When I asked a few people in mid-February what they thought the outcome of a Russian invasion of Ukraine would be, a common response was to predict high gas prices. Since then, numerous civilian deaths, millions of displaced people and even the possibility of nuclear disaster have dramatically demonstrated the much wider costs of fossil fuel dependence and oil-funded autocracies. Energy security needs a clear rethink to account for the humanitarian and political dimensions of the current crisis, taking lessons from previous oil-related conflicts and the importance of accelerating a just transition away from fossil fuels.
Autocratic rule and kleptocracy
Russian President Vladimir Putin’s dangerous personalist rule has many causes, but Russia’s resource wealth is certainly among them. As many studies confirm, oil wealth and autocratic rule have a strong and enduring relationship, with new evidence pointing out that oil income increases the likelihood of personalist autocratic rule.
Access to vast natural resource revenues makes an autocratic regime more powerful against challenges. Rulers can easily deploy a wide range of instruments to maintain their grip on power, including populist handouts, co-optation and forceful repression and also receive blind foreign support from countries and companies seeking to protect their investments and resource supplies.
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Resource sectors also tend to offer opportunities for an inner circle of oligarchs to thrive. They gain when natural assets supposedly owned by the people are turned over to firms and individuals close to the ruler. The result is a politically dependent economic elite serving the interests of the ruler, including through their privately owned media. If some of these elites pose a threat, the rulers can easily move from crony to state capitalism, at least more so than the leaders of diversified economies with stronger property rights.
The combination of autocratic rule and wealth concentration, which characterizes countries affected by the so-called “resource curse” is generally bad news for local populations. There are limited opportunities for dissent or avenues for wealth redistribution outside the confines of state handouts.
The combination of personalist rule and massive oil revenues also presents a danger to neighbouring countries. Not all oil-rich autocrats will decide to expand their rule beyond their borders, but aggrieved and ambitious ones will often do so. Aggressive and revisionist ideas are easier to put into action through oil-funded institutions and military apparatus. Fewer counter-powers stand in the way of decisions to invade.
Beyond military capacity, oil wealth can also enable the accumulation of a war-chest. In addition, in the absence of effective sanctions, the crisis itself may generate a windfall as oil prices climb. Even when sanctions are imposed, a big enough exporter can rest assure that some oil will flow to regional or international markets, helping to maintain income and opening opportunities for pragmatic alliances and highly profitable sanction-busting networks.
The costs of resource dependence
Nuclear deterrence is at the heart of NATO’s unwillingness to enter the conflict right now. But, another deterrent may be Russia’s control over major resources. Not only do many European countries depend on Russian natural gas, but Russia is the world’s second-largest net oil exporter.
With close to five million barrels exported per day, Russian output accounts for 12 per cent of the global oil trade. Withdrawing that much oil from the market would likely double its price. Oil prices have already climbed – by nearly 25 per cent in just the first week of the war. Russia’s exports of natural gas also account for about 40 per cent of the European Union’s total natural gas imports.
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Economic sanctions against Putin’s regime initially did not include a shutdown of fossil fuel exports out of Russia. This is despite the fact that the sector contributed 36 per cent of the Russian government’s budget in 2021 and will possibly reach half or more in 2022, given the other sanctions in place, the rise in oil prices and the closure of many foreign ventures.
Four days after the start of the invasion, the Canadian government declared a ban on oil imports from Russia. The Biden administration made a similar move on March 8. This followed the Ban Russian Energy Imports Act introduced by a bipartisan group of senators. The British government also imposed a ban on imports.
Yet, these three countries are major producers and do not rely much on imports from Russia. However, European Union countries and China are not in such a position. Fossil fuel sanctions would have serious consequences for their energy security and possibly broader social stability, at least in the short term.
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Still, on top of the widespread divestment and departure of Western oil companies from Russia, some traders are now “self-sanctioning” Russian oil, with millions of barrels not finding any bidder without a major discount.
No major oil and gas producer has been capable and willing to significantly increase production, which would help bring down prices and ease the effect of sanctions on energy exports. But this will likely change as production and transportation capacity are increased, and higher prices motivate the reopening of fields that were commercially marginal.
Algeria and Norway have sought to provide more gas to Europe, and the U.S. is negotiating with Venezuela, offering to ease some sanctions on the South American nation in exchange for Venezuelan oil. Stepping into its strategic role and eager for the crisis to support the European Green Deal, the International Energy Agency (IEA) has provided a 10-point plan to the European Union to reduce its reliance on Russian energy supplies.
Summary of IEA’s 10-point plan
- No new gas supply contracts with Russia
- Replace Russian supplies with gas from alternative sources
- Introduce minimum gas storage obligations
- Accelerate the deployment of new wind and solar projects
- Maximize power generation from bioenergy and nuclear
- Redirect windfall profits to support vulnerable consumers
- Speed up use of heat pumps
- Accelerate energy efficiency improvements
- Encourage consumers to lower thermostats by one degree
- Further diversify and decarbonize sources of power
Oil and gas are not the only two resources over which Russia has influence. The country is also a major exporter of minerals and food crops. Russia is already the world’s largest exporter of wheat. Adding Ukrainian production, which is mostly concentrated in the eastern half of the country, would bring its share of exports to 25 per cent for wheat and 55 per cent for seed oils.
Egypt, the world’s largest wheat importer, supported the UN General Assembly resolution denouncing the Russian invasion of Ukraine but warned against the economic and social consequences of the crisis. It’s not only major food importers who are wary of potential supply chain disruption; food producers are also dependent on fertilizer exports from Russia and Belarus. The combination of attacks and sanctions on the “breadbasket of Europe” has already sent the price of wheat back to 2008 levels, raising concern of similar food riots and widespread civil unrest.
Rethinking energy security and resource politics
Maintaining a reliable flow of affordable energy has been a constant priority for governments. This led, for example, to the creation of the IEA during the 1973-74 “oil crisis.” Putin’s war on Ukraine has many implications for energy policies and more generally for resource politics.
First, the crisis demonstrates the importance of energy supply diversification. From a pragmatic perspective, this includes the need for natural gas maritime terminals and maintaining some nuclear and coal power plant capacity. It also means the buildup of spare capacity among a wider array of energy trading partners and underlines the importance of accelerating the push for renewable energy.
Second, there is a need for larger geopolitical considerations to be integrated within energy transition policies. Renewables and the use of electric vehicles can help reduce dependence on fossil fuels controlled by dangerous and kleptocratic autocrats and can undermine their power. Yet, voluntarily curbing fossil fuel production in stable democracies carries some risks as long as demand has not been drastically reduced.
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Third, this crisis also points at the importance of reducing consumption. So far, much of the so-called transition is really energy addition, with renewable sources added to, rather than displacing, fossil fuel energies. More radical concepts such as “energy descent” promoting “low tech” and ”simple living” practices need to be given more attention. This will help move beyond the largely disappointing incrementalism that has characterized efforts toward energy conservation.
Fourth, resource politics need to consider the strategic importance of diversifying the economy of resource exporters, so as to reduce the dangers of kleptocratic autocratic rule – especially those equipped with large military and nuclear weapons. Beyond holding Putin’s regime to account for its invasion of Ukraine, this will mean reengaging with Russia in ways that diversify its economy so as to reduce the Kremlin’s autocratic rule over its population and neighbours. Russia should not remain economically integrated only through fossil fuels and weapons exports.
Fifth, intergovernmental discussions should take place over the stabilization of primary commodity prices. Volatile commodity prices can amplify the risks and costs of social unrest, as seen during recent fuel protests and food crises. More stringent regulation of commodity markets and anti-speculation measures need to be taken to protect the affordability of essential commodities.
The dilemma between climate change imperatives, fossil fuel dependence and geopolitical concerns needs to be addressed more determinedly by the international community. Accelerating international negotiations over a phasing out of fossil fuels and a tighter regulation of commodity markets could not only help with climate change mitigation, but also with long-term international security.