Leading into the future.
Strategy International · Think Tank & Consulting ServicesStrategy International · Think Tank & Consulting ServicesStrategy International · Think Tank & Consulting Services
(+357) 96 886 872
CY-2042, Nicosia

2022’s Impact on Global Energy Strategy

PUBL0062a

2022’s Impact on Global Energy Strategy

Energy lies at the heart of the main actors' geostrategic moves amid a reshuffling of the global order. The weaponization of energy flows and infrastructure is a coercion and power projection tool increasingly prevalent. Everybody tries to checkmate on the energy chessboard, or so they should.

The future of Ukraine and Europe’s security is hanging by a thread on the Ukrainian battlefield. The global system’s stability and the way of life of hundreds of millions are at stake on the battlefield of energy and transnational alliances.

The ongoing energy crisis, which European citizens have already felt firsthand, is revealing the concurrent geostrategic choices of significant actors in their effort to maximize benefits while transforming the international energy system.

According to statements by presidents Putin and Erdogan in the previous months, the older South Stream plans are coming back to life. Russian efforts to establish an energy export route via the European South failed in the past, in the cases of the canceled South Stream gas pipeline and the Burgas-Alexandroupolis (BAP) oil pipeline through the Bulgarian-Greek axis. The creation of a new gas distribution center in the European part of Turkey and the expansion of the Turk Stream gas pipeline capacity proposal by president Putin fell on welcoming ears. After the Nord Stream sabotage, as implied by European officials, the Russian-German ties were severed.

The deep Russian relationship with Europe and Germany in particular, having its roots in geographical, historical, cultural, and economic factors, seems irreparably damaged. President Biden’s remark that the US would be able to find a way to cancel the operation of the Nord Stream pipeline comes to mind. Although nobody assumed responsibility for the attack, which is a critical —perhaps the first one since WWII— strike against a non-military target in Europe, it essentially constitutes an act of blockade against the German state. Without a cheap and accessible energy supply in a high-inflation environment, the German economy will hit the ground hard. The European economy will follow.

The attack on the Crimean Bridge, an important logistics artery for the Russian forces and the population in the peninsula, is also indicative of the expansion of hostile operations towards critical infrastructure outside the main theatre of operations. In the context of the unfolding redistribution of power at the global systemic level, this development underlines the need for enhanced protection of vital infrastructure, either existing or new, to become a top priority for states to manage both physical and non-physical security threats (e.g., the train disruption attacks via cable sabotage and communications systems malfunction in Berlin, Hamburg, and North Rhine-Westphalia).

Given the circumstances, the Russian Federation seeks to establish an alternative energy transit pathway toward the European markets after the North (Baltic Sea) and Central (Ukraine) corridors were neutralized or became unstable. Turkey and a Southwestern outlet are their best option. Obviously, despite any declarations made by European officials, the Russians believe that a complete trade disengagement between the two parts is unfeasible. Russian energy resources are valuable for the EU’s energy security and the European markets for the Russian economy. They are not mistaken. Such an abrupt split is painful for both parties.

The American LNG will be more costly and limited in quantity, especially in times of crisis. Sea transport, which will replace energy transit via pipeline, shall weigh on prices. Simultaneously, as is currently observed, the Russian LNG will be easier to penetrate the European markets and put downward pressure on prices. It will not be easy for Europe to disengage from Russian supplies in the short term. Renewable sources will not suffice to cover its energy needs —even with accelerated investments— while new technologies cannot yet effectively alter the energy mix, either in terms of technological and market maturity or infrastructure availability (e.g., hydrogen or LNG terminals). Hydrocarbons will be present for some decades to come. Therefore, Europe needs to consider if it is feasible to cut its trade ties with Moscow completely.

For the Russian Federation, influence over Germany —and therefore Europe— is crucial. Energy transit corridors through the Baltics and Ukraine might not be reopened, at least in the foreseeable future. So, exerting influence should follow another pathway. President Putin looks forward to his invaluable partner’s mutually beneficial contribution. President Erdogan, Moscow’s novice close affiliate in the Eastern Mediterranean, sees a window of opportunity for him and Turkey. Russia finds an outlet for its energy exports in Europe, betting obviously on EU needs and believing that eventually, it will return to Russia’s open arms post-war. Meanwhile, Turkey will benefit from the inflow of Russian capital through new investments, tourism, and trade, while also expanding their energy cooperation in the field of nuclear energy, which could, later on, develop into a potential security threat for the West. This deepening of Turkish-Russian relations will expand Ankara’s dependence vis-a-vis Moscow and compromise NATO’s coherence and stability in the region, bringing Europe even closer to Washington.

On the other hand, the US does not want a competing pipeline to jeopardize its LNG supply plans or overall influence in the region. A potential rapprochement of Europe with Russia through this project would be a threat, especially if Eurosceptic political forces came to power in core member-states, which might not oppose such a perspective. Washington will intervene in European affairs to prevent such developments and to deter forces opposing an all-out offensive stance against Russia. After all, cutting off Russian-German ties was intended to isolate ‘German Europe’ from the Russian Federation. Furthermore, it will continue to put pressure on Turkey to prevent such an endeavor, even if it means making concessions on irrational Turkish claims against Greece and Cyprus. Turkey fuels tensions in its quest to gain as much as possible because it believes that its self-perception of its geostrategic role aligns with that of the US. The existence of a neutral or enemy-influenced corridor in South-Eastern Europe, the Aegean Sea, and the Mediterranean poses a security risk for Washington; thus, an open highway for Eurasian forces is not an option.

In this context, the US may be willing to proceed to a permanent settlement of conflicts in the region, even by giving President Erdogan an ‘open window’ for a small-scale clash between Turkey and Greece, if the opportunity arises. This way, Washington can pull Ankara away from Russia’s orbit, at least for the time being, and block Russia’s third recourse towards control over Europe. As abovementioned, similar projects were likewise averted, followed by a 10-year financial supervision over Greece that also dragged Cyprus into a deep socioeconomic crisis within the Greek-Cypriot bloc. The American ‘umbrella’ over the Mediterranean is one of the factors preventing the EU from actively pursuing the exploitation of hydrocarbon resources in the continental shelf within its jurisdiction. An overall settlement sanctioned by the US seems to be a sine qua non for such a development. Albeit an absolute necessity for Europe after the Ukraine invasion, the emergence of an Eastern Mediterranean Energy Corridor encompassing European-controlled resources still has a long way to go.

Moving south, Saudi Arabia appears to be a more rational player. OPEC’s leading country had two basic options: defend market share or oil prices. Riyadh opted for the latter by announcing a reduction in production. Russian supply disruptions to European markets, price caps, sanctions, and the overall geoeconomic war against Moscow left a gap, allowing Saudi Arabia to divert some of its production from Asia to the energy-hungry EU. As a result, OPEC’s overall energy exports to Europe grew, and the organization’s market share increased tremendously. Consequently, maintaining high prices increased Saudi Arabia’s revenues even more and provided an incentive for additional investment in the sector, which has been in decline. The energy transition will not happen overnight, and many states’ development efforts toward a post-oil future will be based on hydrocarbons. A potential energy market collapse would be disastrous for OPEC members.

By sustaining high prices, Saudi Arabia increased its revenues and defended OPEC members’ economic and national interests. However, it also achieved a secondary goal: strengthen the organization’s ties with the Russian Federation. High prices would allow Russia to continue its military campaign against Ukraine (and the US) while diverting exports to Asian markets. Riyadh’s deteriorating relations with Washington are a sign of the Saudis’ discontent with their current alliance due to the personal mistrust between President Biden and Saudi Crown Prince Mohammed bin Salman over allegations of human rights violations, the ‘Pariah-state’ 2020 campaign by the former, and geopolitical dynamics. The hydrocarbon economy is critical for forging a sustainable future; additionally, the American Empire may be coming to an end in the years ahead; this could present an opportunity for Saudi Arabia and OPEC to play a more active role in global affairs; Russia is an invaluable partner to that end.

Energy-intensive economies in South-East Asia will require all available resources. They took advantage of the Ukrainian conflict by negotiating better deals for Russian supplies. Some Asian countries even made a profit by reselling some of these supplies at a higher price back to Europe. China used Covid lockdowns to influence energy prices while enhancing its energy relationship with Russia, as a large portion of former European supplies is now aimed at meeting Chinese needs (e.g., acceleration of the proposed Power of Siberia 2 pipeline to transfer gas from the Yamal peninsula reserves via Mongolia). This fact gives China more leeway and confidence in its regional role. Its existential fear of being cut off from Arab oil supplies at the Malacca Strait by the Americans is offset by the availability of Russian supplies, which allows for more effective Chinese geostrategic planning. In 2022, the decline in Chinese LNG imports caused by lockdowns compensated for European supply losses. But what about 2023 or the year after? Given China’s economic slowdown, Beijing relies on the West, particularly Europe, to export its products. Therefore, China must decide whether to assist Europe and the West in overcoming the crisis or strike a decisive blow instead.

Europe has been the losing side in this volatile geostrategic game of energy security up until now. The situation benefits all major geopolitical players in some way or another. They might also suffer some losses. Nonetheless, Europe bears the brunt of the crisis’s consequences: its economy suffered disproportionately and may face an overwhelming decline; member-state social cohesion is in peril; and, for the first time since WWII, potential destabilization and even armed conflict on its soil could be ante portas. European policymakers should reconsider their course of action. The schism in German-French understanding during EU consultations does not bode well for the future. As we are entering a new era of realpolitik, politicians must consider what is best for their people; the repercussions of both appeasement and full-frontal attack will be grievous; is there, hence, a middle ground for Europe? What is certain is that the EU should not be the underdog in the unfolding energy security game, thus, endangering its solid geoeconomic status and its political character as a role model in the global scene. Unfortunately, the German and French elites are still undecided on the latter.

Author

Facebook
Twitter
LinkedIn

DISCLOSURE

All written content of this article on this site is the exclusive copyright and property of Strategy International (SI) Ltd and the author who has written to It.

To note, the opinions stated do not necessarily reflect the official policies of Strategy International.

No prior use in part or in its complete form, written, words, maps, charts or statistical, numerical information can be made, unless there is a written prior request and consent by the author and Strategy International and its legal representative.

All requests should be directed at [email protected]

Topics

Contact

Office address:

24 Minoos Street, Strovolos,
CY-2042 Nicosia

Telephone:

(+357) 96 886 872
MON - FRI

Mail for information:

We look forward to discussing with your organization our joint collaboration.

Contact us via the details below, or enter your request.