Russian Natural Gas Divides Europe. But Why?

Russian natural gas has been a staple of the European energy diet and will, by most accounts, remain one of its core components in the future. But in the last decade the reliance on Russia for natural gas has become a matter of Europe’s energy security, expedited by repeated interruptions in supply of Russian gas piped via Ukraine.

As the new European energy policy agenda begins to take shape, it is apparent that a profound rift exists in how energy security is understood in Western Europe versus Central and Eastern Europe (CEE). The differences are particularly well illustrated by attitudes toward Nord Stream 2 (NS2), a pipeline that, once constructed, would bring additional volumes of Russian gas directly to Germany for distribution in the EU. Much of the disagreement is rooted in divergent experiences the West and the East have had with Russia. To a great extent this is a matter of Soviet legacy, but it also provides important implications for the future of Europe’s energy market.

To begin, it is worth noting that politically motivated interruptions in the deliveries of Russian gas into the EU are a relatively new development. This practice was nonexistent during the Cold War despite frosty political relations. At that time, Russian and Western Europe established a stable relationship based on commercial realities rather than geopolitical interests. And for good reasons on both sides: Western Europe needed natural gas but was not entirely dependent on Russia for its supply, and Russia needed to bring in hard currency and was wary of disturbing its place in a competitive market.

To a great extent this relationship continues today. Rooted in generally positive interactions and strong commercial ties between utility companies on both sides, this past experience shapes the views and actions of Western European countries—including support for and partnership on new delivery routes for Russian gas (like NS2).

The same cannot be said for the majority of CEE countries, where experience with Russian gas deliveries has been diametrically different. A Soviet past has left CEE countries dependent on Russia for most, if not all, of their natural gas needs. Having lost its ability to influence these countries directly in the post-Soviet world, Russia has not shied away from exploiting energy dependency, both economically and geopolitically. Given the lack of competition from other suppliers, Russian gas prices for the CEE region have been generally higher than prices offered to Western Europe.

The notable exceptions have been CEE countries with strong Russian relationships, including Belarus or Armenia. These countries reap the “rewards” with low natural gas pricing and Russia’s willingness to postpone payments for natural gas. But the “rewards” have not been unconditional but rather are part of a geopolitical game. Any country no longer willing to play according to Russian rules would face sharp increases in prices, demands for immediate repayment of debts, and possible interruptions in delivery of natural gas at the least fortunate moments.

One of the few bargaining chips that some CEE countries have had against much stronger Russia has been their status as a transit territory. Russia needs Ukraine, Poland, or the Czech Republic to deliver its natural gas to Europe via pipelines running through those countries’ territories. Considered from this perspective, NS2 could not only increase the share of cheap Russian gas in the European market and deprive CEE countries of transit fees; it would also weaken CEE’s bargaining position against Russia and potentially discourage investment in alternative sources of supply, including LNG. This could potentially result in even higher natural gas prices and give Russia more leeway to engage in geopolitical meddling in the region.

Not surprisingly, much of the CEE opposes NS2, seeing European energy security in diversity of supply rather than diversity of supply routes offered by the new pipeline project. The region’s experience differs from that of much of Western Europe, but also provides a cautionary note, particularly for countries like Germany or Austria, where dependence on Russia for natural gas is already relatively high and would most likely increase following NS2 completion. 

Anna Mikulska

Senior Fellow

Anna Mikulska is an expert on European energy markets and energy policy. She is a senior fellow at the Kleinman Center and a fellow in energy studies at Rice University’s Baker Institute for Public Policy.