6/20 International News Story

Since the 2022 invasion of Ukraine, Europe has managed to rebound from the discontinuation of Russian gas supplies. However, Russia’s gas sector has not fared as well.

In response to European sanctions, Russia halted most gas deliveries to the EU, causing a temporary spike in prices. Europe adapted by turning to alternative suppliers, now mainly importing from the United States.

Before the invasion, the EU received over 40% of its gas imports from Russia. Last year, that figure dropped to about 8%. Currently, the EU sources over half its gas from the United States and Norway, with a significant portion also coming from North Africa. European fuel tanks are full, prices have stabilized, and there is no fear of blackouts.

In contrast, Russia’s situation is dire. Initially, they managed to mitigate the impact of Western sanctions by increasing dealings with China. However, ongoing isolation from a significant portion of the global financial system is taking a heavy toll on their gas sector, which is now significantly below pre-invasion levels. Efforts to redirect gas exports away from Europe are faltering due to a lack of infrastructure and pipelines to other regions. One of their few remaining strategies is to shift their gas exports almost entirely towards Asia.

Opinion: 

Russia is in a tough financial position with limited options. The ongoing war in Ukraine requires substantial funding, and turning towards Asia, particularly China, seems to be their main viable strategy. This would necessitate advancing talks with Xi Jinping about increasing supply through their Siberia pipelines. For Russia to recover the losses incurred over the past few years, this would need to happen quickly, alongside increased infrastructure funding for additional pipelines to China. Something they are also lacking. 

The problem for Putin is that he is backed into a corner when it comes to negotiation. 

China will demand low tariffs and discounted prices due to the value their consumership holds at this point in time. China’s gas sources are diverse and they can turn to many states for imports, they will leverage this and strike a hard bargain on Russia. 

Additionally, China’s significant investments and state focus on solar energy casts doubt on their willingness to purchase the capacity of natural gas Russia is trying to offload.

Historically, Being a gas export powerhouse and the main European provider was a point of Russian political strength and leverage on the continent. This advantage has now been exhausted and is unlikely to be regained in the foreseeable future. Their economic dependency on China becomes increasingly obvious, making Russia more exploitable in the future. 

As the world begins turning toward more renewable energy, and the costly war in Ukraine drags on; Russia’s economy appears to be on the brink of significant decline throughout the remainder of this decade.