Topline
The Biden Administration announced Tuesday it is seeking alternative sources of fuel in the Middle East, North Africa, Asia and the U.S. because Russia—which provides about a third of Europe’s fossil fuel—could cut off shipments amidst escalating conflict over Ukraine.
Key Facts
Biden Administration officials said that if the U.S. and other NATO countries carry through with threatened sanctions against Russia in the event of a Russian invasion of Ukraine, Russia could retaliate by withholding its fuel supplies from Western markets, possibly relying more heavily on China, which has absorbed billions of cubic meters of Russian natural gas since pipeline exports began in 2019.
The Biden Administration has approached major natural gas producers around the world to gauge their willingness to temporarily surge natural gas output and allocate extra volume for the European Union, which currently relies on Russia for about a third of its fossil fuels, according to a White House release.
Russia has already cut its natural gas supply to Europe via Ukraine by half, according to the release.
The White House said it expects to be able to cover most of the possible fuel shortfall.
If Russia is forced to limit its oil and natural gas exports to China, it would make the Russian economy, with its “one-dimensional” reliance on fuel, far more brittle, senior Biden Administration officials said.
Key Background
Russia—which depends on fuel revenues for 36% of its national budget—has benefited from soaring oil prices, which hit a 7-year high of $87.51 per barrel January 18. Prices could hit $100 a barrel in 2022 and continue rising in 2023, Goldman Sachs projects. Additionally, Russia’s 2021 oil and gas revenues exceeded forecasts by 51.3%, totaling $119 billion, the Russian Ministry of Finance reported. However, these benefits to Russia have been offset by tension with NATO over Ukraine, fueling fears of sanctions and other supply disruptions. Tuesday, the MOEX Russia Index had fallen 14.57% year-to-date amidst sell-offs triggered by the Ukraine crisis. Following a brief recovery in mid-January, the ruble fell to about 79 against the dollar Monday, a 14-month low. Proposed responses to a Russian invasion of Ukraine include canceling the activation of the Nord Stream 2 pipeline, an $11 billion natural gas pipeline connecting Russia to Germany and capable of moving 55 billion cubic meters of natural gas to Europe annually. Delaying activation of the pipeline which could deprive Russia of tens of billions of dollars in revenue. The EU currently relies on Russia for about 34% of its natural gas and about 27% of its crude oil.
Big Number
40 billion. That’s how many cubic meters of natural gas Russia normally supplies to Europe annually via Ukraine, according to the White House.
Contra
The Russian government has announced plans to gradually reduce its use of oil, gas and coal. “The world economy is focused on a gradual transition to low-carbon energy,” said Russian Prime Minister Mikhail Mushustin. “And this is already a new reality.”
Further Reading
“U.S. to Bolster Europe’s Fuel Supply to Blunt Threat of Russian Cutoff” (New York Times)
“Russia-Ukraine Conflict: How Putin’s Manufactured Crisis Threatens U.S. Security” (Forbes)
