Europe’s problem with Russian energy – explained

Credit: Marta Portocarrero

Ships from across Europe are playing a central role in the movement of fossil fuels out of Russia. For now, European ships can still legally export oil from Russian ports to Europe and the rest of the world. As our recent Fuelling War investigation series revealed, the practice has remained widespread since the Ukraine invasion started but with various EU sanctions soon to take effect such trades will no longer be possible. Sanctions are intended to curtail money flowing into Russia, but their consequences will be also acutely felt much closer to home.  

Sanctions and the EU’s plan for energy independence

Over the last few decades, Europe has become increasingly dependent on Russian energy. Comparatively cheap, geographically close and of vast reserves, Russia’s natural gas accounted for roughly 45% of all EU gas imports in 2021. Combined with 25% of oil and 45% of coal imports, Europe paid around €400 billion to Russia last year for its energy supply. That’s a number comparable to the annual GDP of Germany.

Europe’s reliance on Russian energy has become ever more problematic in light of the country’s military assault on Ukraine. Since the invasion, the bloc has committed to weaken the Kremlin’s ability to finance the war and agreed on eight rounds of sanctions against Russia. Those include various financial measures, import bans and restrictions on Russian individuals and businesses.

Under the measures, an embargo on crude oil shipments to Europe will start from 5 December and a ban on associated petroleum product imports from February 2023, while a price cap on Russian oil sales was announced in the latest sanctions round in October. A ban on all coal imports came into force on 10 August. The EU says it will cut gas imports by two-thirds within a year, though the consumption has already heavily dropped due to a series of gas flow disruptions. Insurers, financiers and other fossil fuel trade facilitators have also been targeted.

The era of cheap fossil fuels is over and the faster we move to cheap, clean, and home-grown renewables, the sooner we will be immune to Russia’s energy blackmail

European Commission Vice President Frans TImmermans

The prospect of Moscow turning off the tap, and soaring energy prices, add to the urgency of phasing out Europe’s fossil fuel dependency on Russia and mitigating the price hikes. In March, the European Commission announced a ‘REPowerEU’ plan to do so before 2030, meant to diversify Europe’s gas suppliers and scaling up the green transition. Its roll-out, however, will vastly depend on individual Member States’ actions.

Credit: Shutterstock
A ban on oil imports from Russia into Europe is hoped will deprive the country of crucial revenues.

Big interests at stake

Even though the EU continues to approve sanctions, its individual states have not always been on the same page when it comes to their scope and severity. Most recent attempts to cut Moscow off of Europe’s energy budgets had to accord not only diverging dependencies on Russia’s fossil fuels, but also different economic interests, geopolitical and historical ties. 

In 2020, for example, Cyprus imported no Russian gas, France, meanwhile, relied on Russia for 24% of its imported gas, Germany for twice as much, and Hungary imported more gas from Russia than it consumed in the whole of that year.  

Hungary’s Prime Minister, Victor Orban, is one of the most outspoken critics of European energy sanctions. Alongside Hungary, Greece, Malta, and Cyprus have also voiced concerns about some of the planned measures. Each home to large shipping industries which profit from transporting Russian oil across European seas, they were worried to disproportionately loose out on the oil price cap.

In a recent report, Investigate Europe and Reporters United took a closer look at the problem and investigated how a network of European shipping companies continued trading with Russia after the invasion of Ukraine.  

While a price cap on Russian oil was adopted by EU governments on 6 October – although details are yet to be released – discussions for an EU-wide price cap on gas remain open. It entails the question of whether Europe should agree on a fixed price to international gas suppliers — opposed by Germany and the Netherlands —  or just a cap on Russian gas imports. The latter idea has a supporter in EU Energy Commissioner Kadri Simpson, but it is said to promise little alleviating effect on European gas prices (Moscow’s gas supplies to Europe dropped to 9% this autumn), and would rather serve as a political statement than a mitigation measure.

Europeans in crisis

European consumers began paying for the global energy crisis already in 2021, while the EU lagged behind with investments in renewables and saw its lawmakers renew commitment to fossil gas. First, a cold winter pushed demand for heating and dried up reserves. Then, a windless summer hit renewables. Post-pandemic recovery and increased gas consumption further drove up prices. On top of that, Europe had to face unexpected maintenance and power grid troubles abroad and reduced gas outputs from Russia.

The invasion of Ukraine in February, and Russia’s cut on energy supplies in response to sanctions, only exacerbated the problem. Inflation in the eurozone, which reached 9.9% for the month of September, up from 9.1% in August, has a damning effect on energy prices. Across Europe, UK households seem to pay the highest price for electricity, around 30% more than the next most expensive country, Italy, according to the Financial Times. For gas, it is consumers in the Netherlands and Germany who pay the most. Hungary’s gas price increase was the lowest in the last year.

Pockets of European industry are not immune to the crisis either. Unable to afford energy and utility bills, factories have been forced to slow down production. Industrial production in the eurozone has already dropped by 2.3% from a year earlier. Europe’s metals trade association says 50% of the EU’s aluminium and zinc capacity has already been forced offline, calling on the EU for support. 

Together, European governments earmarked more than €500 billion in funding to shield households and businesses from the energy crisis in the last year, according to think-tank Bruegel. Measures introduced to mitigate the soaring costs differ country to country, including government support, tax cuts and pricing mechanisms. Analysts, though, have suggested that a winter recession remains likely.

Renewables or bust

Green transition could be a chance for Europe to produce cheaper energy and become independent from Russian fossil fuels and high priced energy imported from abroad. But focused on immediate energy security, member states’ commitment to climate goals seems to have waned. In an effort to make up for breaks in the gas supply and lower hydroelectric and nuclear energy outputs due to summer droughts, EU governments continue to chose short-term solutions. 

Though temporarily, the Czech Republic has announced plans to reverse a regional coal mining ban, while Greece ramped up its coal mining and the Netherlands removed a cap on coal energy production. And while UK Prime Minister Liz Truss lifted the country’s ban on fracking, Germany passed legislation authorising the construction of 12 liquid natural gas terminals. If built, the terminals could undermine Berlin’s climate pledges. Meanwhile, the EU continues to push ahead with nuclear energy production, with the bloc relying on Russia for almost 20% of its uranium imports last year. 

Even with ‘REPowerEU’ the bloc will still fall short of the range of emissions cuts required for 1.5°C

Ryan Wilson, Climate and Energy Policy Analyst at Climate Analytics

Environmentalists have called for EU leaders to move away from investments in unsustainable fossil energy, and to step up the bloc’s commitment to renewables. According to research by Climate Analytics, it is within the EU’s reach to achieve climate neutrality a decade earlier than planned. The EU27’s current plans for climate action (including ‘REPowerEU’), however, are not strong enough to align with the Paris Agreement, according to CAN Europe. The immediate concern though, is how the EU will get through a winter without most of its Russian energy supplies and how citizens will cope with unprecedented price rises. For this, the answers remain unknown.


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