As the European Union and the US weigh options to expand sanctions against Russia, especially with mounting tensions in Ukraine’s east, investors and market participants are worried how the crisis could impact Europe’s energy security amid a fledgling economic recovery.

Russia supplies around a third of Europe’s gas demand, some 40% of which is pumped via pipelines running through Ukraine. But Moscow has threatened to cut supplies if “Ukraine continues to fail to pay” its bills, and warned there could be a cut in onward deliveries to Europe. European utilities are now filling up gas storage sites to prepare for a potential Russian supply cut to Ukraine. Gazprom had stopped supplies to Ukraine during price disputes in the winters of 2005-2006 and 2008-2009, leading to reduced supplies in European countries.

It is, indeed, too early to conclude that the worsening Ukraine crisis will lead to disruption of Russian gas supplies to Europe because of the interdependence of the two sides. European Energy Commissioner Guenther Oettinger has also advised against taking the threat of gas cuts at face value, saying Russia needs the revenue from gas deliveries.

Sure, a stable Ukraine is in the best interest of Russia, Europe, the world and financial markets. A replay of the Cold War could cause immense damage to both Russia and Europe, and most of all to Ukraine, which is situated between them, says George Soros, chairman of Soros Fund Management.

Understandably, Russia has ample reasons to worry about a “Westernised” Ukraine. President Vladimir Putin, who regards the breakup of the Soviet Union as the greatest catastrophe of modern times, has sought relentlessly to revive Russia’s lost glory. He does know that Russia without Ukraine “ceases to be an empire.”

Putin has been the winner in the Ukraine crisis, at least so far, according to Joseph Nye, a former US assistant secretary of defence and chairman of the US National Intelligence Council, who is now a University Professor at Harvard University. But the crisis has worsened Russia’s image as an unreliable energy supplier. For Europe, it has also underscored the significance of the stability and reliability of energy supplies.

Qatar, world’s top producer and exporter of LNG, has said it is committed to the energy future of Europe. “Qatar will continue to support European economies by supplying LNG and developing commercial relationships,” according to HE the Chairman of the Administrative Control and Transparency Authority Abdullah bin Hamad al-Attiyah. Addressing the Brussels Forum last month, al-Attiyah said European governments should develop options to decrease the dependency on natural gas from Russia.

The last thing Europe, which has just exited a recession that has devastated many livelihoods, would want is a disruption of gas supplies over the Ukraine crisis.

“Europe’s energy policies for long have taken cheap Russian gas for granted,” according to a Bloomberg View column. “Among many other things, recent events make it clear: Russian gas isn’t as cheap as it looks.”

If anything, Europe should learn from its experiences to shape a sustainable energy security policy. “Due to the increase in energy demand in the last decade in the Europe,” al-Attiyah said, supply security should envisage “diversification of the energy supply sources … to minimise the risks of operational or political disruption and the price shocks that follow.”

 

 

 

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