If Putin is using gas prices to fight Europe, how can it fight back?

Analysis: in this massive hybrid war, Europe is preparing its defences before winter and hoping sanctions bite

With little appetite in Europe for a further wave of sanctions on Russia, and Annalena Baerbock, the German foreign minister, raising the prospect of a popular uprising in Germany this autumn over gas prices, Ukraine and its allies are focused on tightening the existing panoply of sanctions rather than putting forward more radical proposals. As many as 20 countries may be involved in bypassing the current sanctions, Ukraine reckons.

Ukraine cannot but be nervous that the popular revolt of which Baerbock warned – before quickly regretting her choice of words – will mean support for the war erodes before a Ukrainian military counteroffensive can bolster it. “In Ukraine Putin fights with missiles and tanks, in Europe he fights with gas prices,” says the Ukrainian foreign minister, Dmytro Kuleba.

Andrii Yermak, lead adviser to the Ukrainian president, Volodymyr Zelenskiy, is clearly wary of how public opinion may turn and says it would be a mistake to allow the war to drag on into winter. The war has to be settled this year, he believes.

He claims, and hopes, the people of Milan and Berlin value the price of freedom in Europe over the price of gas. But even the UK’s rock-solid political support for Ukraine may waver if energy bills hit £500 a month in January. It is an endurance test, in which the two competitors play by different rules. After all, Putin does not have to listen to public opinion; he decides it.

All that can be assumed is that Putin will keep turning down the gas taps using various pretexts such as turbine failure in the hope that Europe panics about what lies ahead. Thus on Wednesday the Russian energy group Gazprom cut the flow of gas through the Nord Stream 1 pipeline to about one-fifth of capacity. European gas prices have now risen ninefold in the past year.

So in this massive hybrid war, and ahead of the winter crunch point, Europe is preparing its defences on every front in the hope that its storage facilities are stocked ready for the winter. Europe has been scouring the world for alternative energy supplies from countries such as Nigeria, Algeria, Kazakhstan, Saudi Arabia, Qatar and Iraq. The Saudi crown prince Mohammed bin Salman, previously persona non grata, was welcomed at the Élysée on Thursday. In the midst of the fall of his government, the Italian prime minister, Mario Draghi, found time to fly to Tangier, and EU officials went to Lagos to offer to improve security for gas installations. The German economic minister, Robert Habeck, bent the knee in Doha. Diplomacy has become a substratum of energy policy.

On the demand side, an agreement by EU states this week to reduce domestic demand voluntarily by as much as 15% on prewar levels is a step forward, even if the deal is full of get-out clauses, and is ultimately down to nation states and sacrifice by individuals in their homes and offices.

Solidarity measures are in place, but the room for the ECB to keep raising interest rates is reducing as fears of recession grow.

The difficulty is that some European governments are more exposed to Russian intimidation than others. In 2021, a total of 14 countries received more than 50% of their gas from Russia. Germany in particular fears it is a sitting duck, prompting the CDU leader of Saxony, Michael Kretschmer, to warn this week that if a peace settlement is not negotiated, Germany could become deindustrialised. He may be representing east German views, but everyone is living on their nerves.

Germany cannot afford the luxury of debating its past foreign policy mistakes. “In security policy, in our Russia policy, in our energy policy, we are at ground zero and have to start from scratch,” Walter Ischinger, the former German diplomat said on Thursday.

Italy, by comparison, is more prepared. The government said this week it would be independent of all Russian gas supply from the second half of 2024, and to get through this winter required only a cut of 7% in current consumption.

But if the purpose of sanctions, and consequent pain in Europe, is to cripple Russian revenues, it is not yet working. Oil deliveries in physical terms fell by 13% from May to June, from 18.9m tonnes to 16.5m tonnes, but revenues actually increased a little to €10.5bn (£8.7bn), and are higher than for the same period in 2021.

Russian gas exports fell by about a quarter in June compared with last year, but earnings rose to $11.1bn (£9.1bn) compared with $3.6bn.

The US has been working on the details of a price cap on Russian oil ever since the G7 in Germany, but the plan still has many hurdles to overcome, not least potential resistance by India and China.

Meanwhile, a parallel plan for a unilateral gas price cap, proposed by Mario Draghi, may be fading along with his government.

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Michael McFaul, the former US ambassador to Russia and now part of an international working group on sanctions, is bullish that they are working, despite a rise in the ruble, lower interest rates, and banks awash with cash. He points out that sanctions on Iran started in 2010 and it took until 2015 for Tehran to be pressured into agreeing a deal on nuclear nonproliferation. He argues that Russia being so active in trying to stop sanctions is the best sign that they are working.

There is no shortage of ideas for making the sanctions more effective, including introducing national legislation that permits governments to move from freezing the personal assets of Russian oligarchs to seizing them. This would be facilitated by a global register of what has been frozen. Russia, the group suggests, should be declared a terrorist state, a move that would increase the threat of secondary sanctions by the US. Finally, new laws should be introduced requiring mandatory disclosure of information about any business contacts, joint ownership of corporate rights and property with Russian citizens. A draft of such a resolution has already been submitted to the US Congress. Such measures would force US firms to divest.

Proposals are pouring out of the McFaul working group. The pre-eminent issue is the west’s continuing willingness to implement them.


Patrick Wintour Diplomatic editor

The GuardianTramp

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