Russia is not only waging a war of aggression against Ukraine, but also an economic war against the West, particularly the EU. This was well before the current EU sanctions after the attack on Ukraine in 2022. Russia stopped gas supplies in 2006 and 2009. A hybrid war has been waged against the EU since Crimea was occupied in 2014. The Kremlin has supported parties EU critics such as the FPÖ as well as Brexit supporters in Britain. He manipulated the EU gas market and expanded Russia’s market power.
Until his retirement in May 2019, Franz Nauschnigg was head of the Department for Integration Affairs and International Financial Organizations at the Oesterreichische Nationalbank (OeNB). In the 1990s, he advised finance ministers Andreas Staribacher, Viktor Klima and Rudolf Edlinger (all SPÖ). – © Christine Weinberger
Both wars are not going well for Russia. There are military defeats in Ukraine and the Kremlin is not very successful in the economic war against the EU either. The EU’s economy grew the year before and, despite losses in growth due to high energy prices and tight monetary policy, it has again managed to avoid a recession this year. In the euro zone, the economy grew 3.7 percent in 2022, for the first time even faster than in the US (2.1 percent) and China (3 percent). The economic expectations index for the Eurozone rose to 16.7 points in January – the highest level since February 2022.
The LNG terminal in Wilhelmshaven, Germany. – © afp / M.Sohn
Russia, on the other hand, had a recession last year, according to the latest economic report from the Vienna Institute for International Economic Comparisons (wiiw) – with a negative GDP of 2.5% – which will worsen again this year to least 3% in GDP. Normally, when energy prices are as high as they are now, the Russian economy grows. And in the economic war against the EU, reliance on Russian gas was also Vladimir Putin’s strongest weapon.
As former OMV director general Gerhard Roiss testified to the ÖVP corruption committee, Gazprom had “perfect marketing and lobbying” for this. Roiss, who wanted to reduce dependence on Russia, was replaced in 2014 by pro-Russian Rainer Seele. Austria was in a particularly precarious position because it was, and to a lesser extent still is, 80% dependent on Russian gas. OMV had to write off billions for gas fields in Russia and its stake in the North Stream 2 pipeline. This is due to a small Turkish family clique: former Chancellor Sebastian Kurz and his finance ministers, who installed Siegfried Wolf as head of Öbib (the predecessor of Öbag) and Seele as head of OMV. The “culpa in elegendo” (responsibility for choosing those responsible) of the indemnity law could be used for the damage.
Gas price below the level at the beginning of the war
Russia has been preparing for economic war against the EU since the summer of 2021, cutting gas exports and not filling Gazprom’s gas storage facilities in the EU. Since spring 2022, Russia has also stopped fulfilling its long-term gas supply contracts, although gas is not subject to sanctions. As a result, gas prices in the EU increased tenfold last summer. Putin’s strategy is to use energy warfare against the EU to weaken its support for Ukraine and divide Europe.
However, the EU managed to reduce gas consumption considerably by diversifying its supply sources (especially LNG from the US) and opening more LNG terminals to imports. Germany in particular has been successful here, so gas shortages can be avoided this winter and probably the next as well. In Germany, gas consumption savings targets of around 10 to 25% compared to normal consumption were easily achieved, also due to the climate.
Putin was not supported by his ally China in the economic war against the EU – on the contrary, the People’s Republic diverted LNG tankers destined for China to Europe and thus helped the EU. This is also because China has achieved significantly higher prices for LNG gas in the EU. China also does not supply Russia with weapons, so Russia has to turn to Iran and North Korea.
The failure of Putin’s strategy is also reflected in the fact that gas prices have fallen sharply again since the summer of 2022. The Dutch TTF (European Wholesale Gas Price) gas contract for February stood at €55.43 per megawatt-hours on January 27, up from nearly €350 in the summer of 2022. It is now below the price level at the time of Russia’s attack on Ukraine in February 2022. Gas is still relatively expensive, the 2015 average to 2021 was 22 euros. The price of gas can be expected to remain relatively volatile in the coming years.
In the longer term, the price of LNG in Europe is likely to be similar to Asia, as a global gas market is emerging here. The difference to the US gas price, which is much smaller due to high gas supply due to fracking, will narrow but not level out (liquefaction and gasification as well as transportation cost more) as markets arbitrage these differences price, because US gas exports bring high profits. Russia finds it much more difficult to diversify its gas exports, most of which go to the EU via pipelines, than the EU does its gas imports.
EU embargo on Russian oil products
EU sanctions in the energy sphere first affected coal exports, then oil exports in December, and only in February this year will they be applied to exports of oil derivatives. Russia expects Western sanctions and the embargo on oil products, which takes effect on February 5, to have a significant impact on its exports and production of oil products. Unused oil refining capacity in Russia is expected to rise 29% year-on-year to 26.6 million tonnes this year, according to industry sources and Portal news agency calculations.
The G7 also introduced a price cap of $60 a barrel for Russian oil. Even before that, however, Russian oil (Urals) traded at a discount of around $30 per barrel compared to North Sea oil (Brent). This has already hurt Russia’s energy export earnings and will continue to decline this year.
According to the Russian central bank, the Russian current account surplus fell to the equivalent of US$31 billion in the fourth quarter of 2022, after US$48 billion in the third quarter of 2022. of the evolution of oil prices. OPEC expects global oil demand to increase by 2.2 million barrels a day this year, up 2.2 percent, with a quarter attributable to China.
It is to be expected that Putin’s strategy will not work. Sanctions are effective countermeasures in the hybrid war that Russia is waging against the EU. The solution for Europe, therefore, can only be to promote the expansion of alternative energy production (especially solar, wind and geothermal energy) and save even more energy. Oil and gas must be replaced by electricity in the transport and heating market in order to strengthen the EU’s energy self-sufficiency.