The scary truth about Europe's energy supplies

By Editorial staff Simon Wilson Jan 20, 2006

In the short-term, it is just about possible to see this week’s face-off between Russia and Ukraine over gas supply and prices as something of a storm in a teacup, said Tom Stevenson in The Daily Telegraph.

For one thing, Russia’s quick climbdown on price (Russia’s state-run Gazprom demanded a massive price hike from $50 per 1,000 cubic metres to $230, but settled for a five-year deal at an average $95) and its pledge to top-up future supplies to Europe to offset further “pilfering” by Ukraine are signs that Putin realises he has “overstepped the mark”.

For another, supplies to western Europe are not in any real short-term danger. Here in the UK we use virtually no Russian gas. And even in the rest of the EU, which depends on Russia for a quarter of its gas supplies – 80%-90% of it flowing through Ukraine – “the dispute would have to go on for months before end users felt much impact”.

Anyway, while it is true that Russia holds a quarter of the world’s gas supplies, most countries have significant stores to cover just this kind of emergency.

But longer-term, Russia has crossed a dangerous line in cutting supplies to Ukraine, said the FT. On the face of it, Moscow is perfectly entitled to phase out the preferential deals under which the ex-Soviet republics buy Russian gas. Georgia, Armenia and Azerbaijan have had their rate upped from $60 to $110. The Baltics are also paying $110, up from $80- $95, whereas Belarus – still firmly within Moscow’s orbit – enjoys the most favourable rate of $50. But singling out Ukraine for an immediate hike to the market rate paid by rich western Europe was over the top. “This is Russia brutally flexing its political muscle” – punishing its ex-satellite Ukraine (the name is Russian for “the edges”) for shifting away from Moscow.

Russia’s crude use of energy as a political lever is old news to post-Soviet neighbours, such as Georgia and Moldova, said The Washington Post. Both these states have previously suffered the kind of price-related punishment now being meted out to Ukraine. But one wonders if this time Vladimir Putin doesn’t rather wish he had never started the row. In his “zeal to re-establish Moscow’s dominion over Ukraine” he has “triggered an international crisis that could end up weakening rather than strengthening Russia’s international position”. He had hoped to undermine the country’s pro-Western ruling politicians ahead of elections in three months’ time. Instead, he has sent a “timely wake-up call to Western countries dependent on Russian energy supplies”.

Here in Britain, for example, we are set to rely on gas to generate 70% of our electricity by 2020, with the vast majority coming from Russia. So although the flow of gas to the EU through Ukraine might only have faltered for some 48 hours, said The Guardian, this confrontation is not some passing event. “It has sent lurching and lasting tremors across our continent”, reminding us of the “dangers that flow from over-reliance on a single source of energy”.

Governments across Europe are already rethinking their energy strategies in the light of this week’s genuinely “momentous” events, and Britain “cannot be immune from this process”. Above all, a policy that relies on massive energy imports must now be seen as a “dangerous surrender of independence”, said The Daily Telegraph. “If Mr Blair wanted either the courage or the excuse to advocate the nuclear policy that Britain so obviously needs, Mr Putin has just given it to him.”

Published in Economics | More articles by Simon Wilson

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