Russia, Europe, and China in the Energy Battle of 2022
Russia, Europe, and China are engaged in the energy battle of 2022. Russia quickly made headlines by cutting off the Nord Stream 1 gas lines, and within hours, not days, Europeans realized that a new situation would prevail over these lines.
Vladimir Putin made this decision firmly in response to the West’s plans to set a price cap for purchasing energy from the Russians. At the same time, through his leverage in Europe, he successfully influenced and halted the European efforts to finalize the gas price cap plan, which was supposed to be approved at the EU energy ministers’ meeting.
With the situation created by the consecutive increases in energy prices in Europe and the current inflexible stance of most European countries, the energy battle of 2022 has begun with greater speed and strength.
Russia takes pride in its oil
Documented statistics, which should take Russian statistics seriously to some extent, reveal realities that are crucial for Europe and the US, and also a warning for Iran. One of the key points is the overall increase in Russia’s revenue from energy exports. The latest estimates show this increase at 38%, which can be astonishing under sanction conditions.
Such an increase in revenue has adjusted the predictions about the decline in Russia’s GDP, and now there is an expectation of a 4.2% drop instead of a 12% fall in Russia’s economy. Meanwhile, Russia looks at the blessing of high prices in 2022 with realism about the effects of various factors on its revenue from energy exports in 2023.
Russia’s Ministry of Economy and various energy companies in the country have already accepted that their revenue will decrease in the coming year, although even in the worst-case scenario, it will be much higher than in 2021.
Another key point and reality is the multiple importance of Russia’s oil exports compared to its gas sales revenue. In 2021, which was a record-breaking year for Russia’s energy revenue, according to their central bank’s statistics, oil sales brought in over $100 billion, petroleum products nearly $70 billion, pipeline natural gas $55 billion, and liquefied gas over $7 billion. In 2022, Russia’s oil revenue has significantly enhanced the country’s ability to adjust its gas exports to Europe and has already considered the reduction in exports to Europe as a significant loss in its policies.
The solution to compensate for the loss is to maximize oil sales. Parallel to this solution, Russia looks to buyers like China, who purchase gas from Russia in new processes and special contracts. In this scenario, Iran is the loser, as it is deprived of even minimal opportunities to sell its oil and gas under sanctions. China and India have become the most important customers of Russian oil, taking cheap oil that is up to $40 cheaper than the market rate.
China’s game with sanctions and Europe’s fate
While Europe is filling its gas reserves and signing contracts with alternative options to Russian gas, a particular piece of news caught attention: Chinese companies are selling liquefied gas shipments to Europe. A closer look revealed that, naturally, these liquefied gas shipments are Chinese imports from Russia, part of which they mischievously sell to Europeans. Extensive contracts have been signed by the Chinese to buy gas from Russia, and this is not a new development but has been planned for a long time. The gas pipelines from Siberia to China are very cost-effective for the Chinese due to low prices and Russia’s flexibility in the type and method of payment.
On the other hand, China’s unique COVID conditions might soon have an unfavorable impact on the energy market for Russia. The continuation of COVID lockdowns, which the Chinese government has enforced with strict policies in response to the COVID crisis, is reducing economic and social activities, decreasing mobility, and reducing factory activities in some regions, which will lower China’s peak demand for oil purchases. This specific development has been influencing oil prices for some time, and it is unlikely that this impact on oil prices will not continue if the absolute COVID lockdowns persist.
In any case, and beyond all these points, China is mitigating the sanctions’ impact on Russia’s economy by purchasing large quantities of oil and gas from this country. Especially with the high purchase of oil, China is compensating for some of the losses from the reduction of Russian gas exports to Europe. It should be emphasized again that Russia has already eliminated Iran’s serious oil export market in China and India. The Chinese achievement in this context can only be seen as a 50% discount on gas purchases from Russia, which will continue until the end of 2022.
Europe, China, Turkey, and the Economic War
Vladimir Putin and his subordinates have openly and boldly declared these days that they will keep the Nord Stream 1 lines closed until Russia’s situation in the global economy normalizes. More mischievously, the Russians’ remarks about the closed Nord Stream 2 lines were made, suggesting to the Europeans, with a hint, to reverse their action of closing those lines.
However, another reality should be added to the realities we mentioned earlier. Europe is a financial and revenue source for Russia in a situation where it is in conflict with this country and is essentially paying the costs of its enemy. One of the independent European research centers that has announced the latest protests on this issue as a warning to EU officials is the European Centre for Energy and Clean Air Research, which has officially presented its research findings to European officials.
According to the statistics announced by this institute, Europeans, by purchasing 85 billion euros of oil and gas from Russia, have been the most important revenue source for this country in the months following the invasion, and this amount has exceeded 90 billion dollars in the period after the finalization of those research results. Interestingly, two other major buyers of Russian oil and gas have been China and Turkey. Turkey’s purchases from Russia are nothing but a warning for Iran.
The European Union is striving to finalize special policies to counter Russia and the constraints resulting from the economic and political battle with this country. In future reports and narratives about the energy and livelihood crisis of 2022, we will address these policies and the global energy crisis map, which weaves the borders of competition and interactions of many countries.