022). Like Poland and Bulgaria (and more recently the Netherlands), which had their Russian gas supply cut off in May, Finland has switched to alternative supplies from other EU countries and plans to increase LNG imports. The Nordic country depends on the flow of gas from the continent through the Baltic Connector with Estonia (in operation since 2022), but also on the floating liquefied gas terminal contracted from the US and available in the second half of this year. For Poland, the replenishment of Russian gas occurs through the interconnector with Lithuania, in May the first 65 thousand tons of liquefied gas arrived from Texas. The interconnector is connected to the LNG terminal, managed by Klaipedos Nafta, which is part of the Klaipeda seaport. By the end of 2022, the terminal will supply gas to 5 companies in Lithuania, Estonia and Poland, and then intends to offer capacity on the basis of longer-term contracts (5-10 years).

In addition to the US, which in April pledged to deliver some 15 billion m3 of liquefied gas to the EU by the end of 2022 and 50 billion m3 annually thereafter, another country identified as a source of LNG imports gas is Qatar. In 2010, the Persian Gulf country exported about 90 billion m3 of liquefied natural gas per year and, since 2015, 170 billion m3. About 80% of these volumes went to Asian countries, but Qatar's intentions are to diversify liquefied gas exports, half of which could be redirected to the European market. Investments of nearly $30 billion have already been made public to increase production capacity by 40-60% by 2026. Germany has engaged in active lobbying for the purchase of liquefied gas produced in both Qatar and Senegal. The latter together with Mauritania controls gas reserves of some 420,000 million m3. By 2023, the West African country plans to export around 3.5bn m3 of liquefied gas annually, which could be enough to replace around 7% of Russian gas currently imported through pipelines (Euroactiv, May 2022).

Turkey and Romania could become other major players in the EU gas market due to production in the Black Sea. The Turkish government plans to start gas extraction in 2023, with up to 10 million m3 per day in the initial stage and a subsequent increase of up to 45 million m3. Ankara speaks of some 550 billion m3 of gas deposits, which would be enough for world consumption for 45 years. Romania has also announced new investments by the Romanian companies Petrom and Romgaz in offshore gas production in the Black Sea (Neptune perimeter), to be launched in 2026 (Bloomberg, May 2022).

Finally, some EU countries have launched "gas diplomacy" towards Africa to secure advantageous contracts, which could replace deliveries from Russia. It is Italy that has managed to reach a common denominator with Algeria to increase the volumes of gas delivered through the Transmed pipeline. Thus, gas imports from the North African country should reach up to 9 billion m3 per year in the 2023-24 period. Other states, such as Slovakia, rely on Norway's liquefied gas exports, which will cover 32% of the country's needs, to reduce Russia's current dependence on Russia by about 65%. The continued development of interconnectors is another viable option. In this sense, Greece and Bulgaria will put into operation the interconnector between the two countries to deliver nearly 1 billion m3 of Azerbaijani gas through the Transadriatic Gas Pipeline (TANAP), starting on July 1.

Although the EU appears to be able to reduce its dependence on Russian gas, this does not come without other political and economic costs. Among them, the growing dependence on political regimes incompatible with European values (Algeria, Senegal, Qatar or Azerbaijan), which could be detrimental to reputation. It is also about the risk of abandoning or postponing renewable energy transition initiatives. It is imperative that the EU immediately accelerate the green transition, immediately after ensuring sufficient energy autonomy from Russia, but also make more efficient the sanctions to support the Ukrainian cause.

In lieu of conclusions…

The negative evolution of the European gas market, under the direct influence of the Russian factor, has accentuated the importance of interconnectors, LNG terminals and alternative gas pipelines already operational and expanding at European level in the Mediterranean and Black Sea regions. The combination of these three types of gas infrastructure is a precondition for building energy self-sufficiency in the EU, which must in no case be confused with energy independence. However, as long as the EU imports energy resources (oil, gas or coal) from abroad, it will be energy dependent. However, the diversification of oil and gas import sources and routes contributes to a high degree of autonomy in EU geopolitical decisions.

Finally, the rationalization of energy consumption and the increase in the production of renewable energy and hydrogen are essential to irreversibly reduce Russia's energy dependence, as well as carbon emissions. Otherwise, the opportunity to import cheaper Russian gas may return at any moment to the list of preferred options of the political class in the EU countries and their neighbors. Such a scenario is very likely if the post-pandemic economic recovery is compromised by the disastrous socio-economic consequences of the Russian aggression against Ukraine.

IPN publishes in the Op-Ed rubric opinion pieces submitted by authors not affiliated with our editorial board. The opinions expressed in these articles do not necessarily coincide with the opinions of our editorial board.