ENERGY SECURITYRussia’s Energy Role in Europe: What Is at Stake with the Ukraine Crisis

By James McBride

Published 31 January 2022

The prospect of a major Russian offensive in Ukraine has brought European dependence on Russian energy into sharp relief and set off a scramble for alternatives.

The threat of a large-scale Russian invasion of Ukraine has put the United States and its European allies on high alert in part due to the potential for major disruptions to the European energy market, which remains highly dependent on Russian oil and gas. A Russian assault could trigger the cancellation of pending projects, including the Nord Stream 2 (NS2) pipeline to Germany, while Russian President Vladimir Putin has threatened to restrict energy exports.

In an effort to mitigate such a crisis, the White House is spearheading efforts to redirect energy supplies to Europe, but experts say any solution will come at a painfully high cost.

What is Russia’s Energy Situation?
Russia is an energy giant—the world’s third-largest producer of oil and second-largest producer of natural gas. By some estimates, fossil fuels account for 14 percent of the nation’s economic output. Revenue from the sector is responsible for more than 40 percent of the federal budget.

In recent years, Russia has used energy revenue to accumulate some $630 billion in foreign exchange reserves. In 2021, for example, the Kremlin balanced its budget with a relatively low oil price expectation of $45 per barrel; that year, prices averaged nearly $70 a barrel.

This conservative fiscal approach, as economic historian Adam Tooze points out, has allowed Putin to largely insulate his government from the effects of economic sanctions imposed after Russia’s 2014 annexation of Crimea.

Much of Russia’s energy output goes to satisfying European demand, especially natural gas sent over a network of Soviet-era pipelines crisscrossing Ukraine and other Eastern European countries. Moscow has sought to build new pipelines, including the controversial NS2, to bypass older networks. It has also approved a new gas pipeline to China, though its sales there would still be a fraction of its European sales.

How Much Does Europe Rely on Russian Energy?
There is a mutual dependence: The Kremlin depends on revenue from Europe, while Europe depends on Russian energy. But many analysts say Europe’s reliance means that imposing tougher sanctions on Russia risks putting a serious dent in its energy supplies.