About the author:
Christian John Hayward, TI Youth Observer
Radiators off, Europe’s cold
2022 has been a shocking year energy-wise. Europe is currently facing a serious energy crisis. With the heating up of the war in Ukraine, and open Western funding against Putin’s “Special Military Operation,” Russia has now cut gas supplies to Western Europe. Even during the darkest days of the Cold War, when the ideological battle between the East and the West was much more intense, the Soviet Union did not cut gas supplies to Europe. In fact, West Germany and the Soviet Union collaborated on a pipeline via a private company named Ruhrgas (although were subject to controversy).1 This means that the current situation was likely unforeseen by the West in the run-up to the war. The cutting of the gas supply will affect Russia greatly too in the long run, with Russia making X amount from its gas exports prior to the breakout of the “Special Military Operation.”
However, Russia is now in a much weaker position than it was in the days of the USSR. Many analysts suspect that part of Putin’s desire for the war is to resurrect the image of better days gone,2 others point to the ideology of Aleksandr Dugin’s “Foundations of Geopolitics,”3 which argues for a more assertive Russia on the world stage. Regardless of ideology, it’s obvious to see that it has only deepened the growing energy crisis that the world is facing.
Now, across Western Europe, nations are facing a rise in their costs of living. Some will be worse affected than others. Germany, for example, receives a great deal of gas from Russia and rapidly grew its gas network after 1991,4 while the UK, also having to tighten its belt on energy consumption but is less affected due to supplies of gas from the North Sea, despite the fact that it won’t lower growing bills.5 The outgoing Truss administration’s idea of opening fracking sites is facing opposition for its environmental impact, small quantities of gas produced and its profitability, with UK supplies not nearly covering the amount needed for the shortfall.6 Furthermore, it has been forecast that even if there were sites opened today, they would not drive down energy prices. With this, the so-called “warm spaces” are being set up across the country to heat the poor 7 while businesses are squeezed on their energy consumption. The government will try and help cover the costs of energy,8 yet many see the payments as meaningless with the rapid rise in inflation. This begs the question: did one of the richest regions on Earth get to this point?
The green transition, one of the sparks?
Although it’s vital for the world to taper its addiction to fossil fuels, the worldwide green transition has helped stoke the current war. Apart from Putin’s own ideological reasoning for the war, another factor might be the demand for raw materials and rare earths that are situated in Eastern Ukraine. One of the reasons why fossil fuels are cheap somewhat is that the startup cost is relatively small. Oil rigs require steel, for example, but not as many as rare earths. These metals are vital components for wind turbines, digital technology and batteries. All components are needed for greener technology.
Ukraine however has vast mineral wealth that helps fund America’s tech sector. Ukraine provides the majority of US semiconductor-grade neon supplies,9 palladium, cobalt and titanium. These metals are essential for the green transition.10 Russia, seeing Ukraine as historically part of the Russian nation may feel that their potential future profits have been taken away from them with the independence of Ukraine and the shift away from the gas and fossil fuels that power Russia’s economy. Russia is both an Eastern and Western power due to its geographical location. Although Russia also has palladium, cobalt and titanium, Ukraine dominates the European side of this trade and China corners the Eastern market with 60% of global mining performed by domestic mines or by Chinese interests in Africa,11 locking Russia out of exporting its own supply of rare earths. The huge package of sanctions on Russia imposed by the West also will have locked Russia from its own largest export market.
The rule of OPEC+
On October 5, OPEC+ announced its decision to cut its oil production by 2 million barrels per day,12 which will keep the price of oil at a steady high. One should remember that OPEC was set up to challenge the contemporary Western-backed “Seven Sisters” conglomerate of “Big Oil” by cutting production, keeping prices high and siding with Russia somewhat. Analysts seem to be split somewhat on if it’s “true siding” with Putin or if OPEC is simply “siding with itself”13 for profit during a period of economic uncertainty. Nevertheless, the high prices of oil and gas produced by OPEC+ will only add literal fuel to the fires that rage in Eastern Ukraine and weaken the West at a time when governments are under the biggest stress and largest energy crisis in generations.
Furthermore, with Biden’s tanking popularity, Americans who are affected by high fuel prices might be more inclined to vote Republican in the midterms and the next general election. Trump’s Republicans are well known to be warmer to Putin. This also may have an effect on the outcome of the war if Russia sees its presence as permanent in Ukraine.
Like Russia, OPEC+ might not like the world transitioning to cleaner or greener power as OPEC+ nations are naturally built around oil economies. Already, many oil-rich nations in the Middle East, such as the UAE, are trying to convert their nations into tourist destinations to prepare for the decline in oil. OPEC’s de facto siding with Russia clearly means that the organization is protecting its own interests but is far more debatable than it is siding with Russia for ideological reasons and more just to keep the supply of crude oil high, preparing for weaker fuel demand in the future. With this, US senators now want to freeze cooperation with Saudi Arabia,14 which not only will have disastrous effects on the energy crisis, but also may potentially stoke security fears from the Middle East where the U.S. is currently on retreat, and pave the way for Saudi Arabia to receive weapon sales from China, much like Pakistan.
Can Europe make up the shortfall? Germany and the UK
Europe’s opinion to the war has left it vulnerable energy-wise. Due to the worldwide COVID-19 pandemic, the production of oil decreased dramatically,15 which has been another one of the factors that have affected fuel poverty in Europe. Talk has surrounded the UK’s spiraling fuel costs for a while. It was noted that in October 2021, 4.5 million UK households were in “Fuel Poverty” and the number for 2022 is expected to rise to 6.7 million with the rising costs,16 inflation and poor government management.
The Truss government has repeatedly U-turned on its energy strategy during its short time in office. Blame has been pointed at everything from Russia to global inflation and even the previous Labour government (who were last in power 12 years ago). In reality, the COVID-19 pandemic and aftershocks of Brexit are also affecting the UK’s domestic situation. For example, although energy prices are rising, the government could increase Universal Credit (the UK’s social security program). However, the current Conservative Party is extremely against the idea, more instead, wanting to pursue unrealistic targets of growth. On October 12, 2022, a recession was forecast in the UK after a 0.3% drop came in August,17 partly driven by the cost of energy.
Germany tells a similar story. Germany is Europe’s main industrial powerhouse but relies on Russian supplies of gas far more than the United Kingdom. With the costs on manufacturing increasing, Germany’s output has fallen. With Russia supplying 55% of Germany’s natural gas before the war,18 it has put the industrial nation in a unique state of vulnerability with its energy security and the German economy is now predicted to contract by 0.4% in 2023.19 However, Deutsch Bank forecasts also claim that if China opens up its doors in time, Germany may be able to grow its forecasts and export its way out of financial uncertainty. However, with the sabotage of the Nord Stream 1 pipeline, this might be trickier for the German economy in the short term. Now, one advantage Germany may have in Europe is the large storage capacity for gas, currently running at 90% and should reach 95% by the end of November,20 where meanwhile, the UK is predicted to be 95% lower,21 which should be concerning for consumers, especially when power cuts may be looming.
Outlook to the future: Are there any strategies?
There are no easy answers to the energy crisis, although the war in Ukraine has contributed greatly to the inflexible situation. The knock-on effects of the worldwide pandemic were long predicted to exacerbate and trigger an energy crisis and have been known since at least 2020 with OPEC’s winding down of oil production.22 Combined with the green transition and imperfect technology, it’s now a race against time to make sure Europe and its poorest have the fuel to manage winter.
The UK might be able to make up its energy shortfall with the great leaps it has made in green energy, boasting large-scale wind farm projects, North Sea gas, nuclear and even hydrogen development which might be able to help power cities such as Manchester through the winter. However, the UK lacks the backup natural gas stores that Germany has, which is operating at an almost completely opposite level, with considerable gas reserves to last the winter. For the first time, France also had to send Germany supplies of gas. Like the UK, France gets most of its natural gas from Norway.23
However, once next winter rolls around, if the Ukrainian war continues to go poorly for Russia, it is unlikely that the gas taps will be turned on again, and with so-called “leaks” in the pipeline appearing more frequently, the whole future of the pipeline might be in danger.
OPEC’s role in the current crisis is also significant, with its limit of oil production having an impact. Currently, relations between the long-time Western allies have been cooling, with President Biden trying to encourage the Saudi government to upscale production,24 but as a cornerstone of OPEC, it is, maybe, unlikely that the Kingdom may listen at all. So much so that Biden himself wants to now re-evaluate relations.25
With much political turmoil in both Washington and Westminster, the energy crisis has exposed serious flaws and cracks in Western hegemony. While the U.S. and the UK stoke rhetoric about decoupling from China as its response to rising costs in fuel to keep their own economies running, there’s no help from the Middle East in relieving the crisis and a skeptical public is signaling danger ahead for current administrations on both sides of the Atlantic, caused mainly by fuel, but also poor future-proofing as well.
1. Professor Jonathan Stern, Chatham House January 2005, Gas Pipeline co-operation between political adversaries: examples from Europe, https://www.chathamhouse.org/sites/default/files/public/Research/Energy,%20Environment%20and%20Development/jsjan05.pdf, p3
2. Mihaela Esanu, The Wake-Up Call for Soviet Nostalgics, Harvard Political Review, October 17 2022, https://harvardpolitics.com/soviet-nostalgia/
3. John B. Dunlop, Aleksandr Dugin, Foundations of Geopolitics, January 31 2004, Stanford University Europe Centre https://tec.fsi.stanford.edu/docs/aleksandr-dugins-foundations-geopolitics
4. Professor Jonathan Stern, Chatham House January 2005, Gas Pipeline co-operation between political adversaries: examples from Europe, https://www.chathamhouse.org/sites/default/files/public/Research/Energy,%20Environment%20and%20Development/jsjan05.pdf p5
5. Gill Plimmer, Soaring gas prices put North Sea back on exploration map, Financial Times, October 17th 2022, https://www.ft.com/content/35cd36fe-1272-4f88-8885-b84f6563c4f6
6. Mike Bradshaw, Why fracking is not the answer to soaring UK gas prices, UK Energy Research Centre, 10 March 2022, https://ukerc.ac.uk/news/why-fracking-is-not-the-answer-to-soaring-uk-gas-prices/
7. Natalie Grice, Warm Spaces: Inside a hub amid the chill of energy bills, BBC, 16 October 2022, https://www.bbc.co.uk/news/uk-wales-63228188
8. The Rt Hon Jacob Rees-Mogg MP, and The Rt Hon Kwasi Kwarteng MP, Government introduces new Energy Prices Bill to ensure vital support gets to British consumers this winter, Crown copyright, 11 October 2022, https://www.gov.uk/government/news/government-introduces-new-energy-prices-bill-to-ensure-vital-support-gets-to-british-consumers-this-winter
9. Grant Anderson, Op-ed | The Rare Earth Ripple Effect of Russia’s War on Ukraine, Space News, August 22, 2022, https://spacenews.com/op-ed-the-rare-earth-ripple-effect-of-russias-war-on-ukraine/
10. Andrei Covatariu, Ukraine’s critical minerals and Europe’s energy transition: A motivation for Russian aggression?, Middle East Institute, July 21, 2022, https://www.mei.edu/publications/ukraines-critical-minerals-and-europes-energy-transition-motivation-russian-aggression
11. Ibid.
12. OPEC Press Team, 33rd OPEC and non-OPEC Ministerial Meeting, OPEC, 5 October 2022, https://www.opec.org/opec_web/en/press_room/7021.htm
13. Federica Marsi, Is OPEC ‘aligning with Russia’ after production cuts?, Al Jazeera, 7 October 2022, https://www.aljazeera.com/news/2022/10/7/is-opec-aligning-with-russia-after-production-cuts
14. Jackie Northam, The White House accuses Saudi Arabia of aiding Russia and coercing OPEC oil producers, NPR, October 13, 2022, https://www.npr.org/2022/10/13/1128523146/saudi-arabia-russia-opec-oil-cut-biden-congress-washington
15. Catherine Anderson & Rebecca Engebretsen, The Impact of Coronavirus (COVID-19) and the oil price shock on the fiscal position of oil-exporting developing countries, Organisation for Economic Co-operation and Development, 30 September 2020, https://www.oecd.org/coronavirus/policy-responses/the-impact-of-coronavirus-covid-19-and-the-global-oil-price-shock-on-the-fiscal-position-of-oil-exporting-developing-countries-8bafbd95/
16. Anna Cook, As energy prices rise again, one quarter of parents have already cut back on the quantity of food to afford essentials, National Energy Action, 30 September 2022, https://www.nea.org.uk/news/food-foundation/
17. Lora Jones, Recession risk rises as economy unexpectedly shrinks, BBC, 20 October 2022, https://www.bbc.co.uk/news/business-63225328
18. Julian Wettengel, Energy crisis to push Germany into recession in 2023, warns government, Clean Energy Wire, 12 October 2022, https://www.cleanenergywire.org/news/energy-crisis-push-germany-recession-2023-warns-government
19. Ibid.
20. Editors of DW, German gas storage 90% full ahead of winter despite Russian cuts, Deutsche Welle, 20 September 2022, https://p.dw.com/p/4H5aP
21. Nick Ferris, UK gas reserves are 96 per cent lower than in Germany right now, New Statesman, 21 September 2022, https://www.newstatesman.com/chart-of-the-day/2022/09/uk-gas-reserves-storage-europe-germany
22. Frank Verrastro, Experts React: COVID-19 Impacts the Energy Sector, Centre For Strategic and International Studies, March 6 2020, https://www.csis.org/analysis/experts-react-covid-19-impacts-energy-sector
23. Merlyn Thomas, France sends Germany gas for first time amid Russia energy crisis, BBC, 13 October 2022, https://www.bbc.co.uk/news/world-europe-63246369
24. Aaron David Miller, Saudi Arabia Is Not a U.S. Ally. Biden Should Stop Treating It Like One. Foreign Policy, October 11 2022, https://foreignpolicy.com/2022/10/11/biden-saudi-arabia-opec-plus-oil-production-mohammed-bin-salman/
25. Ibid.
This article is from the October issue of TI Observer (TIO), which is a monthly publication devoted to bringing China and the rest of the world closer together by facilitating mutual understanding and promoting exchanges of views. If you are interested in knowing more about the September issue, please click here:
http://www.taiheinstitute.org/Content/2022/10-31/1615423550.html
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