Russia started the Ukraine war on February 24 while the ‘energy cold war’ started a few days earlier.
Germany, supposedly under US pressure, refused to approve a completed gas pipeline (Nord Stream 2), which was ready for commercial operations. It was built by Russia to move gas to Germany. At that time, it was not perceived as an ‘energy cold war’. And it became a full-blown energy war only after 100 days when the EU decided to stop 90 per cent of oil imports from Russia.
When the West realised that Russia did not suffer from its embargo of oil imports, it came up with an unworkable idea of capping oil prices to reduce Russian oil revenues.
Even after the western countries put oil sanctions on Russia, major oil importing countries like India and China continued to import oil. Under the price cap regime also, Russian oil exports are unlikely to suffer much. However, Russia perceived them as weaponising actions, similar to giving resources and defence equipment to Ukraine to fight the war.
Though the West treated Russia as a pariah, many did not. Russia succeeded in getting the support of OPEC+ in the energy war. Ignoring the request of the US, a long-time ally since the Second World War, Saudi Arabia joined Russia in convincing OPEC+ to lower the crude oil quota by two million barrels per day to keep prices high.
Such an unfriendly act on the part of Saudi-led OPEC has only added to the intensity of the energy war. When the world oil demand and supply is delicately balanced, such a dramatic decision to reduce quota (though the actual reduction may be between 0.5 to 1.0 million barrels per day) resulted in increasing oil price towards $100 per barrel.
Most analysts are now forecasting oil prices to go up and remain at a high level. This is certainly one of the direct impacts of the energy war affecting both developed and developing countries.
Higher oil prices will have an impact on the coming US midterm elections in November. It is possible that one of the effects of the energy war will be Democratic Party losing its majority in the US Congress, and making way for the return of much-dreaded Trumpism.
On the other hand, efforts of the US to control oil prices have not yielded results. Since March till the end of September, the US has released more than 25 per cent from its Strategic Petroleum Reserve (160 million barrels). Soon after OPEC+ decision to reduce production, the US announced to release 10 million barrels in November. When the world demand is around 100 mmbd, such an act is symbolic at best.
The US is also pushing an old idea of adapting a bill called ‘NOPEC’, which would remove sovereign immunity and authorise the Justice Department to bring suits against members of OPEC+ for antitrust violations. There is also a proposal to remove US troops and missile defence systems from Saudi Arabia and UAE. All these are sabre-rattling by some Congressmen. Nothing will come out of these efforts, as history has shown.
Oil price impact driven by the energy war will not have a lasting impact. Unfortunately, there are some irreversible impacts from the tensions over energy.
One such is the sabotage of two gas pipelines running from Russia to Germany in the Baltic Sea. Nord Stream 1 and 2 were built to carry 110 billion cubic meters (more than the total gas demand of Germany of 90 bcm) at a cost of more than $18 billion.
While Russia blames the West, the EU and the US point the finger at Russia. There is strong evidence to show that the US, which has the capacity and interest, may be behind the explosions causing gas leakage. Even some US experts are arguing that it was Biden’s government which damaged the Nord Stream pipelines.
Irrespective of who sabotaged them, gas is unlikely to move through Nord Stream 1 and 2 unless the Ukraine war is resolved quickly. With shortage of gas, many companies in Europe are struggling and have reduced their production. There is bound to be untold suffering during the ensuing winter months in Europe.
The Ukraine war has already further worsened the pandemic-related inflation by creating shortages of fuel, food and fertiliser. This impact on inflation will not last once the war is over. Still there is no reason to allow the war to prolong.
On the other hand, the impact of the energy war cannot be easily reversed and will have a far-reaching impact on climate change, future energy trade and achieving the UN’s sustainable development goals. Europe has already started some closed down coal power plants, while the Netherlands has decided to postpone the shutting down of the once-prolific Groningen gas field.
Russian oil production accounts for 10 per cent of the world oil production while its gas exports before the Ukraine war met 40 per cent of the European demand. As a result of the energy war, Russia is likely to play a lesser role in meeting world energy needs.
Iran and Venezuela have already shown how world energy supplies are affected under sanctions (the US was under pressure to relax sanctions against Venezuela).
In this background, India should play a strategic role to bring together Ukraine, Russia and countries supporting the two to find a peaceful solution. Recently, during the meeting at Samarkand, Modi told Russian President Vladimir Putin: “Today’s era is not of war”. Unlike most major countries, India has not taken any side on Ukraine or the energy war. Thus, it is in a better position to play a constructive role in resolving the dispute.
Of all the countries, India being a country of Mahatma Gandhi, who preached and practiced non-violence to resolve any dispute, we have the responsibility to promote non-violent ways of resolving even the most intractable issues.
Recognising this possibility and India’s unique strength, Mexico had proposed that the United Nations should set up a committee consisting of PM Modi, Pope Francis and UN Secretary General to mediate permanent peace between Russia and Ukraine.
This is the opportune time for India to use its rich civilisational capital to take up the leadership to resolve the Ukraine war.
(The writer is a former international oil and gas industry professional)