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Why Europe Cannot Impose Crippling Sanctions against Russia?

Sunday, May 4, 2014

Ali Omidi, Professor of International Relations at University of Isfahan, Iran

From the beginning of the ongoing crisis in Ukraine in September 2013 and subsequent developments, such as the annexation of the Crimean Peninsula by Russia and the risk of disintegration of the eastern part of Ukraine, many political analysts believed that in its faceoff with Russia, Europe will have two major options on its table. The first option is the imposition of crippling economic sanctions against Russia with the second option being engaged in military conflict with Moscow. The second option has been taken out of the European countries’ agenda due to strategic risks that are inherent to it. As a result, most analysts maintained that the West would put the highest emphasis on the first option and impose crippling sanctions against Russia. Crippling sanctions can be only imposed against Russia if importing Russian gas is totally banned by the European countries and severe sanctions are imposed on the Russian banks as well. Now, the question is why Europe cannot easily give up gas imports from Russia? This is important in that if European countries are not able to impose a total embargo on gas imports from Russia, they will not be able to impose overarching sanctions on the Russian banks as well. Therefore, unlike what they did in their confrontation with Iran, European countries are actually incapable of imposing crippling sanctions against Russia.

Studies have shown that Europe cannot get rid of its dependence on the imported Russian gas because, on average, almost one-third of the natural gas consumed by European countries is supplied by Russia. Of course, the degree of dependence on the Russian gas varies among European countries. Four member states of the European Union import their entire needed gas from Europe while 12 other countries depend on Russia for importing more than 50 percent of their needed gas. The most problematic aspect of this issue is that about half of the total gas that European countries import from Russia passes through Ukrainian territory. Therefore, in order to get rid of their current dependence on the Russian gas, European countries have three options to choose from:

1. Increasing gas imports from European producers and exporters of natural gas such as Norway, the Netherlands, and the UK;
2. To import liquefied natural gas (LNG) from global markets; and
3. To import gas from the United States.

As for the first option, the officials of all the three countries have given negative answers to the member states of the European Union. Norway, which is the foremost European country supplying natural gas to the rest of Europe, has rejected the possibility of replacing Russia. Norwegian Minister of Petroleum and Energy Tord Andre Lien said in an interview with Handelsblatt newspaper that his country cannot export more gas to Europe because its capacity for exporting gas is quite limited and is not probable to further increase in foreseeable future. The Netherlands, another major gas producer in Europe, has also emphasized that the gas that it produces cannot be considered a good substitute for the Russian gas both in terms of quality and quantity. The energy officials in the UK have also noted that their country is not actually capable of producing more natural gas.

The second option is also stalled by many technical and economic problems. Iran, Qatar as well as Trinidad and Tobago are good energy sources for this option. Gas imports from Iran are not currently possible for Europe and due to political reasons the European countries cannot count on it until further notice. There are also certain problems related to purchasing natural gas from Qatar as well as Trinidad and Tobago as a result of which European countries cannot reckon on these countries. For example, the total expenses of gas exports for Qatar and Trinidad are 30 to 50 percent higher than gas exports from Russia. It goes without saying that the European countries are not willing to undertake this additional cost simply out of animosity for Russia. At the same time, periodical fluctuations in the supply and demand of natural gas in the global market will directly affect its price and this will not be desirable for a Europe which is just getting out of its worst financial crisis in years. For example, the measure taken by the government of Japan for shutting down its nuclear power plant in Fukushima had a direct effect on price of natural gas in global markets and led to a sharp hike in gas price. Just imagine what would happen if European countries actually decided to ban gas imports from Russia in which case global gas prices would suddenly skyrocket.

Meanwhile, Qatar can only export its gas in the form of the liquefied natural gas (LNG), which is a very costly process. On the other hand, gas imports in the form of liquefied gas require very expensive and long-term infrastructure. For example, importing countries will have to build ships and import terminals which are special to liquefied natural gas imports, and this is not possible in the short term. Therefore, given the difficulties that are associated with any effort made to find a substitute for Russia in other regions to be considered as an origin of gas imports by European countries, and to the resentment of European and American politicians, there is actually no option in Europe which could be considered a viable alternative to importing gas from Russia’s gas giant, Gazprom, in the near future. This is why the economic minister of Germany told the media outlets that there is no suitable and viable option to replace Russian gas for European countries.

The third option open to the European countries is to import natural gas from the United States. Of course, the US government has already indicated its willingness to supply gas to Europe, but there is a long distance between words and deeds. The first shale gas export terminal is scheduled to be inaugurated in Louisiana in 2015. For a variety of reasons, this is not a rational option for Europe too. Firstly, the cost of producing shale gas is much higher than that of the ordinary gas. Secondly, it cannot cover Europe’s needs in the short term. Thirdly, the production process used for shale gas has caused serious environmental concerns as a result of which European countries cannot consider it a viable alternative for Russian natural gas.

All told, the most rational option to be taken by Europe is to follow diplomacy and suffice to imposing mild sanctions against Russia instead of making any attempt to engage in a full-blown faceoff with Moscow by imposing crippling sanctions against the Russian energy and banking sectors. Of course, the possibility of unexpected incidents such as the explosion of the pipelines that carry the Russian gas via Ukraine in case of an all-out military conflict between Moscow and Kiev should not be totally ruled out. Alternatively, Russia may decide to stop exporting gas to Europe in case of further escalation of the crisis. Such a decision would lead to new conditions in the global gas trade just in the same way that it would have a great impact on the situation in Europe, which cannot be discussed here.

Key Words: Europe, Crippling Sanctions, Russia, Norway, Netherlands, UK, Global Markets, United States, Omidi

More By Ali Omidi:

*Are Russia’s Positions on Ukraine, Crimea Legal?: http://www.iranreview.org/content/Documents/Are-Russia-s-Positions-on-Ukraine-Crimea-Legal-.htm

*Will Russia Deploy Military Forces to Ukraine?: http://www.iranreview.org/content/Documents/Will-Russia-Deploy-Military-Forces-to-Ukraine-.htm

*Israel, Achilles’ Heel of Iran-US Diplomacy: http://www.iranreview.org/content/Documents/Israel-Achilles-Heel-of-Iran-US-Diplomacy.htm

*Photo Credit: Bruegel

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