Asymmetric Interdependence and Wielding the Energy Weapon: Russia and the EU post Russian Invasion of Ukraine

Yamal pipeline transiting via Poland stopped sending gas already in May 2022 based on the Polish refusal to pay for Russian gas in rubles and Russian sanctions that followed. Nord Stream 1 that normally would run at its maximum capacity to bring in excess of 55 bcm to Germany has been defunct completely due to pipeline explosions in September of 2022. Miraculously (or not!), Ukrainian transit has been flowing gas from Russia, but the volumes vary significantly from much higher levels from 2021 (10).

BP data shows that in 2021, roughly one-quarter of global natural gas was traded internationally, compared with approximately 70% of global oil. Moreover, a much larger share of natural gas trade occurs via pipeline (vs LNG tankers)—roughly half, according to BP. In contrast, the US Energy Department’s Energy Information Administration estimated in 2017 that approximately 61% of global oil (crude and products) supply and demand was traded via maritime routes, which suggests that trade via tankers accounts for well over 80% of international oil trade (14, 15).

Importantly, Russia rarely uses direct actions when using energy as a tool of influence. Instead, reductions in supply are usually characterized as related to “technical difficulties” or as a fault of the contracting party, e.g., nonpayment of debts or—as in 2022 concerning Poland and Bulgaria—as a result of refusal to pay for Russian gas in rubles (2).

That being said, the release of strategic stocks had limitations. In a global marketplace, strategic stocks cannot be targeted to a specific country; indeed, the US administration was criticized when Chinese companies bought a small amount of crude oil in the Energy Department’s SPR auctions. And the role of IEA member countries has changed dramatically over time as well: When the group was founded, OECD countries (largely IEA members) accounted for nearly three-quarters of global oil demand, a share that has fallen to about 45% currently. Other oil-consuming countries with strategic stockpiles (such as China and India) did not participate in the coordinated release. Also, constrained global refining capacity, and other factors including Chinese export quotas for refined products, made prices for refined products spike more sharply than crude oil. As such, Europe’s sensitivity to refined product supply was higher, and the region was able to move on oil but only to a limited extend.

Germany and Italy own nearly half of the EU’s total storage capacity, while Cyprus, Estonia, Finland, Greece, Ireland, Lithuania, Luxemburg, Malta, and Slovenia have no gas storage facilities. Even though the latter nations have signed solidarity agreements with other EU countries, such agreements are yet to be tested, and pipeline interconnectivity is insufficient to ensure effective market balancing.