The EU’s continued dependency on Russian gas could jeopardize its foreign policy goals
Expert comment
LToremark
17 June 2024
As the EU seeks to diversify its energy supply, Russian ‘gas-laundering’ could undermine its foreign policy objectives.
As host of last week’s G7 summit, Italy was thrown back into the spotlight. Its prime minister, Giorgia Meloni, is positioning herself as a constructive leader who is both pro-EU and pro-NATO, in stark contrast with her pro-Russian stance before coming to power.
The Achilles heel of Italy’s relationship with Russia used to be Russian gas. Much like the rest of Europe, prior to 2022 Italy was heavily dependent on Russian gas imports, which made up as much as 40 per cent of its energy supply.
In line with many of its fellow EU member states, Italy has taken significant steps to reduce direct energy imports from Russia. Yet while on paper it may seem as though Italy has reduced its dependency on Russian pipeline gas, it continues to receive high volumes of pipeline gas through Austriawhich increased its pipeline gas imports from Russia from 80 per cent to 98 per cent in the past two years.
There is a similar story elsewhere. Incumbent European Commission President von der Leyen has made deals to import gas from Azerbaijan – despite parts of the critical infrastructure needed to transport this gas to the EU being owned by Lukoil, a Russian energy company on the US sanctions list. To meet the EU’s increased gas demands, Azerbaijan in turn made a deal with Russia to increase imports to meet Azerbaijani domestic demand.
Meanwhile, EU member states Romania and Hungary have made gas deals with Turkey – a country fully dependent on gas imports to meet its domestic demand.
So where is the Turkish pipeline gas coming from? The most likely answer is Russia. The story is even less encouraging when it comes to Russian liquified natural gas (LNG). Data from Bruegel shows the EU’s LNG imports from Russia have increased, by 37.7 per cent between 2021 and 2023.
In some cases, like Austria and France, countries are locked into long-term contracts with Russian energy providers which are difficult to end early – despite attempts being made. In other instances, Russian gas is being laundered through Azerbaijan and Turkey to meet continued high European demands.
Political trade-offs required
The EU’s response to Russia’s invasion of Ukraine and immediate attempts to reduce and diversify from Russian energy dependencies through its REPowerEU plan are impressive. But they do not go far enough.
Policymakers are having to balance energy security needs with foreign policy objectives while keeping costs at manageable levels. The political reality is that it is extremely difficult for European countries to fully diversify their energy supplies, when many are already struggling with high inflation and a cost-of-living crisis.
At the same time, the EU’s foreign policy objectives are focused on ending Russia’s war against Ukraine by making it as difficult as possible for Russia to continue to finance it. This includes through profits generated from its energy industry, whether through state subsidiaries or taxes paid to the Russian state.
With its foreign policy and energy security goals at odds with each other, the EU is stuck in a catch-22. While plans have been made to phase out Russian fossil fuels by 2027, the continued reliance on indirect Russian pipeline gas or LNG is problematic.
This poses problems for a European Commission whose president has claimed it is geopolitical. The challenge is that the EU is looking to diversify its gas supply in the short to medium term, and wean itself off gas entirely in the medium to long term, making the case for investments in necessary infrastructure difficult due to the likelihood of stranded assets.
The other consideration is that the longer EU countries continue to rely on Russian LNG, the longer Russia has leverage over the EU. While Russia ending LNG exports to EU countries would not be as disruptive as when it cut off pipeline gas, it remains a risk nonetheless.
Planning to end EU dependency on Russian LNG in the short-term gives the EU the power of decision-making and time to plan for alternatives. But the EU is divided on this issue. Nordic and Baltic countries have called for a ban on imports, while Belgium, France and Spain – the biggest EU importers of Russian LNG – argue this cannot be done due to the contracts. They are also concerned about energy security.
Ways forward to ensure EU energy security
What could a pragmatic, long-term and sustainable EU energy security policy look like? Some have argued the EU should impose an embargo on Russian LNG altogether, and that it could do so without disrupting supply by ensuring sufficient storage facilities.
A first step is to help EU countries still reliant on Russian gas – pipeline or LNG – to diversify their energy imports. This requires infrastructure. The recently agreed funding for an Austria-Germany pipeline will allow Austria to import nearly one third of its needs from LNG portals along the German coast.
This agreement should also be made ironclad through legislation and contracts, in the event that the Putin-friendly Freedom Party of Austria (FPÖ) comes to power after Austria’s elections in September and seeks to reverse it. But that would only serve to help Austria switch from pipeline gas to LNG.