Once again the Russian bear has roared, flexed its muscles and characteristically sent oil and gas reliant Europe scurrying in every which direction. I am talking of course of Russia’s brief ‘August’ war with Georgia, which has certainly rekindled the great energy security debate within Europe’s borders and beyond.
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Once again the Russian bear has roared, flexed its muscles and characteristically sent oil and gas reliant Europe scurrying in every which direction. I am talking of course of Russia’s brief ‘August’ war with Georgia, which has certainly rekindled the great energy security debate within Europe’s borders and beyond. The difference on this occasion is that Russia may well have given itself a bloody nose to boot by frightening off already twitchy foreign investors and sending the Russian financial market into freefall. At the time of writing Russia’s Micex stock market had slumped 56% since its peak just a few months previously and trading had been temporarily suspended.
Clearly Russia’s extremely heavy-handed response to Georgia’s ill-advised military action against Russian-backed separatists in South Ossetia and Abkhazia was never solely about these largely unknown pro-Russian enclaves. It was more about Russia’s relationship with the West, a desire to reassert its influence in the breakaway states of the former Soviet Union and of course about energy and the huge clout this affords Russia. That Europe’s response was weak demonstrates its need to maintain a civil relationship with the Kremlin. Russia has in effect invaded and partially occupied a near neighbour, something that it has not done since the cold war. Europe has of course strongly condemned Russia’s actions and demanded a withdrawal of troops but Georgia’s territorial integrity remains entirely unresolved. The message this sends Medvedev and Putin leaves several other neighbouring states, including Ukraine, feeling distinctly vulnerable.
In the fallout from the Georgian crisis, governments across Europe are revisiting ways and means of providing alternative energy supply and reducing reliance on Russian oil and gas. However, there is no quick fix. Domestic gas production within Europe is diminishing rapidly and Russia holds some of the world’s largest reserves. Today, the European Union sources approximately 25% of its gas from Russia, a figure that is set to increase significantly in the immediate future. Germany, for example, receives 40% of its gas imports from Russia and Poland relies on the same source for two-thirds of its gas and virtually 100% of its crude oil.
There are however alternatives for Europe. LNG is one option and there has been a rash of LNG import terminal construction across the region as a whole and a significant increase in the size of the LNG carrier fleet globally. However, whilst the infrastructure to transport and receive LNG is now largely in place, the development of the necessary liquefaction plants has been slow due to high material costs and a worldwide shortage of skilled workers. With gas demand in the long established Asian LNG market strong, pressures on supply have increased prices which appear set for the short to medium term whilst the sector awaits new capacity to come onstream from around 2015.
Pipelines that bring alternative supplies to Russian gas are the other option. Perhaps most eagerly anticipated of all is the proposed Nabucco pipeline which will provide access to new fields in Azerbaijan and elsewhere in Central Asia. Scheduled to start construction in 2010 and be operational by 2013, the pipeline will run from Austria to Turkey and then onwards to Iran’s borders. Should it get the go-ahead it will undoubtedly improve Europe’s energy security but there are already concerns over increased costs and access to the key gas resources in the Caspian that would be essential for its viability.
Ultimately, Europe, despite its determination to find alternative supplies, will in fact become ever more reliant on Russia for its energy supply. This has emboldened Russia in its foreign policy as was seen in Georgia, and made Europe weaker. However, Russia did not emerge from this conflict totally unscathed. Its stock market has taken a knock and withdrawn foreign investment has resulted in a serious lack of liquidity. Whether this was caused directly by international reaction to the Georgia episode or is symptomatic of the worldwide financial crisis, is open to interpretation. However, the resulting financial pain and condemnation for its actions, not just from Europe but also from countries such as China that expressed its own ‘concern’, will perhaps temper Russia’s future foreign policy decisions. More than anything, Russia craves acceptability and respect as a global power. Ultimately the events in Georgia have been a set back not only for European security as a whole but also for Russia’s standing in the global community.