Europe Continues to Rely on Russian Energy Despite Risks

PCK refinery in Schwedt

Two and a half years into the war in Ukraine, the Western effort to reduce Europe’s dependence on Russian oil and gas and isolate the Kremlin has made limited progress. While the E.U.’s energy transition has accelerated, it has also provided cover for continued, and in some cases increased, reliance on Russian energy that funds the ongoing war in Ukraine. As a result, President Putin remains in power, the West has suffered a significant foreign policy setback, geopolitical power has shifted in favor of U.S. adversaries, and Ukraine’s future is bleak.

Russia’s influence in the modern world has been, and continues to be, based on its vast energy and natural resources. Oil and gas exports have accounted for a substantial portion of its state budget over the past decade. The E.U.’s dependence on Russian imports for over half of its pre-war energy sources – 25% of oil, 48% of pipeline gas, and 48% of coal – coupled with the 2021 completion of the Nord Stream 2 pipeline to Germany, which was poised to increase dependence further, led Putin to believe that Europe would not risk a strong response to his full-scale invasion of Ukraine in February 2022. He was right.

The U.S., U.K., and E.U. have imposed economic sanctions on the Kremlin. Throughout 2022 and 2023, Western powers fully or partially banned all imports of Russian crude oil by tanker, oil products, coal, pipeline gas, some liquified natural gas (LNG), and more. They also restricted many of the financial mechanisms and technologies necessary for trade transactions.

These measures were not comprehensive because the E.U. could not withstand a sudden and complete cut-off of its energy supply from Russia. LNG imports have remained mostly unrestricted, as have nuclear power resources. Regarding oil, instead of banning it outright, the White House led an effort to impose a price cap on Russian crude to limit Putin’s profits without drastically constricting global supply, which could have fueled inflation. Natural gas pipeline exports have dried up, with a trickle still passing through Ukraine and up to 38 billion cubic meters per year going to China. However, overall energy exports from Russia to Europe have plummeted from €16 billion to €1 billion a month from 2022 to 2023, resulting in a significant drop in Russian oil and gas revenues.

But that’s where Western sanctions have failed to work. In 2024, Russia is experiencing a strong year. Its GDP growth is on track to exceed 4%, unemployment is at a record low, and military recruitment and soldiers’ salaries have boosted record military spending. Much of this success stems from the Kremlin’s redirection of funds into military-industrial sectors to support the war effort in Ukraine – defense and security now account for a significant portion of public spending. However, domestic war spending is only part of the story.

The other half is that the world has given up on abandoning Russian energy. The embargoes on Russian energy products are largely symbolic. Austria is the most blatant example, with Russian gas accounting for a significant portion of its energy imports. Even where pipeline gas imports to the E.U. have ceased, the more expensive Russian LNG was never banned, so its purchase has increased by almost 20%, making Russia the leading seller of gas to the continent and guaranteeing higher profits for the Kremlin. Meanwhile, so-called “shadow” oil tankers carrying Russian oil have been sailing directly into European ports for several months, in violation of Western sanctions. In total, the E.U. has paid Russia billions of euros for oil, gas, and coal since February 2022, keeping the Kremlin financially secure – Russia has even managed to increase its military spending.

These sanctions failures have also diminished U.S. global influence. Turkey has emerged as a significant energy intermediary and NATO member, using its position to obstruct both U.S. and E.U. foreign policy objectives. Meanwhile, President Biden’s reluctance to allow Ukraine to gain a military advantage, for fear of “escalation,” has reinforced the perception that U.S. support for Ukraine is not absolute. China is likely considering this in its calculations regarding Taiwan, as is Israeli Prime Minister Netanyahu, as he continues to expand Israel’s war across the Middle East.

There are also environmental concerns. While the immediate post-invasion desperation to reduce vulnerability to Russian energy dominance triggered a massive surge in Europe to replace fossil fuels with renewables, accelerating the energy transition by years, the cheap oil and gas that Russia made available to China, India, and Turkey set those countries’ transitions back by a similar amount. Meanwhile, several countries in Europe, with Germany leading the way, are increasing their coal power footprint due to energy security concerns, replacing natural gas with the most polluting energy source. As a side note, black market energy commodities, which have become a significant portion of Russia’s exports, are generally dirty, and shadow tankers are often leaky and almost always uninsured, creating the potential for catastrophic environmental and economic accidents.

But it is Ukraine that is bearing the brunt of the world’s weakening resolve to ostracize Russia. With winter less than a month away, the Kremlin has reduced energy supplies to Ukraine, making it highly likely that many Ukrainians will die this winter from cold, hunger, or medical conditions that could have been treated if their hospitals had heating and electricity.

The failure to stop Russia from continuing its war of devastation in Ukraine has real and tragic consequences. It’s not too late to restrain Russia and completely isolate it from global energy markets, but there is little evidence of political will to do so.