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Ukraine crisis: How Europe trumps Russia on energy

Diversifying European oil and gas imports is no small task, but if Moscow’s Crimean incursion leads to a tit-for-tat escalation in energy sanctions, Russia faces a far more difficult time quickly finding new customers than Europe does finding new suppliers.

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Francois Lenoir/Reuters
President Barack Obama is welcomed by European Council President Herman Van Rompuy (R) and European Commission President Jose Manuel Barroso (C) upon his arrival at the European Council in Brussels Wednesday. EU and US leaders called for accelerated energy diversification efforts in a flurry of meetings and summits this week in Washington, Brussels, and The Hague.

In responding to Russia’s Crimea annexation, Europe is finding it has more power than it realized.

Diversifying European oil and gas imports is no small task, but if Moscow’s Crimean incursion leads to a tit-for-tat escalation in sanctions in energy, Russia faces a far more difficult time finding new customers than Europe does finding new suppliers. Because energy is central to Russia’s economy, this imbalance makes energy sanctions against Russia – unimaginable only a few months ago – a tenable diplomatic tool for Europe and the United States.

Western leaders have been slow to make an aggressive show of power with this newfound energy leverage. They are unlikely to do so by placing sweeping curbs on Russian energy trade, analysts tell Monitor Global Outlook, unless Moscow further destabilizes the situation.

“[I]f Russia does not stop at Crimea, I suspect tough economic sanctions [would be implemented], especially from Washington,” András Jenei, head of the energy workshop at Budapest-based Centre for Fair Political Analysis, writes in an e-mail. “This can freeze all the oil and gas upstream cooperation between Russian and American companies (e.g. ExxonMobil, Halliburton, Rosneft etc.) which can practically freeze … Russian oil and gas R&D activity especially on the front of unconventional hydrocarbons.” 

In the meantime, additional sanctions targeted at specific individuals, companies, or subsectors in energy are more likely. Even those might not be necessary. The mere threat of energy sanctions, combined with a patchwork of smaller, quieter measures aimed at shrinking Gazprom’s customer base, sends a message to Moscow: On energy, the West does not need you like it once did.

That will not be enough to bring Crimea back into the Ukrainian fold, but it could stave off more Russian incursions into former Soviet republics. It would also buy Europe time to ramp up its diversification efforts, and give the US an opportunity to seriously consider the ramifications of overturning a decades-long ban on energy exports ... For the rest of the story, continue reading at our new business publication Monitor Global Outlook. 

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