The bloc purchased a record amount of Russian LNG this year, according to ship-tracking data compiled by Bloomberg. Among top byers, France has already hit its highest-ever volumes and Spain is closing in on records seen last year.

The numbers show that Europe is still hooked on energy from Russia, which remains one of the continent’s top gas providers despite severe cuts in supplies in 2022. While officials in the EU and Kyiv have called for a halt in purchases, there’s still no region-wide ban on the fuel and it remains a cheaper option for many buyers.

EU Boosts Russian LNG Imports to Record

Source: Ship-tracking data for key EU buyers compiled by Bloomberg as of Dec. 20

Countries such as the UK, Germany and the Baltic states have stopped taking Russian gas altogether. But once Russian LNG is regasified in France, Belgium or the Netherlands, and enters the grid, molecules mix and can flow freely to other nations.

Earlier this year, the bloc for the first time agreed to impose some curbs on Russian LNG, targeting the country’s shadow fleet of tankers, and fuel transshipments to third countries. France and Belgium have both called for tougher monitoring.

Russia’s share in the continent’s total gas imports — about 15% now — may drop next year as a transit deal with Ukraine expires on Dec. 31. Chances of a new accord are slipping away after intense talks in the past few days. In LNG, it remains the second largest supplier after the US for now.

Last month, European Commission President Ursula von der Leyen suggested it might be possible to import more LNG from America to replace similar flows from Russia. And US President-elect Donald Trump this week threatened to slap tariffs on EU exports if member states don’t buy more oil and gas from his country.

Russian gas supplies to Europe via Ukraine are relatively small. Russia shipped about 15 billion cubic metres (bcm) of gas via Ukraine in 2023 – only 8% of peak Russian gas flows to Europe via various routes in 2018-2019.

Russia spent half a century building its European gas market share, which at its peak stood at 35%.

Moscow lost its share to rivals such as Norway, the United States and Qatar since the invasion of Ukraine in 2022, prompting the EU to cut its dependence on Russian gas.

EU gas prices rallied in 2022 to record highs after the loss of Russian supplies. The rally won’t be repeated given modest volumes and a small number of customers for the remaining volumes, according to EU officials and traders.

UKRAINIAN ROUTE

The Soviet-era Urengoy-Pomary-Uzhgorod pipeline brings gas from Siberia via the town of Sudzha – now under control of Ukrainian military forces – in Russia’s Kursk region. It then flows through Ukraine to Slovakia.

In Slovakia, the gas pipeline splits into branches going to the Czech Republic and Austria.

Austria still receives most of its gas via Ukraine, while Russia accounts for around two-thirds of Hungary’s gas imports.

Slovakia takes around 3 bcm from energy giant Gazprom (GAZP.MM), opens new tab per year, also about two-thirds of its needs.

Czech Republic almost completely cut gas imports from the east last year, but has started taking gas from Russia in 2024.

Most other Russian gas routes to Europe are shut including Yamal-Europe via Belarus and Nord Stream under the Baltic.

The only other operational Russian gas pipeline route to Europe is the Blue Stream and TurkStream to Turkey under the Black Sea. Turkey sends some Russian gas volumes onward to Europe including to Hungary.

WHY DOES THE UKRAINIAN ROUTE STILL WORK?

While remaining Russian gas transit volumes are small, the issue remains a dilemma for the EU. Many EU members such as France and Germany have said they would not buy Russian gas anymore but the stance of Slovakia, Hungary and Austria, which have closer ties to Moscow, challenges the EU common approach.

The countries, who still receive Russian gas, argue it is the most economic fuel and also blame neighbouring EU countries for imposing high transit fees for alternative supplies.

Ukraine still earns $0.8-$1 billion in transit fees from Russian gas transit. Russia earns over $3 billion on sales via Ukraine based on an average gas price of $200 per 1,000 cubic metres, according to Reuters calculations.

Russia’s gas pipeline export monopoly Gazprom plunged to a net loss of $7 billion in 2023, its first annual loss since 1999, because of the loss EU’s gas markets.

Russia has said it would be ready to extend the transit deal but Kyiv has repeatedly said it won’t do it.

Another option is for Gazprom to supply some of the gas via another route, for example via TurkStream, Bulgaria, Serbia or Hungary. However, capacity via these routes is limited.

The EU and Ukraine have also asked Azerbaijan to facilitate discussions with Russia regarding the gas transit deal, an Azeri presidential advisor told Reuters, who declined to give further details.

As Moscow bureau chief, Guy runs coverage of Russia and the Commonwealth of Independent States. Before Moscow, Guy ran Brexit coverage as London bureau chief (2012-2022). On the night of Brexit, his team delivered one of Reuters historic wins – reporting news of Brexit first to the world and the financial markets. Guy graduated from the London School of Economics and started his career as an intern at Bloomberg. He has spent over 14 years covering the former Soviet Union. He speaks fluent Russian.

Ukraine and Russia have agreed—for now—to keep gas moving through Sudzha. But whether it will continue next year is less certain. The deal whereby Russian gas is delivered westward via Ukraine was signed by the two countries alongside the EU in 2019. It is due to expire at the end of this year. The EU, which aims to phase out Russian gas by 2027, does not want to renew it. Nor does Ukraine. “We don’t want to extend the gas contract,” said Volodymyr Zelensky, Ukraine’s president, in July. “We don’t want them making money here.”

Europe’s transition away from Russian energy has been fairly smooth. In 2023 just 8% of the bloc’s pipeline imports were from Russia, compared with 40% before the war. New supplies, especially of liquefied natural gas (LNG) from America, now make up the difference. But some countries still depend heavily on Russian gas and would be hurt by a sudden end to supplies via Ukraine. EU officials are worried.

Three countries are most at risk. Russian supplies made up around 47% of Hungary’s gas imports in 2023. For Slovakia they made up 89%. Austria depended even more: in January 97% of its gas imports were from Russia. Some of this gas, particularly Hungary’s, comes by TurkStream, a pipeline to the Balkans, and will continue next year. But the lion’s share still passes through Ukraine. “They’re really not in a great position,” says a European diplomat.

This trio of countries are hooked on Russian gas thanks to geography. Whereas Germany and Italy have offshore terminals for shipments of LNG, Hungary, Slovakia and Austria are landlocked and rely on pipelines designed to carry gas from east to west. For Austria, where a number of pipelines meet, bottlenecks are less menacing. But it would be costly for Hungary and Slovakia to reverse the flow of gas to get it from the west. An expensive gas-transit levy charged by Germany was dropped this summer after complaints from the EU but deterred countries from booking orders from new suppliers.

Local firms in the three affected countries are bound to Russia by a thicket of long-term agreements. In 2008 Slovakia’s state-owned gas company signed an import agreement with Gazprom, a Russian energy giant, which is not due to expire until 2028. In 2021 Hungary made a similar 15-year deal with Gazprom. Austria’s biggest gas firm, OMV, is tied up in a contract due to last until 2040. The cost of reneging on such deals has discouraged the trio from switching to other suppliers. Termination fees in Austria could be €1bn ($1.1bn).

Politics are another problem. Since Russia’s invasion, Hungary’s Kremlin-friendly government has doubled down on its deal with Gazprom. Last year it even proposed to buy more Russian gas. Robert Fico, Slovakia’s prime minister, says Russian deliveries via Ukraine will continue in 2025—a claim Ukraine’s government has contradicted. Austria’s coalition government’s energy minister, who is a Green, wants OMV to break its contract with Gazprom, but so far the company won’t budge.

European officials are frustrated. “If they had done more to get off Russian gas two years ago, we wouldn’t even be having this conversation,” sighs the diplomat. Ukraine is exploring the option of getting gas delivered from Azerbaijan to keep supplies flowing, though this scheme’s feasibility is unclear. Two winters on from the invasion, Russian gas is still rattling Europe.

The explosion ruptured a pipeline that was built to bring liquid natural gas from Russia to Germany. That is likely to reshape European life. It will drive up energy prices as winter begins while removing an instrument Russia has used to influence European governments. The attack also illustrates the profound but little-understood importance of pipelines in modern geopolitics. This is the first major sabotage of an important international pipeline. Now that a precedent has been set, it may not be the last.

The pipeline that was attacked, called Nord Stream 2, was a joint Russian-German project that the United States opposed from the start. In February President Biden promised that if Russia invaded Ukraine, “there will no longer be a Nord Stream 2. We will bring an end to it.”  When asked how that would be possible, he replied, “I promise you, we would be able to do that.”  After the September 26 attack, Secretary of State Antony Blinken called it “a tremendous opportunity once and for all to remove the dependence on Russian energy…We’re now the leading supplier of LNG to Europe.”

Germany and other countries that planned to use liquid natural gas from Russia may now have to buy it from the United States. Hours after the explosion, former Polish defense minister Radek Sikorski tweeted a picture of the methane bubble rising from the Baltic with the caption “Thank you USA.”  In a second tweet he elaborated: “Nord Stream’s only logic was for Putin to be able to blackmail or wage war on Eastern Europe with impunity.”

The pipeline is heavily armored, with layers of concrete surrounding tubes made from metal alloys. Most who have studied the attack agree that it could only have been carried out by a “state actor.”   The United States, Britain, Russia, and possible Germany, Sweden, and Denmark, are thought to be the only countries with the undersea power to carry it off. Once accomplished, the action removed the most important tool Russia had to pressure Germany—and perhaps assured that Germany will not stray from the US policy of arming Ukraine. Circumstantial evidence suggests that this could have been an American operation.

Journalists and other professional skeptics, however, realize that some things that seem obvious and just plain common sense are actually not true. Russia may not have undersea commandos able to plant powerful explosives along the pipeline, but it could have been blown up from inside. Russia, which controls access to the pipeline, could have carried out the attack that way. Why would it blow up its own pipeline?  According to those who support this theory, the motive would be to drive gas prices higher and push Europeans into freezing darkness so they would press their leaders to stop supporting Ukraine.

The executive director of the International Energy Agency, Fatih Birol, asserted soon after the sabotage attack that it was “very obvious” who did it, but refused to say more. Sweden is investigating but will not reveal what it discovers because, according to a Swedish official, “that is subject to confidentiality directly linked to national security.”  A member of the German parliament asked what Germany’s government knows, and the government reportedly replied that it could not answer because “even the slight risk of disclosure cannot be accepted.”

This mystery will probably not be resolved soon, or perhaps ever. The sabotage of Nord Stream is just the latest and most spectacular example of how vital pipelines are to the political and economic security of many nations.

Conflict over a pipeline led the CIA to participate in its first regime-change operation. In 1949 the first president of independent Syria, Shukri al-Quwatli, refused to allow a consortium of American oil companies to run the Trans-Arabian Pipeline across his country. That defiance led the CIA to promote a military coup that deposed Quwatli and installed a military-led government that quickly approved the pipeline. Syria never returned to democracy.

In the 1990s, the United States exercised intense pressure to assure that new pipelines from rich fields in the former Soviet Union would not run through Iran or other unfriendly countries. Russia has periodically raised or lowered the price of gas from its pipelines according to whether particular governments are friendly or hostile. China is using pipelines as part of its ambitious Belt and Road initiative that seeks to bind Eurasia together under Chinese influence. In 2014, after Russia’s annexation of Crimea, the European Union blocked a proposed pipeline that would have carried Russian gas to Austria and Italy.

Most pipelines are vulnerable. One candidate for future sabotage might be Turkstream, designed to carry gas from Russia to Turkey and then on to Bulgaria, Hungary and Serbia — all countries that have been reluctant to support Ukraine. A “pipeline war” could lie ahead.

So who blew up the Nord Stream pipeline? Thousands of unexploded mines from World Wars I and II still litter the Baltic. Blaming one of those mines would be most convenient. That would allow all to believe that this was an unfortunate accident, not an act of international vandalism. There’s no hard evidence to support that theory, but neither is there any to support the charge that the culprit was the United States or Russia. That may keep speculation bubbling like the methane gas that exploded from under the Baltic last month.

In that film, the evil globalist cabal, SPECTRE, in collusion with Chinese communists, tries to start a world war by making it appear that the two superpowers (USA and USSR) are attacking each other’s spacecraft in orbit around the Earth.

And so, I first hoped that this Hollywood plot might explain the horrendous Nord Stream attack at the bottom of the Baltic Sea. I didn’t want to believe that my government would commit such a nefarious attack. But then the circumstantial evidence poured in, and while there’s not yet a smoking gun, it’s pretty damning.

The blasts happened in waters firmly under NATO control, just off the Danish, Polish and Swedish coasts. The U.S. Navy, as well as its military aviation, is very active in the area. Also, earlier this year in separate statements, Joe Biden and a top State Department official, Victoria Nuland, publicly threatened to destroy Nord Stream.

Then, the day after the Sept 26 blast, Radek Sikorski, Poland’s top Russia-hating hawk and a former defense minister, chimed in by “thanking” the U.S. for destroying Nord Stream. The main blast happened about 40 miles off the coast of Poland, a country that considers Russia its most hated enemy.

Very quickly, media loyal to the ruling Democratic Party, such as the Washington Post and Associated Press, began a botched effort at damage control. They tried to pin the blame on Moscow without providing any evidence.

They smeared as a “conspiracy theorist” anyone who pointed a finger at Washington. Experience has many times shown that when major U.S. media condemn something as a “conspiracy theory”, then most likely it’s closer to the truth than the official government version.

Next, on Sept 30, U.S. Secretary of State Blinken gloated and said the pipeline attack was a “tremendous opportunity to once and for all remove dependence on Russian energy”. Indeed, the U.S. is now Europe’s leading supplier of highly profitable natural gas, having over the past 7 months partially replaced Russian supplies.

Why would Washington carry out such a crime? In order to once and for all end Europe’s strategic energy dependence on Russia, and then to earn hundreds of billions of dollars over the next 20 years. I clearly remember how in the early 1980s a helpless Washington fumed and pouted when Europeans showed their independence and the first natural gas pipeline was built between the USSR and Germany.

Today, a feeble Europe can only watch helplessly at what happened to Nord Stream, well aware that everything points to Washington as the mastermind behind one of history’s worst environmental disasters. Does anyone know — can Europe invoke NATO’s Article 5 and declare war on the United States?

Of course that won’t happen, but Europe needs to come to its senses and protect itself from such a menace. Under Biden, the U.S. has again become a dangerous international predator; far worse than under George Bush.

Since U.S. foreign policy won’t change no matter which political party is in the White House, Europe can only survive by breaking with Washington and its rogue policies. As NATO heads toward nuclear war with Russia, many in Europe realize the U.S. is a threat to regional and global security; but like a hostage experiencing Stockholm syndrome, they’re afraid to try to escape their powerful captor.

Lost global leadership

Despite the deceptive messaging of western propaganda, the facts are clear — the U.S. is increasingly isolated on the global stage. Sure, Washington can always count on support from its 35 or so vassal states in Europe and a few in Asia, but when we look at the 195 countries on Earth, we see a very different picture.

On Sept 30, Washington was handed a major defeat when the UN Security Council blocked a U.S. resolution to condemn Russia’s absorption of four separatist Ukrainian regions. Using its veto, Russia blocked the resolution, while China, Brazil, and India abstained.

Speaking of which, the BRICS — Brazil, Russia, India, China, and South Africa, and with Iran, Turkey, Egypt, Indonesia, and Saudi Arabia planning to join — is a serious challenge to U.S. hegemony. These nations are cementing trade and financial ties among themselves, decoupling their economies as much as possible from the West.

In addition, most of Africa and the Islamic world, which have been victims of illegal American invasions and bombings over the past 20 years, are sympathetic to Moscow which they see as a brake on Washington’s imperial ambitions, militarism and lawlessness.

Finally, also on Sept 30, Washington’s foreign policy elite was reprimanded for its failed policies over the past 25 years. During a speech to the powerful Council on Foreign Relations, Henry Kissinger criticized the U.S. for absorbing into NATO most former Soviet bloc countries after the collapse of the USSR in 1991.

The 99-year old Kissinger added that “it was not a wise American policy to attempt to include Ukraine into NATO.” Thank you, Mr Kissinger. Well spoken, but much too late. The damage is already done and the course of history irrevocably altered, for the worse.

Washington’s goal in Europe

As it preps for the ultimate battle with China for global hegemony, Washington needs total control of all major levers of power and influence over European allies. Washington doesn’t want a repeat of the 1970s and 80s when Europe was an independent actor and could freely make deals with Moscow and Beijing.

Washington can exercise control over Europe in a number of ways — through energy, finance, high-tech surveillance, mass media, NGOs, and a large military force on the continent. Finally, Washington has its far-right lapdog regimes — in Warsaw and Kiev — that provide muscle for current and future wars. In short, thanks to the conflict in Ukraine, Washington has Europe by the proverbial throat and balls.

Meanwhile, Europe is on the road to economic decline as sky-high energy bills eat into corporate profits and push households into poverty. And this suits Washington quite nicely. A weak and dependent Europe is the goal.

Europe will suffer a cold winter, according to its top weather agency. The energy crisis is only partially about people freezing at home. The energy crisis will shut key industries, or leave them unable to compete against U.S. and Asian companies. There will be much unemployment, followed by a brain drain to the U.S.

“In the near term we expect a recession in Europe in the winter of 2022-23 as a result of energy shortages and sustained elevated inflation”, says the Economist Intelligence Unit. “The winter of 2023-24 will also be challenging, and so we expect high inflation and sluggish growth until at least 2024.”

The EIU’s assessment is rather meek. In fact, the situation will be much worse. Russia supplied about half of Germany’s gas in 2020 and about a third of all oil. Since Germany is Europe’s main locomotive, no one can fully predict the extent of the damage to the German and EU economies when deprived of Russian gas.

Slovak Prime Minister Eduard Heger said the energy crisis will “kill our economy” and he threatened to nationalize the country’s power sector if the EU didn’t provide financial support.

Sure, in recent weeks the UK and EU member states announced relief packages for companies and households to offset rising energy prices, but few experts believe in the effectiveness of such measures. Anyway, this energy crisis will be with us for years.

In addition to importing natural gas from the U.S., the UK and EU are trying to make up for the loss of Russian gas by building more renewable energy capacity – solar and wind power. However, reaching sufficient renewable energy capacity is at least five years away.

Finally, a financial crisis is brewing as European countries struggle with record inflation and growing public and private debt — EU economies have been battered by 2.5 years of Covid chaos and mismanagement, and now Biden’s war and economic sanctions. The day of reckoning is fast approaching. This debt and money-printing party can’t continue forever.

Washington’s policies are leading toward a European financial crisis, which will result in global contagion, and ironically bite the U.S. in the backside. But the White House is betting that it can defeat Russia before that happens. Oddly enough, I think Moscow has similar thoughts, hoping to drag out the conflict in Ukraine — until the EU starts to break apart under economic and financial pressure and chaos, taking NATO down with it.

I lived in Europe in the mid 1980s and remember how poor it was compared to North America. European prosperity only took off when the Cold War ended in 1991 — thanks to the creation of a single EU market, the start of trade with Russia and other ex-Soviet republics, and the import of their plentiful cheap energy; not to mention the hundreds of billions that eastern oligarchs laundered into European banks.

This winter will see much discontent. To survive, European governments will either have to break ranks with Washington over its aggressive policy towards Russia, or resort to repressive measures, such as finding a reason for lockdowns to squash social upheaval and protests. But they wouldn’t do that, would they?

“It’s a tremendous opportunity to once and for all remove the dependence on Russian energy and thus to take away from Vladimir Putin the weaponization of energy as a means of advancing his imperial designs,” Blinken said at a joint press conference with Canadian Foreign Minister Mélanie Joly.

“That’s very significant and that offers tremendous strategic opportunity for the years to come,” Blinken added.

Blinken made the comments when asked what the US and Canada are doing to ease Europe’s energy crisis in the wake of the Nord Stream sabotage. Blinken said that Washington had been working for some time to provide Europe with more energy, and as a result, the US is now Europe’s biggest supplier of liquefied natural gas (LNG).

“And we’re now the leading supplier of LNG to Europe to help compensate for any gas or oil that it’s losing as a result of Russia’s aggression against Ukraine,” Blinken said.

Over the years, the US worked hard to oppose Nord Stream 2 by imposing sanctions but failed to stop its construction. The project was paused by Berlin on February 22 after Russian President Vladimir Putin ordered troops into the Donbas, an order that preceded the February 24 invasion.

There was always a chance Nord Stream 2 could be brought online if relations between Europe and Russia thawed, but now the damage could be irreparable. Russia recently stopped delivering gas through Nord Stream 1 as a result of Western sanctions.

At this point, it’s not clear who was behind the attacks on Nord Stream, but the US certainly has a motive. On Friday, Putin blamed the “Anglo-Saxons” for the incident, appearing to point the finger at the US and its allies.

“Sanctions are not enough for Anglo-Saxons. They have turned to sabotage, it’s unbelievable, but true, having organized explosions on the international gas pipelines of the Nord Stream,” the Russian leader said during a ceremony for the annexation of four Ukrainian territories.

The US has rejected the claim that it was behind the attack, and Western media is hinting that Russia was responsible even though the pipelines are mainly owned by Gazprom, Russia’s state gas company.

The Associated Press called the claim that the US was involved a “baseless conspiracy theory” that was being pushed by the Kremlin and Russian state media. But one of the most significant allegations came from Radek Sikorski, a former Polish Foreign Minister and current Member of European Parliament. Sikorski thanked the US for the incident on Twitter in a since-deleted tweet, which was not mentioned in the AP story.

The AP also left out the context that the US had been trying to stop Nord Stream 2 from being constructed through sanctions and pressure on the German government.

While neither Nord Stream 1 nor Nord Stream 2 were delivering gas to Europe at the time of the sabotage, both pipelines were holding gas under pressure. The leaks that were caused by explosions resulted in what could amount to the largest-ever single release of methane gas. The leaks were discovered last Tuesday, and Danish authorities said the Nord Stream 2 finally stopped leaking on Saturday while the Nord Stream 1 stopped on Sunday.

Correction: This article originally stated that Germany paused Nord Stream 2 after Russia invaded Ukraine, but that is not correct. It was paused on February 22 after Putin ordered troops into the Donbas, which came before the February 24 invasion.

The explosions caused leaks in the three Nord Stream pipelines connecting Russia and Germany, including Nord Stream 2, an unfinished project Germany put on hold after Russia invaded Ukraine in November.

Some of the officials blamed Moscow for the alleged sabotage.

During his monologue on Tuesday night, Carlson dismissed the idea that Russian President Vladimir Putin was behind the blasts. A more likely culprit, he said, is Biden.

“If you are Vladimir Putin, you’d have to be a suicidal moron on to blow up your own energy pipeline,” Carlson said. “That’s one thing you would never do. Natural gas pipelines are the main source of your power and wealth, and most critically your leverage over other countries. Europe needs your energy, now more than ever with winter approaching. If you can’t deliver that energy, then countries like Germany have no need to pay attention to what you want.”

He added, “It is true that blowing up Nord Stream does not help Vladimir Putin. He would not do that. Why would he? But that doesn’t mean that other countries wouldn’t consider doing it. They would consider it.”

Carlson then aired remarks Biden made in February and that they may indicate he was behind it.

“If Russia invades – that means tanks or troops crossing the border of Ukraine again – then there will be no longer a Nord Stream 2,” Biden said at the time. “We will bring an end to it.”

When a reporter noted that the project is within Germany’s control, Biden replied, “I promise you, we will be able to do it.”

“Notice how he phrased that,” Carlson said. “He didn’t say, ‘I will pause the delivery of gas from Russia to Germany.’ He said there won’t be a Nord Stream 2. We’ll take it out. We’ll put an end to it. We’ll blow it up.”

The host then pointed to remarks by a State Department official named Victoria Nuland in January.

“If Russia invades Ukraine, one way or another Nord Stream 2 will not move forward,” she stated.

“One way or the other, we’ll stop Nord Stream,” Carlson responded. “Now, looking back, those words seem chilling eight months later.”

Observers label such a desperate strategy as the bet of a madman if it fails, and of genius entrepreneurial trait if it succeeds.    

Consider then these facts about the Russian-Ukrainian conflict: in pre-Covid 2019, 60% of Russian exports came from the energy sector, which constitutes 20% of its economy and also 40% of Russia’s federal budget. Russia is entirely dependent on selling gas and oil to the West, which, before the completion of the new – now stopped pipeline – went mainly through Ukraine.

What happens to Russia’s negotiating powers selling its gas and oil if, say, under some scenarios Europe threatens not to use the new pipeline, and Ukraine – either by joining the EU or NATO – blocks the selling of oil and gas through the older pipelines running through its territory and forces Russia to come to the negotiating table on certain issues?  

Russia’s negotiating powers would be significantly diminished even though in the foreseeable future Western Europe would have to import both oil and gas – as solar and wind are no substitutes, and it neglected reliance on nuclear energy, or “clean coal” technologies. 

What Putin has been trying to do since 2008, with its war on Georgia, is actually practicing the art of finance – which, in the best hands, is to be prepared for the worst. Only in contrast to companies’ management facing distress, Putin is scheming in a still centralized country with government as the main financial intermediary.

And it is not the first time that he is going to war on such an issue. Recall the 2008 eerily similar sequence of events leading to the war with Georgia. Then as now, Russia made similar accusations about Georgia discriminating against ethnic Russians and that areas of Georgia wanted to become part of Russia, claims that ended with Russia’s full-scale invasion of Georgia. 

Then-French president Nicolas Sarkozy negotiated the ceasefire agreement and by October Russia withdrew from the undisputed Georgian territory – and there have been no international repercussions against Russia then. But behind the veil of words, what was that war about? 

Look at the map of gas and oil pipelines again. They run through Georgia, which, if it came under Russian influence, would allow Moscow to gain more negotiating power about supplying gas and oil to Europe through Turkey if it managed to negotiate through a maze of conflicting interests involving Armenia, Azerbaijan and Iran, which, once international sanctions were lifted, proposed to let its energy flow through Georgia.  

Since these pipelines also have European markets in their sight, Putin’s bets do not appear that of an erratic dictator, but rather of a calculating leader interested in sustaining Russia’s finances and leverage.

But why now? A number of observers made the following analyses about the timing:

“It’s not so much high oil prices as Europe’s dependence on Russian gas that give Russia room for maneuver on the Ukraine crisis today,” said Thomas Graham, former White House adviser on Russian affairs and managing director of Kissinger Associates. “Russia can credibly threaten to cut off exports, confident that it can weather the downsides of a loss of revenue much more easily than Europe can weather the cut-off in heating fuel in the winter.”  

Though energy prices are now relatively high, a dictator’s practice of finance, one interested in sustaining the legitimacy of his regime in particular, is to recall the bad times that prevailed during Ronald Reagan’s presidency, and the last two years too. 

A financially centralized Russia – with the federal government its de facto sole financial intermediary – can survive such major “downsides” only if Europe’s ability to procure oil and gas through channels independent of Russia is limited, or at the very least Europe’s negotiating powers diminished in the present case with Ukraine as proxy. This is what Putin had been eager to prevent in 2008 in Georgia, and now in Ukraine.

Could negotiations have prevented the conflict? Henry Kissinger and Jack F Matlock Jr, the US’s last American ambassador to the USSR (1987-1991), both gave positive answers to this question, pointing to Western Europe’s diplomatic miscalculations since 2014. 

As to Putin’s words about Nazis, historical roots and so forth: Just as no good poker player reveals his weak hand, neither do politicians, desperate or in fear of being leapfrogged and the legitimacy of their model of society – communism with a sliver of business freedoms in this case – threatened.

Instead they use a veil of words to make it tougher to distinguish the real things from the noises they are making. This is what language has been used for since time immemorial: not only to illuminate but to disguise and confuse – appealing to historical roots in particular.

Reuven Brenner is a governor at IEDM (Institut Économique de Montréal). He is professor emeritus at McGill University. He was the recipient of a Fulbright Fellowship, was awarded the Canada Council’s prestigious Killam Fellowship Award in 1991, and is a member of the Royal Society.

Europe is on the brink of an energy crisis, in part engineered by Russia, and it would be a serious casualty in an economic war. In contrast the U.S. would benefit by expanding its gas exports to Europe.

Europe imports one third of its natural gas from Russia — with Germany getting half its imports from Moscow. Gas accounts for 30% of Germany’s total energy consumption. Russia is anxious to start up the $11 billion Nord Stream 2 pipeline, which brings gas directly to Germany across the Baltic Sea. The Trump administration, keen to export liquefied natural gas (LNG) to Europe, sanctioned the companies building Nord Stream 2 in 2019, delaying its construction. Biden pledged to waive those sanctions in May 2021, and in July Germany and the U.S. agreed to pay Kyiv $1 billion to compensate for lost transit fees, assuming Russia will cut back on gas deliveries via Ukraine.

The pipeline was completed in September 2021 but is still awaiting regulatory approval from the German authorities. Germany’s ruling coalition is split on the issue: the Social Democrats want the pipeline, the Greens do not.

Despite conceding on Nord Stream 2, the Biden administration is nevertheless interested in expanding LNG sales to Europe. Amos Hochstein, the State Department’s senior advisor for energy security, worked for the Tellurian LNG company from 2017-20.

In addition to the tussle over Nord Stream 2, Russia is also pushing back against the European Union’s policy of switching from long-term contracts to the spot market for natural gas sales. Gazprom prefers ten-year contracts — with prices determined by average global oil prices — to cover the costs of developing new fields. Qatar, the leading exporter of LNG to Asia, also relies on long-term contracts. 

The EU’s ideological commitment to deregulation is behind its push towards spot prices. They are also favored by the powerful financial lobby, who can profit from speculation in futures markets, but are shut out by direct contracts between suppliers and customers. 

Over the past year, Russia has cut back on gas sales through the spot market, while meeting its long-term contractual obligations to European customers. It also put less gas into storage facilities in Europe. This caused a squeeze in gas markets, with wholesale gas prices closing the year up 350%. Households across Europe are now facing monthly bills that are 30-50% higher, and some industrial gas users are cutting back on production of fertilizer, aluminum, steel and other energy-intensive products. Some small energy traders have gone bankrupt, and others are looking for government bailouts. One measure of German electricity prices has hit 300 euros per megawatt hour — up from an average under €50 over the last decade. 

According to a report published by the Brussels-based Bruegel Institute released, Russia currently supplies 18 terawatt hours (TWh) of gas per week to Europe — against capacity of 54 TWh. Norway provides another 18 TWh and LNG adds 35 TWh. As of the end of January, Europe’s gas storage facilities were 38% full, down from an average of over 50%  in previous years. 

The continent barely has enough import capacity to make up the shortfall if Russia were to cease all gas deliveries. Most of the LNG regasification capacity is in Spain and the U.K., and there are not enough pipelines to ship that gas to other countries. Germany itself has no LNG terminals. In any case, there is little spare global LNG production and tanker capacity with much already locked into other long-term contracts. 

The global LNG market of 5,000 TWh cannot sustain a sudden 1,000 TWh boost in demand from Europe. There would also be a crippling price war with Asian customers.  

Europe would have to cut demand, and bring back some coal and nuclear power plants. Germany just closed three of its six nuclear plants, and intends to shutter the remaining three by the end of this year. These steps would be anathema to the Greens in the coalition — and would undermine the pledges at November’s COP26 summit in Glasgow to move away from coal.

If the weather turns cold, European gas reserves will be exhausted by March, and prices will skyrocket. Assuming the stand-off continues, there would be the challenge of replenishing gas storage for next winter. As the Bruegel report concludes: “reaching the scale required to entirely replace Russian volumes would be at best very expensive, and at worst physically impossible.” 

European energy ministers met Tuesday to address the shortage, which is stinging homeowners and lifting prices for goods from metals to fertilizers. But there is little they can do to boost supplies immediately, and Russia isn’t helping.

European officials and companies over the past decade successfully pressured Russian energy giant Gazprom PJSC, which is by far the bloc’s largest supplier, to replace long-term contracts linked to the price of oil with sales based on the real-time market price for gas.

It was part of a broader effort, opposed by Gazprom, to foster a deeper marketplace where a diversity of gas suppliers competed for Europe’s business. But it only got part of the way. Russia remained the dominant supplier, giving Moscow huge influence over one of Europe’s leading sources of electric power and home heating.

When gas was in ample supply, the switch paid off. For much of the past decade, gas was cheaper than oil. With gas now scarce, prices are skyrocketing.

EU members will pay about $30 billion more for natural gas in 2021 than they would have under the old oil-indexed prices, according to the International Energy Agency. The global energy adviser still thinks the switch was worth it, estimating that the bloc saved $70 billion in lower gas import costs over the past decade.

“The Russians told us for ages: Don’t do it, it’s stupid, stick to oil-linked prices,” said Jonathan Stern, a research fellow at the Oxford Institute for Energy Studies. “They have been consistently wrong for the last 10 years, but this year they happen to be right.”

Gazprom has declined to send more gas than its contracts call for. President Vladimir Putin has tied additional shipments to Europe giving final permissions for a controversial new pipeline to Germany.

European gas prices fell Wednesday after Mr. Putin told Gazprom to fill up its storage sites in Europe starting in early November. Gas futures slipped 4.4% to €84.61, or $98.23, a megawatt-hour. They are still more than four times as high as at the end of 2020, according to FactSet.

After two winter supply disruptions in the 2000s, the EU moved to diminish the Kremlin’s leverage by liberalizing its gas market. One tool was to move away from oil-indexed contracts, which were a holdover from the 1960s, when gas started to displace oil in power generation and home heating.

The bloc’s efforts were aided by the rise of new gas-trading hubs in the Netherlands and U.K. and the increase in competition from liquefied natural gas shipped in from the U.S. and Qatar. Collapsing demand during the 2008 financial crisis made gas cheap and reinforced Europe’s preference to link its import deals to gas spot prices, rather than more expensive oil.

Gazprom pushed back but eventually caved. By 2019 more than half its contracts were tied to spot or forward gas prices, according to an investor presentation.

The Kremlin says Europe is to blame for current shortages and that countries that kept the old oil-linked contracts with Gazprom—in particular Turkey—are now receiving cheaper gas.

“They made mistakes,” Mr. Putin told a government meeting this month. “It has become absolutely evident today that it is a mistaken policy. It leads to glitches and imbalance.”

The Russia-friendly government in Hungary last month signed a 15-year supply deal with Gazprom. The former Soviet republic of Moldova, which recently elected a pro-EU government, declared a state of emergency last week amid a payment dispute with Gazprom.

The EU says its current gas problems are temporary and caused by a confluence of factors as economies emerge from pandemic lockdowns. Its leadership has shown no inclination to go back to the old system.

Europe’s hopes for major increases in gas supplies from other sources, from Central Asia to shale gas trapped in European rock formations, have fallen short. Production in the EU itself has tumbled, led by the rapid shutdown of the huge Groningen field in the Netherlands. Ninety percent of gas consumed in the bloc comes from outside its borders, nearly half of it from Russia.

European Commission President Ursula von der Leyen said last week that the bloc should diversify suppliers as well as speed up its transition to cleaner energy. “Europe is today too reliant on gas, it is too dependent on gas imports,” she said. “This makes us vulnerable.”

Ukraine, which Russia has sought to replace as the main transit route for gas to the EU, says the bloc didn’t go far enough to break Gazprom’s dominance. The new Russian pipeline, Nord Stream 2, has been opposed by the U.S. in part because it circumvents Ukraine.

“It’s not entirely an efficient market at the moment,” said Yuriy Vitrenko, chief executive of Ukrainian state energy firm Naftogaz. “There’s still one dominant player, Gazprom.”