Russian military action in Ukraine could trigger an energy crisis even more serious than the one already hitting Europe. As has been pointed out, should the West hit Russia with severe new sanctions, President Vladimir Putin could cut off natural gas exports, leaving the continent shivering through midwinter. Yet there is another potential weapon of Russia’s that’s been less discussed and might be very effective: An ability to disrupt global oil markets, which would directly hit U.S. consumers.
There’s no doubt that Russia’s influence over natural gas exports to Europe gives Putin reason to believe he might avoid harsh punishment should he invade Ukraine or undertake major efforts to destabilize the Kyiv government. Despite talk from U.S. President Joe Biden’s administration about finding the Europeans supplies from elsewhere, there simply is not enough uncommitted natural gas in the global system that could be redirected to Europe at a reasonable price. Piped natural gas can only flow where existing infrastructure takes it.
There are also constraints on liquified natural gas, which can be more easily redirected with container ships: As of 2020, 60% of this LNG trade was governed by medium- and long -term contracts. Even if Europe was successful in bringing existing spot-market LNG trade its way, it would mean paying extremely high prices in a bidding war with Asian and other customers.
That said, cutting the gas supply has some notable downsides for Putin. First, it would forever damage Russia’s relationship with the Europeans. They would no longer be able to argue, as they have to U.S. officials wringing their hands about their dependence on Russian gas, that Gazprom PSJC, the state-owned behemoth, “has been a reliable supplier for decades.” Even after this particular crisis, there would be no returning to the status quo. As European Union climate chief Frans Timmermans told EU energy and environment ministers last week, “If we really want to stop long-term making Putin very rich, we have to invest in renewables and we need to do it quickly.”
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