In natural gas imports, Russia may be the lesser evil

Ever since February 24^th Europe has been faced with a war the likes of which we have not seen since 1945. A full-scale conventional invasion on a European country was for a long time seen as something from the past. Any European following the news will feel strongly to be a part of history, a feeling some of us may not have had for many years, if at all. For me the invasion was as unexpected as it is reprehensible. With the conflict still in full swing, one can only hope for a swift end to the bloodshed and a prospect of lasting peace for the people of Ukraine. While this war is something many Europeans have not experienced before, the Western sanctions on Russia are equally shocking. As Europe seeks to find other sources of oil and natural gas, I worry we may become more dependent on a worse foe.

Reading a live-blog on the war for the first few days felt like an unending cascade of further marginalization of Russia on the international stage. Russia was banned from the Olympic games, the OECD, the council of Europe and the list went on. Even more shocking, the sanctions were not limited to governments. Company after company decided to leave Russia. Netflix ceased service while the big tech companies rushed to exclude Russia Today (RT) and Sputnik, both news channels directed by the Kremlin, from their platforms: a final step in a development that was already going on. Facebook even went as far to temporarily allow posts inciting violence, as long as they were aimed at the Russian armed forces or government. This is the first time that multinational corporations have become overt actors in international relations. While the sanctions follow the sentiment of the West, they were not ordered by governments.

As McDonald’s and IKEA aim to leave Russia, the government is making moves to nationalize them. At the same time, Russian banks are being disconnected from the SWIFT system. Although Russia has serious reserves of foreign currency, these are rapidly dwindling due to capital flight. The Russian central bank doubled the interest rate to incentivize citizens to keep their assets in ruble-denominated bank accounts. The Russian government may soon default on their government bonds, an act detrimental to credibility in the financial markets, but justifiable for a country that seems to be locked out of the world economy anyway.

Although Russia cannot match the financial firepower of the West, it does have a trick up its sleeve. Europe is dependent on Russia for natural gas supplies and has become even more dependent in recent years. To complete its energy transition Europe aims to draw all its power from renewable sources. This means wind and solar energies, to be complemented by existing and new technologies. However, the wind does not always blow, and the sun does not always shine. In these situations, an alternative fuel is needed to take care of the shortfall. In the long run, excess green energy may be used to create hydrogen, which could then be used to offset shortfalls. The burning of hydrogen causes no pollution, on the other hand it always costs more energy to produce it than can later be consumed.

In the meantime, Europe still needs non-renewable energy sources. And here it seems especially Germany has made itself highly dependent on Russia. In a response to the 2011 Fukushima disaster, Germany has decided to shut down its nuclear plants. The shortfall has to be made up by increasing imports of Russian natural gas, a scarce good which, in times of monetary expansion, can easily fall prey to inflation. Especially when it’s cold and natural gas is also widely used to heat homes. It seems Russia here has the opportunity to put the hurt on Europe. On the other hand, the gas exports are a vital source of foreign exchange for the Kremlin. Exporting the natural gas to China is unlikely to provide the same level of income, and will make Russia ever more dependent on its larger neighbor.

At the same time Europe will become more dependent on Qatar. After Russia and the US, Qatar is the largest exporter of natural gas. While Europe can partly rely on production in Norway and the Netherlands, these producers cannot ramp up production to replace the Russian gas. Qatar is set to be the new source, signing a long-term partnership with Germany. As part of this shift Germany is fast-tracking the development of two new Liquefied Natural Gas (LNG) ports. This new phase of the Energiewende is set to be as unwise as the closing of the nuclear plants. For starters the import of LNG transported by ships is both less efficient and more polluting than using pipelines. Germany is further increasing energy costs while increasing CO2 emissions. Moreover, Qatar may turn out to be a more dangerous enemy than Russia, with dependence having more adverse consequences.

Regardless of its current politics, Russia remains a country with a shared history with the West. Dostoevsky is as familiar to us as Dickens while Tchaikovsky remains as popular as Brahms. What is more, since the end of communism Russia offers no competing ideology. While Russia has not fully embraced the western point of view, there are no European politicians calling for us to be more like Russia. In fact, Russia is constantly facing protesters demanding to know why Russia cannot flourish in the same way as Poland or Latvia.

While Qatar does not have a military as impressive as Russia’s it does have its own version of RT: Al-Jazeera. Protests to the contrary notwithstanding it is a fact that the channel is wholly funded by the government of Qatar. During the Syrian war, the Qatari government intervened through arms shipments, training and financial support to multiple Jihadist organizations. More troubling is its growing influence in Europe. For years now the Qatari royal family has been the largest shareholder of Deutsche Bank, owning at least 6% of the total. Due to the systemic importance of this bank, its interests have played a significant role during the 2007 crash, the ensuing great recession and the Euro crisis. Be ware that any action taken to bail out the bank benefits the government in Doha. Its financial firepower is not only used to support insurgents in the middle east but also to spread the Qatari ideology far closer to home. In the previous decade Qatar is estimated to have financed 140 mosques and Islamic centers in Europe. These mosques are located all over the continent, in Italy, France, Sweden and elsewhere. It is unclear what level of influence Qatar has managed to buy in this way, but it stands to reason that this financial incentive could persuade European Mosques to preach the fundamentalist view of Islam that the Qatari government has embraced.

The Western response to the Russian invasion of Ukraine has been forceful, and rightfully so. It remains to be seen if this is going to remain an exception or is to be the new normal in world politics. If opposing states are disconnected from the European economy, we must be wary not to disconnect one just to become more dependent on another.