Ukraine crisis highlights Europe's dependence on Russian energy

In the geopolitical poker game currently underway in Ukraine, Russia appears to be holding some strong cards, using its control over much of Western Europe's energy supplies as a deterrent to any European Union actions against Moscow's de facto occupation of Crimea.

According to the European Commission, over 54 percent of the EU's total regional energy consumption in 2010 was imported from outside the EU. And a large percentage of that imported energy, including about one-fourth of the oil and gas used in Europe, originates in Russia. In 2010, 34.5 percent of the EU's imports of crude oil came from Russia, "whose disputes with transit countries have threatened to disrupt supplies in recent years," according to the EU's eurostat website.

A large portion of Russian oil bound for Western Europe passes through Ukraine. And twice in the past decade, in 2006 and 2009, Russia has turned off natural gas shipments to Ukraine during disputes over gas prices. That in turn created shortages in some EU member nations.

In response, the EU has attempted to come up with alternatives to its current dependency on Russian oil and gas. The so-called "Nabucco" pipeline, for example, was a plan to bypass Russia by having a pipeline running from the Caspian Sea to Europe, from Turkey to Austria via Bulgaria, Romania and Hungary. But that project was shelved last June, when gas producers in Azerbaijan opted for a different plan.

A report from the Capital Economics research group notes that Russia is a major supplier of oil to Germany and the Netherlands in particular "and of natural gas to Western Europe generally." And it says any disruption to the Russian-EU energy trade would not only be in neither side's interest, but also that Russia might be hurt in the long run should consumers and governments in the EU look elsewhere for more secure energy sources.

This past November, experts with the Energy and National Security Program at the Washington-based Center for Strategic and International Studies (CSIS), described the EU-Russia gas relationship as a "partnership of necessity." In a CSIS analysis, they suggested that, rather than confronting each other, Europe and Russia "should engage in a dialogue in order to re-negotiate more flexible pricing and other contractual terms," while coordinating on issues like infrastructure and supply logistics and adapting to a rapidly evolving energy market.

But it appears any such efforts at cooperation and compromise are far off, at best. At their annual investors' meeting in London on Monday, officials from the Russian gas giant Gazprom said they expect the company's market share in Europe to increase in the upcoming years.

And while analysts say they aren't predicting any major EU sanctions against Moscow for the ongoing Ukraine crisis, they suggest any such punitive actions might actually backfire on the Europeans.

"If it were to happen, it could take longer to resolve than during previous disruptions because Gazprom was in control of the supply situation back in 2006 and 2009," Jeffrey Woodruff from Fitch Ratings told Reuters. "This time, disruptions could possibly come from sanctions, which could take longer to resolve."

  • Bruce Kennedy

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