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The U.S. and its key allies on the West and the East continue to tighten the noose around Russian exports of oil and gas and with them, the ability to finance its ongoing invasion of Ukraine and to support Iranian attempts to widen the rolling Israel-Hamas War. Several new agreements were made at both the G7 group of countries (comprising Canada, France, Germany, Italy, Japan, the U.K., and the U.S.) and European Union (E.U.) levels in December that significantly build on various sanctions deployed on Russian oil and gas following the conflict it initiated in Ukraine on 24 February 2022.
On 8 December, the E.U. Council reached a provisional agreement aimed at further restricting European countries’ imports of Russian gas and liquefied natural gas (LNG). Before Russia’s invasion of Ukraine, several E.U. states had been enormously dependent for a long time of cheap and plentiful supplies of Russian gas pumped into the continent through a network of pipelines. As at the end of 2021, according to International Energy Agency (IEA) figures, the E.U. imported an average of over 380 million cubic metres (mcm) per day of gas by pipeline from Russia, or around 140 billion cubic metres (bcm) for the year. Additionally, around 15 bcm was delivered in LNG form. The total 155 bcm imported from Russia accounted for around 45 percent of the E.U.’s gas imports in 2021 and almost 40 percent of its total gas consumption. Germany itself was reliant on Russian gas for around 30-40 percent of its own commercial and domestic gas needs, depending on the time of year.
This reliance on Russian gas had been a key reason why the E.U. had done nothing of substance to censure Russia after it invaded Ukraine in 2014, and then annexed its huge southern region of Crimea, as analysed in depth in my new book on the new global oil market order. The U.S. and some of its core allies – the U.K. in particular – did not want the same reaction to the 2022 invasion, which both thought would signal to Russia that further incursions westwards into continental Europe would go equally unopposed. There were early signs – especially out of Germany (especially reliant of cheap Russian oil and gas) – that the E.U. was less concerned about punishing Russia than about being able to continue to obtain all the oil and gas it needed. According to an official guidance document sent out to all 27 E.U. member states on 21 April 2022 by its executive branch, the European Commission (E.C.): “It appears possible [to pay for Russian gas after the adoption of the new decree without being in conflict with E.U. law],… E.U. companies can ask their Russian counterparts to fulfil their contractual obligations in the same manner as before the adoption of the decree, i.e. by depositing the due amount in euros or dollars.”
The U.S., in tandem with several major European energy firms – notably the U.K.’s BP and Shell, France’s TotalEnergies, and Italy’s Eni – quickly moved to obtain as much in the way of replacement gas supplies as possible in as short a time as they could, as also analysed in depth in my new book. Given that pipelined gas supplies take a lot longer to put into place from scratch than LNG – which can be bought freely in the spot market and moved quickly to wherever it is needed – the onus at that time was on securing LNG. The U.S. and its core allies were most able within a reasonable time to sign contracts with major LNG exporter Qatar, using every economic and political lever available to them. This kept Germany, the de facto leader of the E.U., in line with broader U.S. objectives in attempting to draw a line across Europe over which it – and the NATO security alliance – would not allow Russia to move further westwards.
May 2022, then, saw Qatar sign a declaration of intent on energy cooperation with Germany aimed at becoming its key supplier of LNG. These new supplies of LNG from Qatar would come into Germany through existing importation routes augmented by new infrastructure approved by the German Bundestag on 19 May. This would include the deployment of four floating LNG import facilities on its northern coast, and two permanent onshore terminals, which were under development. These plans would run in parallel with, but were likely to be finished significantly sooner than, the plans for Qatar to also make available to Germany sizeable supplies of LNG from the Golden Pass terminal on the Gulf Coast of Texas. QatarEnergy holds a 70 percent stake in the project, with the US..’s ExxonMobil holding the remainder. The Golden Pass terminal’s estimated send-out capacity is projected to be around 18 million metric tonnes per annum (mtpa) of LNG. Several similar gas deals followed.
The result has been a drastic reduction in Russian pipeline gas supplies into Europe, with deliveries through the Yamal-Europe and Nord Stream pipelines halted. However, Russian supplies of LNG especially into Europe have remained solid, despite these new deals and measures to combat it. According to industry data, E.U. countries had imported around 13.5 million metric tonnes of Russian LNG to the beginning of December 2023. This compares to a total of 14 million metric tonnes over the whole of 2022. At the end of Q1, the E.U. added a clause to its scheduled gas decarbonisation regulation that would allow member states further scope to restrict imports of gas from Russia. Specifically, it would allow an E.U. country for the first time the right to unilaterally stop Russian imports without the threat of a penalty for any alleged breach of contract. This idea was solidified on 8 December with a view to making it legally binding across participating E.U. countries.
A similar situation was faced by several major E.U. economies in terms of their oil supplies following Russia’s 2022 invasion of Ukraine. In early 2022, just prior to the invasion, Europe was importing around 2.7 million barrels per day (bpd) of crude from Russia and another 1.5 million bpd of oil products, mostly diesel. Even before the E.U.’s 27 member states met on 8 May 2022 to discuss pushing forward with the U.S.-proposed ban on Russian oil, Hungary and Slovakia had made it clear that they were not going to vote in favour of it. According to figures from the IEA, Hungary imported 43 percent of its total oil imports in 2021 from Russia, while the figure for Slovakia was even higher, at 74 percent of all its oil imports in the same year. Other E.U. countries also heavily reliant on oil from Russia’s Southern Druzhba pipeline (that ran through Ukraine and Belarus) also made it clear that they were not willing to support the ban on Russian oil exports. The most vocal of these were the Czech Republic (68,000 bpd of its 2021 oil imports came from Russia) and Bulgaria. The government in Sofia was almost completely dependent on gas supplies from Russia’s state-owned oil giant Gazprom, and its only refinery was owned by Russia’s state-owned oil giant, Lukoil, providing over 60 percent of its total fuel requirements.
Ultimately, various bans and price caps were introduced on Russia’s hydrocarbon products by the U.S. and its allies, as analysed in depth in my new book on the new global oil market order. The most important of these were from the G7 and from the E.U. (which is also a ‘non-enumerated’ additional member of the G7), plus Australia. The broad aim of these bans and price caps was to reduce Russia’s hydrocarbons’ revenue streams to limit its ability to keep fighting in Ukraine, and to punish it in a wider sense for instigating the war there. Legislation and guidance effective as of 5 December 2022 banned seaborne imports of Russian oil and introduced a general oil price cap for its oil at US$60 per barrel. E.U. prohibitions on vessels and other maritime services needed to transport Russian petroleum products also came into force on 5 February 2023. Toward the end of December, the G7 said it will soon require coalition shipping service providers to receive attestations from their counterparties each time they lift or load Russian oil. According to statements from the G7, any entity in the oil supply chain could also be told to provide an itemised breakdown of all other costs involved, such as insurance and shipping. On 20 December, the seriousness of the G7’s intent was signalled by the U.S. Department of Treasury’s Office of Foreign Assets Control when it announced that it had issued new sanctions on a Russia-owned ship manager and several oil traders. “We’re making it more expensive for Russia to move its oil …and we’re focused on pushing on both sides of the balloon together,” said the U.S. Treasury at the time.
