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It would be easy for western policymakers to conclude that Vladimir Putin’s attempt to weaponise energy supplies ended in failure.
Europe avoided blackouts last winter, despite Russia slashing gas supplies that once met 40 per cent of demand. Prices have fallen more than 90 per cent from their peak last August, and European storage facilities are already brimming ahead of the coming winter.
But a growing band of energy experts are warning that western countries should not be blasé, as they remain vulnerable to Russian perfidy in energy markets. The worry is that if Putin suspects he is losing the war in Ukraine — and with it potentially his grip on power — then the west must be prepared for further disruption, including attempts to weaponise oil supplies for the first time.
With European parliament elections next year, followed by a US presidential election in 2024 that could return Donald Trump to the White House, any action Putin can take to tip the scales in favour of candidates less supportive of Ukraine are likely to be under consideration, even if they come at a high cost to Moscow.
“Putin’s grip on power is tied to finding some kind of acceptable outcome from the war in Ukraine,” said Richard Bronze, geopolitical analyst at Energy Aspects. “You would expect to see planners in Moscow thinking about ways to create splits and fractures in the west.”
The role of pump prices in tight US elections is likely to be well understood in Moscow, raising the prospect of Putin trying to manipulate oil supplies to raise petrol prices next year. Trump has suggested that if elected he would force Ukraine to negotiate the end of the war. Reigniting an inflation-stoking rally in natural gas would also come at a challenging economic time for European leaders, who face their own threats from populist rivals.
While the US and Europe have banned Russian oil imports, Moscow remains one of the world’s largest exporters of crude and refined fuel. Its gas pipeline exports to Europe might have slowed to a trickle compared with pre-war levels, but they are still meeting about 15 per cent of the continent’s gas demand, bolstered by rising seaborne shipments of liquefied natural gas.
Thierry Bros, an energy analyst and professor at Sciences Po in Paris, said while Europe’s gas supplies appeared comfortable, he expected Moscow to deploy all its “tricks” again as 2024 approached following the Russian leader’s attempts to drive up prices last year.
“Putin’s plan failed because of a warm winter, but it’s a very bad policy to bank on a warm winter happening again,” said Bros. “If Russia reduces LNG supplies, it can introduce significant tension back into the system.” Bros added the 15 per cent of Europe’s demand that Russia still met was actually harder to replace than the first 25 per cent, as the market was already very tight.
The International Energy Agency warned this week that there remained a risk of Russia cutting off its remaining pipeline flows to Europe, which go through Ukraine and Turkey. If LNG supplies are also lower and the weather is unkind, the IEA said there would be a risk of “price volatility and supply disruptions in the case of a late cold spell”.
Weaponising oil is still viewed by many analysts as more challenging than natural gas, as oil revenues are more important to Moscow’s budget. Disrupting supplies would also risk alienating powerful allies such as China and India, which have become the main buyers of Russian oil.
But the energy sector once thought weaponising gas was unthinkable, too, and Moscow’s calculations may be changing. Already it has cut some additional exports with allies in Opec+, including Saudi Arabia. Oil markets are expected to tighten in the second half of this year, increasing Russia’s leverage.
For Putin, the upsides of boosting petrol and diesel prices ahead of the US elections may overshadow fears of damaging the Russian oil sector or diplomatic relations. “Putin is in a position of weakness, so he’s more likely to contemplate rolling the dice,” Bronze said. Russia can also cause trouble for other countries’ oil supplies, having previously threatened exports from Kazakhstan that run through Russian ports.
Western powers are not defenceless. IEA members hold emergency stocks of oil, and last year the Biden administration released about 200mn barrels from its Strategic Petroleum Reserve to help keep prices in check. But further releases are becoming more politically challenging, with critics accusing Joe Biden of undermining US energy security by draining SPR stocks to the lowest level since the 1980s. With only 350mn barrels left, further releases would need to be weighed carefully. Putin may even think energy markets are finally moving in his favour.