Major shifts since Russia-Ukraine war: Energy politics in Eurasia

By Burc Eruygur

ISTANBUL (AA) - Since Russia launched its war on Ukraine a year ago, energy has been among those sectors affected most, hit by sanctions and shifting market dynamics.

In response to Russia's "special military operation," the West has slapped Moscow with significant penalties in a bid to undermine its ability to financially maintain the war, with the EU alone announcing nine separate sanctions packages since Feb. 24, 2022.

EU and G7 countries have also stopped buying Russian refined energy products, such as diesel, gas oil, and fuel oil, as of Feb 5 this year.

On the same day, they introduced a price cap of $100 per barrel on premium Russian oil products, such as diesel, and $45 per barrel on discounted products like fuel oil.

EU member states took measures to hit Russian natural gas as well, imposing a price cap of €180 ($191) per megawatt-hour of electricity produced from Russian methane as of Feb. 15, according to a decision by the Council of the EU last December.

As part of its effort to wean itself off cheap Russian energy, the West has been searching for alternative suppliers and markets.

- New energy dynamics in West

Though there have been attempts over the past decade to reduce dependence on Russian oil and natural gas, especially by the EU, sanctions imposed over the war have made it imperative to accelerate this process.

One way Brussels has pursued this has been to focus on green energy, aiming to cut imports from Russia, triggering a surge in wind and solar power generation to record 22.3% of the EU's electricity output in 2022, overtaking fossil gas, with 19.9%, for the first time, according to the European Electricity Review published last month by energy think tank Ember.

Record rises in wind and solar power generation thus helped cushion deficits in hydro and nuclear energy. Power generation from solar rose the fastest, increasing by a record 39 terawatt-hours, or 24%, in 2022, which was almost twice its previous record and helped save €10 billion ($10.6 billion) in gas costs, based on the analysis.

Another focus of the EU was the import of liquefied natural gas (LNG), especially from countries in the Middle East and North Africa, diminishing the need for pipelines from Russia.

Countries in that region stand out as suppliers rich in gas reserves, according to Kaan Devecioglu, a scholar on North Africa and fellow at the Center for Middle Eastern Studies, based in Türkiye's capital Ankara.

Devecioglu told Anadolu that Algeria, Libya, Qatar, the UAE, and Kuwait are prominent LNG actors, though Doha has emerged as Europe's primary partner in that regard.

"Relations developed by Europe with the Gulf countries on LNG are not seen as urgent and a solution to this problem with the help of the US is at the forefront. This situation can be interpreted as an effort by European countries to strengthen their hand in bargaining with the Gulf countries," he said.

Devecioglu also noted that talks have been underway between Algeria and Nigeria in recent years to build a pipeline carrying Nigerian natural gas to Europe.

Algiers, which would lie on the pipeline's route along with its southern neighbor Niger, already has in place the infrastructure that the project would need to transport gas to Italy, Portugal, and Spain, he added.

"Therefore, it can be said that European actors will gradually punish Russia in terms of resource diversity in the coming years."

- Russia's pivot to Asia

In response to these sanctions, Russia has introduced various forms of counter-measures to alleviate their effects.

One of these was announced on April 14, when Russian President Vladimir Putin ordered officials to start turning energy exports eastward to compensate for the impending decline in European demand.

While Russia's only gas export pipeline to Asia, named Power of Siberia, has yet to reach its full capacity of 38 billion cubic meters per year, Moscow has announced its intention to boost eastern sales with the proposed Power of Siberia 2, adding another 50 billion cubic meters to export capacity per annum in that direction.

The pipeline will pass through Mongolia and is expected to become operational by 2030, according to a report by Russian newspaper Kommersant in early January.

Putin also signed a decree in December prohibiting the supply of oil and petroleum products to countries that imposed a price cap on Russian fuel, while Deputy Prime Minister Alexander Novak declared that Moscow's natural gas exports would fall by about 25% by the end of 2022.

Andrey Kortunov, who heads the state-founded think tank Russian International Affairs Council, told Anadolu that China has significantly increased its imports of Russian LNG and its overall share in Russian gas exports.

While noting that it was still too early to talk about China's ability to fully compensate for Russia's loss in European gas markets, he said that over the course of the year, Gazprom's pipeline gas exports to Europe decreased by about one-third, from 150 billion cubic meters to less than 100 billion cubic meters.

"In 2023, the decline will be even more significant," Kortunov added, noting that the Power of Siberia 2 would solve Russia's export reorientation problem and expand supplies to Asia. However, "a final decision on construction, apparently, has not yet been accepted."

Kortunov also noted that China, along with India, has served as an alternative market for Russian oil at a time when the US completely cut off its imports of petroleum from Moscow, while EU countries were announcing more restrictions of their own.

He added that last year's sharp rise in trade turnover between Russia and China, reaching a record of $190.2 billion, was owed to a large extent to favorable conditions in world energy markets. "In order to consolidate positive trends, it is necessary to diversify Russian exports," he added.

- Caucasus, Central Asia: Possible alternatives?

The Caucasus and Central Asia, two hydrocarbon-rich regions bordering Russia, are today cited as possible alternatives to their northern neighbor, with projects like the Southern Gas Corridor, a supply route involving multiple pipelines transporting natural gas from the Caspian Sea to Europe.

Last June, the European Commission signed a memorandum of understanding with Azerbaijan for a strategic partnership in the field of energy.

The deal also laid the groundwork for another strategic partnership agreement six months later, this time in green energy, between Azerbaijan and its neighbor Georgia, and Hungary and Romania in Europe.

In Central Asia, Kazakhstan and Turkmenistan have emerged as two other notable energy suppliers. Over the past year, both have been engaged in talks on building up Caspian Sea port infrastructure, including with the EU and with other Turkic nations, such as Türkiye and Azerbaijan.

Turan Gafarli, an independent political analyst, told Anadolu that the Russia-Ukraine war had led to growing interest in potential alternative energy sources, particularly in the South Caucasus.

"The South Caucasus, especially Azerbaijan, has the upper hand after the conflict in Ukraine began, since it is the geographically closest natural energy exporter to the EU, which already has significant export infrastructure via Türkiye," Gafarli said, noting that recent bilateral visits between Baku and Brussels showed that Azerbaijan would continue to play an important role, both as an exporter and as a potential transit country for Central Asia.

Gafarli also underlined that Europe's potential reach towards Central Asia would still take time due to Russia's continued influence in the region, though Moscow's decline may open the way for Central Asian nations to emerge as "great players" in the European energy market.

"It all depends on whether Russia will come out stronger or weaker out of this situation. For the West, the only thing that matters is not to buy from Russia or buy less to keep it under economic stress."​​​​​​​