With the EU’s ongoing purchase of Russian energy resources, the regime that is responsible for the current barbaric war in Ukraine is guaranteed a constant cash flow. Energy payments are exempt from the unprecedented financial sanctions imposed on the Kremlin and limit their effectiveness. Leading decision-makers in the EU are intent on avoiding the massive economic consequences of a sudden oil, gas, and coal embargo that might destabilise the EU more than the Russian dictatorship. Proponents of an embargo want to maximise the economic and financial pressure on Putin and withdraw financing from the Russian war machine.
Despite a rapidly deteriorating relationship with Russia following the annexation of Crimea in 2014 and the ongoing war in the Donbas, Ukraine was itself largely dependent on Russian energy imports until recently. Oksana Aliieva, Coordinator of the Climate & Energy Programme at the Heinrich-Böll-Stiftung’s Kyiv office and author of an upcoming related background paper, talked to Robert Sperfeld about energy security in wartime Ukraine and the implications of a possible embargo on Russian energy imports.
Robert Sperfeld: Until recently, Ukraine imported a significant share of its energy supplies – directly or indirectly – from Russia. What are its most significant vulnerabilities in the context of the ongoing war?
Oksana Aliieva: After the collapse of the Soviet Union, Ukraine remained heavily dependent on Russian energy imports. It was only in 2014, after the annexation of Crimea and the occupation of parts of eastern Ukraine by Russia, that the Ukrainian government introduced important measures to reduce this dependence. The most significant successes were achieved in relation to electricity and natural gas supplies. Prior to 2014, gas imports were one of the major grounds for political fights between Russia and Ukraine, and were used by Moscow as a tool of extortion. The coal situation became complicated in 2014 following the occupation of a large number of Ukrainian mines. Still, until the end of last year, a substantial proportion of Ukraine’s coal supplies came from Russia. This included coal mined in the occupied territories and transported to Russia before being sold back to Ukraine. Then, in November 2021, Russia stopped coal exports from its side and blocked the delivery of imports from other countries such as Kazakhstan that transited Russian territory. When the full-scale invasion in Ukraine started on 24 February, the most critical energy supply issue was caused by the suspension of Russian oil and petroleum product deliveries, both directly and indirectly through Belarusian refineries. As a result, Ukraine lost two thirds of its oil supplies. One of the biggest challenges was to find alternative sources of diesel and petroleum. Here the issue is primarily one of logistics. Russia’s naval blockade of Ukrainian seaports was a very strategic step which ensured that they can no longer serve as alternative supply routes for energy resources.
How secure is the supply of petrol and diesel for both military and humanitarian use? Wouldn’t an EU embargo on Russian oil aggravate this problem and limit Ukraine’s ability to withstand Russian aggression?
Ukraine would expect the EU to also diversify its supplies. Seaborne imports from the United States or Saudi Arabia are an option. At present, many European suppliers are refusing to buy from Russian sources in order to avoid financing the war. This has not resulted in a collapse of the European oil market as predicted by certain experts. Even now, the market is still functioning. At present, it seems possible for Ukraine to secure supplies via the only remaining land routes from EU countries. The EU now needs to provide the necessary logistical help, including sufficient railway capacity, to ensure that these supplies reach the Ukrainian military and other priority sectors such as agriculture and humanitarian assistance in sufficient quantities. From the EU side, I would also expect related tax and customs reductions or exemptions to help keep deliveries to Ukraine affordable for those who need them most. On its side, the Ukrainian government has brought in a number of measures, including a VAT reduction from 20 per cent to 7 per cent, but this is not a sustainable longer-term solution for the Ukrainian state budget.
Kyiv was strongly opposed to the Nord Stream 2 pipeline, which would have stopped Russian gas transiting through Ukraine. With an embargo, Ukraine would not only lose transit revenues; it would also risk endangering its ability to buy gas from its Western neighbours in the event of a gas shortage in Europe.
Ukraine satisfies two thirds of its gas consumption from domestic sources; it imports the remaining third from EU countries. However, 90 per cent of these imports are re-exports of transited Russian gas. The loss of gas transit fees is not the problem here. The 2.5 billion euros in transit fees earned by Ukraine are negligible compared to the cost of repairing the damage caused by the war, valued at around half a trillion euros. However, what is of concern is the possibility of a gas shortage in the event of an immediate stop to Russian gas deliveries to Europe. This may have a serious impact on Ukraine.
I, personally, despair at how much time we have already lost in reducing our dependence on Russian gas, particularly after the aggressive actions of 2014. Neither Ukraine nor the EU has done enough. Now we need to urgently reduce our dependency on Russian gas, both on the demand side by cutting gas use in businesses and households, and on the supply side by shipping imports through LNG ports. Obviously, higher gas prices in Europe will strongly affect Ukrainian consumers in the medium term. However, at present [March 2022], the demand for natural gas in Ukraine has dropped significantly due to the widespread shutdown of industrial plants and population move. So new analysis is required to understand better consequences of the possible immediate Russia natural gas embargo by EU for Ukraine.
Civil society organisations now need to put pressure on European governments for a total embargo on Russian gas imports. For this to be feasible, governments need to take steps to lower consumption and free Europe from dependency as quickly as possible. The next proposal at the EU level to phase out Russian deliveries is expected in May 2022. This timeframe simply does not correspond to the urgency of the situation that we are facing in Ukraine, where hundreds of people are dying every day.
Observers looked on with great concern as the Russian army attacked and occupied the Zaporizhzhia and Chornobyl nuclear sites. What are the greatest risks to nuclear safety under the current situation?
Russian troops are purposefully targeting Ukraine’s energy infrastructure. Power plants, transmission grids, oil storage facilities, and gas distribution stations have been attacked. Russian troops have occupied a number of sites. On 6 March 2022, there was heavy shelling at the nuclear research site at Kharkiv Technical University. If nuclear reactors sustain damage during direct shelling, this could lead to a Chornobyl-style nuclear disaster involving the leakage of radiation. An additional risk is related to the physical and mental state of the technical staff that have been taken hostage. Their exhaustion could lead to mistakes in operational decision-making. Also of concern are the extensive forest fires within the Chornobyl exclusion zone caused by Russian shelling which may cause radioactive dust to be released. This would contaminate the region. Under the present conflict conditions, these fires cannot be controlled or extinguished.
Could Ukraine’s electricity grid cope with interrupted generation from the country’s major nuclear reactors? How resilient is the new interconnection with the European electricity grid that was established during the first weeks of the war?
The Ukrainian electricity grid is currently very stable despite spending the first three weeks of the conflict in isolation mode, in addition to the shelling of the country’s energy infrastructure. At the Zaporizhzhia nuclear power station, only two out of a total of six nuclear reactors are currently in operation. The war has led to a sharp decline in electricity demand. If a single generation site goes offline, this would be unlikely to threaten the overall stability of the grid. The existing interconnections with the EU are sufficient for the moment; further connections and upgrades might be needed, but only in the longer term.
What is your overall conclusion? Can Ukraine manage in the short term without Russian energy imports?
Ukraine has already coped without Russian energy imports for more than 30 days. So the simple answer is yes, Ukraine can manage. From a medium-term perspective, however, capacities at the borders with the EU – in particular for shipping oil products and coal – need to be enlarged. The Ukrainian authorities and businesses are already working on this task. Just a few years ago, no one expected that Ukraine could manage without Russian energy resources. Today it has become a reality.
In the event that the EU fails to implement an immediate Russian energy embargo, what would be an effective step-by step approach, taking into account Ukrainian vulnerabilities?
It is not acceptable for Europe to continue fuelling the Russian war against Ukraine by paying 480 million euros a day to Russia. Half of this amount is linked to gas supplies; only 3 per cent is for coal. So banning coal imports won’t be enough as the portion covered would be too small. I expect the EU to target those sectors that are the most relevant. While it might not be possible to cut off Russian gas deliveries overnight, a significant reduction would already make a big dent in the Russian leadership’s cash flow and thus its ability to fund the war against Ukraine. The discourse needs to change. It cannot be the answer to say that Europe can’t manage without Russian gas. A reduction in gas imports has to begin immediately.
This interview was first published in German on boell.de.