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How U.S. Sanctions Against Russia Could Backfire

Oil

The U.S. Congress has passed new sanctions targeting Russia’s energy companies. Among the other notable aspects of the sanctions is that they take some authority away from the U.S. president (who used to be able to implement some measures but not others at his discretion) and give it to Congress.

Recognizing that a vital sector in its economy has even less chance of relief than it once had, Russia has retaliated. It has reduced the number of diplomats it has in the U.S. and has seized property used in Russia by U.S. diplomats.

Energy sales are an important source of revenue, of course, but for Russia they are more than that: They are an instrument of geopolitical power. They give Moscow considerable influence over the countries whose energy needs are met by Russian exports. If Russia intends to retaliate further against the U.S., its energy supplies, especially those it sends to Europe, may be its best option to do so.

Deliberate Dependence

But exactly how much oil does the rest of the world import? How can Russia use this to its advantage?

Collectively, the European Union imports 53 percent of the energy it consumes. This includes 90 percent of its crude oil and 66 percent of its natural gas—a higher percentage than most other regions of the world, including North America, East Asia (but not Japan), and South Asia. All told, energy accounts for 20 percent of all EU imports.

(Click to enlarge)

Individually, some countries rely more on energy imports than others. Most European countries import more than 30 percent of the energy they consume. Norway provides roughly 35 percent of these imports, while Russia provides roughly 40 percent. Germany, which boasts the largest economy in the EU, imports more than 60 percent of the energy it consumes, and France, which boasts the third-largest economy, imports about 45 percent. Related: Barclays: Oil Prices To Drop This Quarter

Some Eastern European countries are even more dependent on foreign energy. Hungary, Austria, and Slovakia import approximately 60–65 percent of their energy needs. Bulgaria, the Czech Republic, and Romania, however, import less (37 percent, 32 percent, and 17 percent, respectively). In the Baltics, Lithuania imports roughly 75 percent of the energy it consumes. Latvia imports 45 percent, and Estonia imports 9 percent.

(Click to enlarge)

Most of this energy comes from Russia. In fact, Russia provides more than 70 percent of the oil and natural gas used in Bulgaria, Latvia, Lithuania, Hungary, Slovakia, and Finland. It provides 62 percent of the natural gas and 56 percent of the oil used in the Czech Republic, and 53 percent of the natural gas and 90 percent of the oil used in Poland.

Cultivating this dependency is a conscious move on behalf of Russia. Russia’s core security imperative is to maintain a buffer space between it and Western Europe that would help it repel any invasion, which it accomplished during the Soviet era by invading and occupying countries. Russia is not as powerful as it used to be, but it has developed economic leverage that enables it to exert pressure over countries that could pose a danger to it by threatening their energy security.

Aware of how dangerous a dependence on Russia can be, these countries are trying to diversify their energy sources accordingly. Poland and Lithuania, for example, have begun to import liquefied natural gas from the United States. This is a longer-term solution, however, since importing LNG requires the development of specialized infrastructure to receive and transport it.

The Best Bet

France and Germany—the de facto, if often irreconcilable, leaders of the European Union—illustrate how Russian energy can shape foreign policy. France may rely heavily on foreign energy, but most of its oil and natural gas comes from Algeria, Qatar, Saudi Arabia, and Libya—not Russia. France can therefore afford to be more aggressive and supportive of sanctions against Russia.

Not so with Germany, which receives 57 percent of its natural gas and 35 percent of its crude oil from Russia. Berlin must therefore tread lightly between its primary security benefactor, the U.S., and its primary source of energy, Russia.

This is one reason Germany has been such an outspoken critic of the recent U.S. sanctions, which penalize businesses in any country that collaborate or participate in joint ventures with Russian energy firms. Germany supports the construction of Nord Stream 2, a pipeline that would run through the Baltic Sea, circumventing Ukraine—the transit state through which Germany currently receives much of its energy imports. The pipeline would help to safeguard German energy procurement, since it would allow Russia to punish Ukraine by withholding shipments of natural gas without punishing countries such as Germany further downstream.

Related: How Will The EU Respond To Fresh US Sanctions On Russia?

Of course, Germany may try to diversify its energy sources, which include Libya, Nigeria, Kazakhstan, Norway, and the Netherlands, but it would struggle to do so. Germany relies heavily on pipelines for its energy, particularly Russian natural gas. It has four cross-border crude oil pipelines, four domestic pipelines, and three oil ports in the North and Baltic seas. But Germany has fewer options for natural gas and no major LNG facilities. Simply put, Germany is beholden to the countries with which its pipelines have a connection—something that makes it vulnerable to retaliation.

(Click to enlarge)

But there is only so much Russia can do. Its geopolitical interests in Ukraine, for example, align with Germany’s energy interests. Germany would benefit from Nord Stream 2 by getting a new natural gas route, and Russia would benefit by gaining more leverage over Ukraine. But Washington wouldn’t want Moscow to halt energy flows through Ukraine at its leisure. The U.S. needs to try to manage the Ukraine situation in a way that prevents a greater general German-Russian alignment.

Russia, moreover, cannot bully the United States with its energy exports. Washington doesn’t need them. But Russia could influence U.S. allies if it chooses to retaliate more than it already has. Since the U.S. is far more powerful than Russia, divide and conquer may be Moscow’s best bet.

By Zerohedge

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  • Otto Houser on August 07 2017 said:
    The US wants to force their expensive LNG onto Germany. Russia, even at Soviet times, has always been a reliable partner supplying natural gas to Germany. Only when the Ukraine fell behind in payments, Russia threatened to throttle supplies, which would have effected Germany.
    Poland opposes the Nordstream pipeline which circumvents its territory, because Poland gets transit fees from Germany and most important it has tremendous leverage against Germany by having the possibility to stop the flow of gas supplies. The Northstream pipeline was considered by Poland as the new Stalin-Hitler-pact.
    The USA as Polands new strategic partner is for sure welcoming the selfish US sanctions.
    As George Friedman from strategic advisor Stratfor clearly stated, the USA feels threatened by a united Germany - Russia and would go to any extent to stop such alliance. We can be sure that this includes military conflicts.

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