By Andreas Umland How would the West react in a worst case-scenario of new escalation in the ongoing war in Eastern Ukraine? W...
By Andreas Umland
How would the
West react in a worst case-scenario of new escalation in the ongoing war in
Eastern Ukraine? What will Brussels and Washington do in case Russia continues
to expand into Ukraine? Often various military options, e.g. the delivery
defensive weapons to the Ukrainian army, are discussed. What is sometimes
forgotten is that the West is still the, by far, largest trading and investment
partner of Russia. Its current sanctions only limit the export of a limited
amount of services and technology to Russia. They leave much of the current
Russian-Western economic interaction intact, and do not touch directly the EU’s
large energy imports from Russia.
The, by far,
biggest issue is here crude oil – and not natural gas, as some assume.
Approximately, 40% of the Russian state budget consists of revenues related to
the sale and export of crude oil. While Russian and Western, private and
governmental estimates vary, according to most accounts, the share of income
from natural gas exports in the Russian state’s revenues is less than 10%.
Moreover, the large private income generated from oil exploration, excavation
and transportation makes up a large part of Russian industry, and is important
for the functioning of Russia’s economy as a whole. Most of the oil exports go
via pipelines to the European Union. Russia has an only relatively small tanker
fleet.
On the one side,
unlike another sanction also sometimes discussed, Russia’s exclusion from the
SWIFT payment system, an EU oil embargo would touch upon a physical issue not
easily solvable for the Kremlin. While Moscow may have already a plan B in
store, in case Russian companies cannot use SWIFT anymore, its oil trade routes
cannot be redirected overnight as they largely rely on pipelines to the West.
On the other side, the EU is not as dependent on Russian oil as many assume. Being
fungible, crude oil from Russia could be replaced with oil delivered via
tankers and other outlets from other regions of the world. To be sure, Russia
would start to search and be able to find ways to export its oil elsewhere.
Yet, at least for a considerable transition period, Moscow would encounter enormous
logistic, infrastructural, legal and financial challenges delivering its oil to
customers in other world regions.
While a small
number of EU installations are reliant on Siberian crude delivered via pipelines,
the EU economy as a whole is not dependent on Russian oil imports that can be
replaced with other exporters. After Egypt’s recent expansion of the Suez
Canal, the Gulf states could replace Russia more easily than that would have
been possible until recently. To be sure, the EU's financial losses would be
not insignificant, as a part of its refining industry is geared towards large raw
material deliveries from Russia. Yet, the EU should be able to limit these
losses, by way of targeted support for those EU member countries and oil
refineries that would lose most from new sanctions.
While the EU
would have to compensate a number of Western companies and incur losses, a
temporary Russian oil imports embargo would send a powerful signal to Moscow
and demonstrate Russia's dependency on EU cooperation. Moreover, the US
Congress could coordinate its own reaction to new Russian expansionism with
Brussels’s. Washington could support the European sanctions by simultaneously
lifting its oil export ban for as long as the EU sanctions are in place. US oil
on the world market would both, ease the burden of the embargo on the EU, and
complicate Russia’s substitution of its current large European market with
other importers, in Asia or elsewhere.
To be sure, it
would need considerable political will in the EU institutions and capitals to
push through such a major European economic policy shift. Probably, it will thus
only be discussed in case of a major new escalation in Eastern Ukraine. The
threat that further Russian military advances in Ukraine would pose to the EU’s
security could, however, enormous. For instance, Europe’s largest nuclear power
plant is located in the South-East Ukrainian region Zaporizhiya. This is only
approx. 250 km away from the current combat zone and in the heart of – what
Russian nationalists like to call – Novorossiia
(New Russia). Moreover, should the Ukrainian state collapse as a result of
Russia’s hybrid war in the Donets Basin, the EU could face an influx of
millions of refugees from Ukraine. In view of such prospects, joint action by
the EU member states to impose a Russian oil import ban would become feasible.
Temporarily, it
is true, the Russian state could use its two reserve budgets and considerable gold
reserves to compensate for immediate income losses. During a short transitory
period, the Kremlin may still have some freedom of action. It would try to
undermine EU unity or/and could employ even more military force against such
countries as Ukraine, Georgia and Moldova. Briefly, escalation of violence could
thus actually increase, before Moscow would be forced to seek accommodation
with the West.
Some analysts
point to the counter-pressure potential that the Kremlin has with regard to
Russia’s large exports of natural gas to the EU. They argue that the Kremlin could
exploit the EU’s considerable reliance on Russian gas to respond with its own
sanctions. Yet, exporting large volumes of gas is technologically even more complicated
than trading oil overseas. The large East European gas pipeline system creates
interdependence between the ex- and importers, rather than one-sided European
dependence on Russia. Gazprom relies on the EU market as much as the EU on
Gazprom deliveries. While the EU would be hit hard by a Russian gas export ban,
Gazprom would not be able to deliver even remotely equivalent amounts of gas
elsewhere, in the world.
In case of a
Western-Russian trade war, the Russian economy would already be in turmoil as
it would suddenly lack the large private and public revenues from oil exports
to the EU. It is thus implausible to assume that Russia could, in such an
already stressful situation, also forego its income from gas exports to the EU.
Against the background of such mutual complications, it is surprising how frequently
EU-Russia gas (rather than oil) trade is discussed in Western mass media. One
could even speculate whether Europe’s weekly exchange of pseudo-arguments about
Europe's allegedly one-sided dependency on Russian gas deliveries is
artificially induced. It may be simply a sort of neo-Soviet psy-op to distract
EU decision-makers from their economic leverage regarding Siberian oil imports.
The EU would have
to get its act together to make an oil embargo work. That would cost money,
energy and nerves. At the moment, such a measure looks prohibitively expensive
and political unfeasible, if not altogether fantastic. Yet, the implications of
a creation of “New Russia” in South-Eastern Ukraine could be nothing less than a
major war between Europe's two largest countries going beyond the almost daily
skirmishes of 2014-2015. The probable implosion of the Ukrainian state, as a
result of such a war, would mean hundreds of thousands, if not millions of refugees
heading towards the EU. It could place, at least, the two East Ukrainian of Ukraine’s
four nuclear power plants in instable or even war zones. A new, larger
Russian-Ukrainian war would have further, not fully foreseeable repercussions in-
and outside Ukraine. In view of such grim prospects, the West would have to
make sure its response matches the Russian challenge. A temporary EU embargo on
Russian oil imports, combined with a lift on US oil exports, could be decisive
instruments to contain Kremlin adventurism.
Note by the Author:
Some ideas in this article have been published before
on the website of the Atlantic Council of the U.S., and are informed by a number of German-language publications by Dr.
Roland Goetz (Free University of Berlin), as well as a recent English-language discussion of a draft for this proposal by
the experts community of Wikistrat.
My thanks go to all of these discussant. Remaining misjudgments are mine.
About the Author:
Andreas Umland, Dr.
phil., Ph. D., is Senior Research Fellow at the Institute for Euro-Atlantic
Cooperation at Kyiv, und General Editor of the book series “Soviet and Post-Soviet Politics and Society” published by ibidem Press at
Stuttgart, and distributed, outside Europe, by Columbia University Press.
