Energy Security in Europe

Don’t let economists kid you that globalization has narrowed the scope of politics. What it has done is to multiply the number of economic instruments available for the pursuit of foreign policy aims. That is why economic sanctions are such a prominent part of contemporary diplomacy. There are about one hundred sanction regimes in place round the world, all aiming to change the behaviour of states through the use of economic weapons.

Last week’s NATO meeting in Bucharest was a good example of energy diplomacy. Germany, in effect, vetoed the immediate enlargement of NATO to Ukraine and Georgia, against the wishes of George W. Bush. Russia was opposed; but why the difference between America and Europe? The answer is simple. America gets almost none of its energy from Russia, whereas Europe’s energy security depends on Russia.

The facts are striking enough. Russia supplies half of Germany’s domestic gas, virtually 100 per cent of Slovakia’s, Finland’s, Greece’s and Bulgaria’, 2/3rds of Austria’s, Hungary’s and Turkey’s. For Russia, energy is a foreign policy weapon, one of the few it has.

Energy explains why Ukraine itself is split on NATO membership: domestic politics point it towards NATO; energy against. Russian gas is vital to Ukraine’s economy. First, almost all its domestic gas consumption is met by imports from Russia. Secondly, it pays for this gas less than what other European countries pay – $180 as against $400 for a thousand cubic meters- and this subsidy keeps its heavy industry going. Thirdly, it makes money by charging Russia for the transit of its gas to Europe.

If Ukraine joined NATO, it would undoubtedly lose its subsidy. This would mean less energy security for Europe’s NATO members. Ukraine will charge Russia more for the transit of gas through its own territory; Russia will raise the price of the gas it charges to its European customers. And there will be many tensions and ‘cut offs’ during the transition from lower to higher prices. No wonder many in the Ukraine, as well as in Europe, feel that a purely symbolic addition to military security is too high a price to pay for the disruption of energy security.

However, energy sanctions, while effective in the short-run, can only be used sparingly, because in the long run their use is bound to lead to a diversification of supply.

Even today, though Russia is important, it is not Europe’s only supplier. Forty per cent of Europe’s energy comes from oil (where Russia’s share is 16 per cent); 24 per cent comes from natural gas (where Russia’s share is 20 per cent); 12 per cent from nuclear power, and 18 per cent from coal, with renewables, including hydro electric power, providing the remaining 6 per cent. Of the total energy consumed, 60 per cent comes from well diversified sources (22 countries) and the other 40 per cent (in the form of oil and gas) comes from Russia and the Middle East. So, overall only 12 per cent of the European consumption of energy is supplied by Russia.

This is a big dependence, but it is not absolute. If nothing is done to diversify Europe’s sources of supply, its dependence on Russia is expected to climb to 15-20 per cent by 2030, with the vast majority of Europe’s gas supplied by Russia. So the key to Europe’s energy security is to invest in diversifying its energy supplies to nuclear fuels, renewables, and coal. Russia, for its part, will want to diversify the sources of demand for its energy, e.g. to China. In the long run, the logic of the market will tend to blunt the use of economic weapons, which is why, in the long run, the economists are right.