How Europe’s addiction to Russian gas fuelled the Ukraine crisis

Russia’s invasion of Ukraine has revealed the profound consequences of the European Union’s reliance on Russian gas, to heat homes, to produce electricity, and to drive its economy. Now ordinary citizens are going to pay the price.

The EU is dependent on Russia for about 40 per cent of its gas supply. A squeeze was already felt this winter. In actions that now appear to foretell future events, Russian state gas company Gazprom reduced gas supplies to the EU and chose not to refill key storage facilities that it owns. This artificial tightness of supply is part of the reason for the price crunch that has already causing hardship across the EU, driving up energy bills and the cost of living even before this week’s invasion.

As soon as troops filed across Ukraine’s borders and the Russian military began its strikes, the price of oil and gas spiked in anticipation of further tightness of supply and soaring demand. And EU governments’ room to retaliate was curtailed, because high energy costs were already causing outrage among their electorates.

There was hesitation over sanctions, as EU reliance on gas constitutes a funnel of money straight into the war coffers of Vladimir Putin.

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“We are buying as Europe, as the European Union, lots of Russian gas, lots of Russian oil,” Polish prime minister Mateusz Morawiecki said. “And President Putin is taking the money from us, from the Europeans, and he is turning this into aggression, invasion, he is destabilising the whole of Europe.”

But messing with the gas supply causes big political problems. It’s a trump card that Russia can play too, as it has repeatedly in history, cutting and increasing the supply of gas to punish or reward its neighbours.

The story of the EU’s dependence on Russia for gas is an ugly one, and one with many Cassandras who warned of the geopolitical risks for decades but were largely ignored.

At the centre of the story is Germany: a major EU power with a gas-hungry manufacturing sector. First it made a fateful decision to phase out its nuclear industry, and second it clung to a belief that increasing economic ties would foster democracy in Russia and reform Putin.

The great promise

In November 2011, German chancellor Angela Merkel, Russian president Dmitry Medvedev, French prime minister François Fillon, and Dutch prime minister Mark Rutte unveiled a new pipeline – Nord Stream 1 – directly linking Germany and its gas-gobbling manufacturing sector with Russia’s vast Siberian reserves.

“With this project we show... that we feel sure of a secure and resilient partnership with Russia in the future, and I believe this project is a perfect example of this,” Merkel told the gathering of besuited delegates, as they were serenaded by a youth orchestra.

Medvedev described it as a moment of “great symbolic significance” that marked the “opening a new chapter in the partnership of Russia with the European Union”.

It was an optimistic moment for EU-Russian relations, driven by a belief that closer trade ties and economic prosperity could bind together former enemies. The concept is known in Germany as “Wandel durch Handel” or “change through trade”: the idea that over time, trade links could help foster democratic standards elsewhere.

Under this assumption, Germany used gas as a crutch as it shut down its nuclear industry in response to public concerns after Japan’s 2011 Fukushima disaster. The last one is due to be powered down in 2022.

As closer neighbours worked to wean themselves off Russian gas, Germany’s reliance increased, from 42 per cent in 2010 to 55 per cent last year.

The warning

Less than three years on from the fanfare-filled launch of Nord Stream 1, Russia annexed the Crimean peninsula from Ukraine. It also fostered armed separatists in the areas of Donetsk and Luhansk to declare “people’s republics”, engineering their secession from the country, and began a conflict with Ukraine that imposed repression in the separatist-held regions and killed 14,000 people – prior to this week’s invasion.

The terror was unleashed in the wake of a pro-European mass movement in the country, triggered by the government’s refusal to sign a trade and co-operation agreement with the EU. Huge protests in central Kyiv culminated in then-president Viktor Yanukovych fleeing to Russia.

EU leaders were always ready to give diplomacy and economic outreach another chance. And access to cheap gas – well, that didn't hurt either

The violent annexation of Crimea profoundly shook EU confidence in the supposed new dawn of relations with Russia. The European Union, the United States and Canada slapped economic sanctions on Russia for the act.

But behind the scenes, much was business as usual. EU leaders were always ready to give diplomacy and economic outreach another chance. And access to cheap gas – well, that didn’t hurt either.

Immediately after the annexation of Crimea, the German government allowed the Russian state gas company Gazprom to buy up a quarter of its storage facilities, which included some of Europe’s largest, the Polish MEP and former foreign minister Radoslaw Sikorski recalled in a recent interview with the Wall Street Journal. Those facilities now stand mostly empty, collateral damage in the driving up of energy prices in the EU.

“I raised this at all levels of government with the Germans, both in private and in public, and they understood the argument, but they didn’t care,” Sikorski told the newspaper. “It’s just business, they said.”

This, too, was the rationale for the development of Nord Stream 2, yet another pipeline that would double the flow of gas from Russia to Germany. A suite of companies agreed to develop the project in 2015, and Germany gave the go-ahead for construction to begin.

Political pressure

All the while, Moscow showed its willingness to use gas as political leverage. Repeatedly, Russia cut supplies to Ukraine during times of tension. It repeatedly showed its willingness to turn the screw.

After Moldova elected a pro-EU government in July 2021, Gazprom hiked prices, a devastating act towards Europe’s poorest country, which is 100 per cent reliant on Russian gas. As the new government squirmed, a new deal was offered: cheaper gas if Moldova weakened its ties to the EU.

All along, EU member states that border Russia, once ruled by Moscow and wary of Putin’s irredentist version of history, were not shy in issuing warnings. Neither was the United States, where diplomats and senators went so far as to contact German building contractors and port operators directly to threaten them with economic sanctions.

“We warned our German allies that the only goal of Nord Stream and Nord Stream 2 is precisely this, that is, to deprive Ukraine of transmission revenues and the possibility of supplying gas to customers in Western Europe,” Sikorski told local media in January.

It was also a way to isolate Ukraine, making it possible to crush the country without Germany feeling so much as a pinprick. But even as Russian troops began massing on the borders of Ukraine, “it’s just business” remained the mantra.

“Nord Stream 2 is a private-sector project that has been advanced to the point where a pipeline has been laid,” Chancellor Olaf Scholz told journalists on December 17th, the last time EU leaders gathered in Brussels before they were forced to return for an emergency summit in response to the invasion this week.

Scholz spoke two weeks after US intelligence had begun warning that Russia appeared to be preparing for a massive military offensive on Ukraine, in predictions that were to play out almost word-for-word.

It was a final, belated acknowledgement that the pipeline had a profound geopolitical significance. It was never 'just business'

Ultimately, Germany reversed course only on the eve of war. With the Nord Stream 2 pipeline now fully built, and awaiting only permits to start pumping, Scholz announced on Tuesday that due to the “dramatically changed situation... certification cannot take place”.

It was a final, belated acknowledgement that the pipeline had a profound geopolitical significance. It was never “just business”.

Medvedev, the former Russian president who had heralded the start of a new era at the launch of Nord Stream 1 a decade ago, made clear that the EU would pay. “Welcome to the new world where Europeans will soon have to pay 2,000 euros per thousand cubic metres!” he tweeted gleefully, suggesting that prices will now double.

Elite capture

Why did it take so many politicians so long to acknowledge the risk posed by EU reliance on gas? The answer is partly to be found in wishful thinking; they believed what they wanted to be true.

“For many years, people in Europe who wanted peace assumed that Putin also wants peace. This turns out to be blatantly wrong,” Latvian prime minister Arturs Krisjanis Karins told journalists.

The answer also lies in superficial economic self-interest. Not only has Britain’s Conservative Party been propped up by donations of Russian cash and London used as a laundry for its oligarchs, but top political and industry figures throughout Europe have been lavished with Russian largesse through generous advisory jobs and positions on boards, including in state companies.

They took the money, even as Putin’s opponents were poisoned and killed, even as independent media was crushed, even as Russian bombers reduced Syrian cities to dust and rubble to prop up dictator Bashar al-Assad.

In the wake of the invasion, a string of ex-prime ministers have resigned from high-profile commercial roles in shame. Italy’s former prime minister Matteo Renzi left the board of car-sharing company Delimobil. Finland’s former prime minister Esko Aho stepped down from the board of Russia’s largest bank, Sberbank, after six years in the role. Christian Kern, the former Austrian chancellor, resigned from the board of Russian Railways the morning after the troops marched in.

Others, such as the former German chancellor Gerhard Schröder, have shown little sign of changing course. The Social Democrat is a long-time friend of Putin’s, and holds senior positions at Nord Stream and Rosneft. Earlier this month, he was nominated to the board of none other than Gazprom. His appointment came a week after he made headlines for accusing Ukraine of being the aggressor as Russian troops massed on its borders.

As refugees began to pour out of Ukraine, François Fillon spoke out, condemning the use of force and blaming Nato for it

Austria’s former foreign minister Karin Kneissl sits on the board of energy company Rosneft. François Fillon, the former French prime minister who applauded as the gas started flowing through Nord Stream 1, retains his roles on the board of Russian petrochemicals group Sibur and state oil company Zarubezhneft. As refugees began to pour out of Ukraine, Fillon spoke out, condemning the use of force and blaming Nato for it.

What happens now?

As Western intelligence agencies began to warn of an impending Russian invasion of Ukraine last year, the EU saw what was coming.

The European Commission began calling on other gas suppliers – Qatar, Egypt, Nigeria, South Korea, Japan – to rustle up alternative supply. Tankers of liquefied natural gas began crossing the Atlantic in unprecedented numbers to Europe.

The energy make-up of the EU is complex, with some systems geared for particular kinds of gas, pipelines linking some countries but not others, and logistics challenges such as the difficulty of moving liquefied natural gas over land.

In the short term, the EU will keep buying gas from alternative sources. Though its storage facilities are at historically low levels, demand is expected to drop as warmer weather arrives. Then, the name of the game will be to fill the tanks for next winter.

Ireland has a pretty secure gas supply, sourced from the Corrib gas field, Norway and the North Sea via Britain. Southern European countries have pipeline access to Azerbaijan.

But the bloc will be hit by higher prices anyway, because in the EU the cost of electricity is pegged to the price of gas. Even Spain, which sources more than 40 per cent of its energy from renewables, is still paying gas-level prices for that electricity, galvanising its government to lead demands for a reform of the EU pricing system.

The crisis has forged other demands for change too. Perhaps the EU could, as it did with vaccines, procure gas jointly, ending Moscow’s ability to play states off each other.

It has also hardened resolve in the EU to hasten the switch to renewable energy, both for climate reasons and for geopolitical security.

If Russia chooses to use gas supply to exert further political pressure on the EU, it is expected to do so unevenly: protecting Germany, say, while punishing smaller nations. But in many ways it has already won the game.

As EU leaders gathered in Brussels for their emergency summit this week, Ukraine’s foreign minister Dmytro Kuleba sent out an appeal to bar Russia from the international payments system, Swift.

“I will not be diplomatic on this. Everyone who now doubts whether Russia should be banned from Swift has to understand that the blood of innocent Ukrainian men, women and children will be on their hands too,” he tweeted. “BAN RUSSIA FROM SWIFT.”

Chancellor Scholz paused in front of the row of EU flags as he walked in to the summit and addressed journalists to say that his country would not support Ukraine’s appeal. The EU would not cut gas imports from Russia. It would not bar Russia from Swift.

“We always knew it was going to go this way,” an official remarked. “They need it to pay their gas bills.”