On February 24, the Russian army began its military operations in Ukraine. The United States, the United Kingdom, and the European Union announced comprehensive sanctions against the Russian Federation, yet they were reluctant to impose energy-related sanctions. When the German government announced that they were withholding the Nord Stream 2 project, Dmitry Medvedev, Deputy Chair of the Russian Security Council, tweeted that Europeans should be ready to pay €2.000 for 1.000 cubic meters of natural gas.
The Nord Stream 2 pipeline was built in recent months. It was not operational because the German government was still working on the licensing procedure. The pipeline was not planned to transfer gas before the last quarter of 2021, so pausing the project was not mean reducing the gas imports. On the other hand, The Nord Stream 1 pipeline was remained open, and gas flow has continued since the beginning of the Russian offensive. Moreover, the European countries continued to buy Russian gas even through Ukraine with increasing amounts. The fear of increasing gas prices in the future made this transaction economically logical for the Europeans. However, this also meant that Russia keeps being paid $350 million every day for its energy supplies, increasing further if the oil prices continue to go up.
The comprehensive sanctions to stop the Russian advance in Ukraine mostly target financial transactions and the Russian economy, excluding the energy sector. The German government, initially opposed to banning Russian banks from the SWIFT system, agreed to implement these sanctions but exempted some of the banks for the energy payments.
The first energy-related move happened when major oil company BP announced that they would be giving up their shares in Rosneft due to Russian aggression. This was an important beginning for the major oil companies to show that they were ready to lose earnings to stop Russian advance. The estimated cost of the policy is calculated between $15-25 billion for the company, yet it is not clear who BP would sell these shares to and how the transaction will be fulfilled due to the financial sanctions. However, despite these problems, this move also led other energy companies, Shell and Exxon, to announce exiting their operations in Russia. Only the French energy company Total claimed that they would stay but no longer provide capital for new projects.
Stopping or even reducing Russian oil and gas imports can mean devastating consequences for the European economy and community. Today, Russian gas covers 1/3 of the European demand, and getting rid of them means, even more, increasing electricity and fuel prices that will have create unrest in the society. It can also mean postponing the climate projects, burning more coal, and reopening the nuclear facilities that have been closed for the sake of green energy. The dynamics of the energy transition can change on deciding the amount or type of renewable energy projects that will be supported.
Thanks to the successful media management of the Ukrainian president Volodymyr Zelensky and the resistance of the Ukrainians, people in Europe are now raising their voices to show that they are willing to suffer by not consuming Russian gas. It should have been the other way around that the Ukrainian resistance should have increased with Western support. Yet, we see that the support of Ukrainians escalated as they held on against the Russian forces. However, it should be noted that it is naïve to declare a Ukrainian victory just because they couldn't be defeated in just one week.
When we look at the Russian side, it seems as the government officials are confident that the gas and oil demand of the Europeans will not be affected by the war in Ukraine, and they are openly sharing their thoughts on social media. Yet, despite receiving major sanctions from the West, they are not retaliating by disrupting the energy supply. In social media and TVs, many specialists and invited guests to discuss whether the Russian government acts rationally or not and whether they have been correctly calculated the amount of damage they will face by sanctions. Time will show the reality. But having too much confidence in the gas demand could turn into a Russian vulnerability if the sanctions suddenly include energy trades. This will also show that the Europeans are willing to lose their comfort zone of receiving vital energy sources without disruption to save Ukrainians. Unlike other sanctions, which put a major financial burden on the Russian economy, energy sanctions, if implemented, will become a heavy burden for the Western economies to stop the Russian offensive. The result of this hostility between the Western powers and the Russians will not be decided on who will hit the hardest but will come to who can get hit and keep moving forward.
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