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European Dependence on Russian Energy

The short war between Russia and Georgia has brought to the surface the vital role of Russian energy in international relations. Russia has a substantial domestic supply and is naturally positioned to act as an energy highway, via a series of pipelines, to tap into and transport massive Central Asian natural gas and oil deposits. The pipelines allow Russia to act as a conduit for a network of dependent countries from the Pacific to the Atlantic. Europe is dependent on energy provided by or through Russia, limiting the European Union’s response to the Georgian crisis or other issues of international concern.

Gas Pipelines from Russia to Europe (click to enlarge)

Gas Pipelines from Russia to Europe

(Source: Stern, http://www.oxfordenergy.org/pdfs/comment_0106.pdf, 2005, p. 3)

In January of 2006, Russia’s natural gas monopoly, Gazprom, decreased the gas supply to Ukraine after a protracted row between Moscow and Ukraine’s western-leaning government elected in the tail end of 2004. The cut in gas affected European countries down the pipe, that, as a consequence, had their supplies limited. This sent shock waves throughout Europe, now acutely concerned that Russian energy politics could at least temporarily batter their economies, especially during the cold winter months.

It did quickly become apparent that Russia was also dependent on European energy imports in order to maintain a healthy economy. Europe was drawn into the dispute between Russia and Ukraine in a high stakes game that hurt all parties involved. A key component of success in this test of will is to determine whether Russia or Europe has a relative advantage in disruptions to energy transfers: meaning who would be the bigger loser?

Certainly, Russia’s economic health is greatly affected by European energy purchases. Russia’s growth in the recent past has been in great part due to energy exports. According to the World Bank and IMF, it’s estimated that Russia’s oil and gas sector made up about 64% of export revenues in 2007, and were tied to 30% of all foreign direct investment (FDI). Also, according to Alfa Bank, the energy sector accounts for some 20.5% of the country’s GDP.

Europe, on the other hand, imported 42% of its oil and 43% of its natural gas from Russia in 2004. In some European countries, their energy imports from Russia can top 80 or 90 per cent.

Europe’s dependence on Russian energy explains why it is so intent on energy efficiency, while the pivotal role of energy in Russia’s economy and international influence explains why it would wish to improve its access to supplies in Central Asia while maintaining a near monopoly on the new silk road of pipelines going east to west.

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