After six months of war in Ukraine, President Vladimir Putin’s military offensive has stalled. Now, as winter looms, Putin is aggressively playing the energy card. Russia is deliberately deepening Europe’s energy crisis to the gravest level since the Arab oil shock of 1973.
Half a century ago, the OPEC oil crisis was staged partly for political reasons, partly for economic ones. Led by Saudi Arabia, OPEC sought to help Egypt and Syria destroy Israel in the Yom Kippur war. The six-month oil embargo quadrupled world oil prices.
Today, Putin seeks to destroy Ukraine as an independent nation. He already is reaping the benefits of high prices for gas, oil and coal. As in 1973, lagging American oil production is tightening world markets.
On the nuclear front, Russia’s Defense Ministry threatened Thursday to close the largest nuclear power plant in Europe. Russian soldiers occupy the plant at Zaporizhzhya and use it as a base from which to fire on nearby Ukrainian territory.
At best, a shutdown would cut off Ukraine from the source of 20% percent of its electricity. Nuclear experts warn that the delicate process of shutting down the reactors could cause an accident. Putin warned President Emmanuel Macron of “the danger of a large-scale catastrophe that could lead to radiation contamination of vast territories.”
In addition to nuclear blackmail, Putin is using natural gas to put the European Union in an energy hammerlock. Over the last decade, a succession of European politicians — most notably Angela Merkel — ignored clear warnings from Washington about the dangers over reliance on cheap Russian gas.
Now, Putin is turning off the tap. Politicians worry that Putin will eventually shut off all gas exports.
To fill the gap, the EU has started a crash program to cut natural gas usage by 15% before winter. Air conditioning is cut off in hallways. Heat is turned off in swimming pools. Germany is restarting several coal-fired electricity plants and is debating decommissioning its last three nuclear power plants. World coal prices have increased six-fold over the last year.
Over the last five years, European natural gas prices have averaged about twice as high as those in America. Currently, they are eight times as high.
Now, to some degree, America is coming to the rescue. The Paris-based International Energy Agency reported last month that this summer, for the first time in history, America exported more gas to the EU than Russia. LNG, though, is too expensive to revive German factories built to run on cheap, pipeline gas. While the LNG imports will keep the lights on, the costs of LNG will likely sink the German and many other European economies into deep recession.
Putin can afford to pinch the natural-gas hose to the EU, because he makes his real money selling oil. Western sanctions have backfired. In a tight oil market, Russia is making more money selling less oil. Despite President Joe Biden’s visit to Saudi Arabia last month, OPEC did not increase oil production.
“The oil-market victory means Putin can afford to forego revenue by restricting natural-gas sales to Europe, putting pressure on Berlin, Paris and London, which are bracing for massive retail energy-price increases and potential shortages that may lead to rationing this winter,” Javier Blas wrote this month. “Moscow is making so much money selling oil it can afford to restrict crude supply to Eastern European nations, too.”
In a world of tight energy markets, a tight oil market is pushing up oil prices. But, with world demand high, Bloomberg reports that distillate inventories in the US mid-Atlantic are at a 30-year low.
To counteract American concerns, America’s energy secretary, Jennifer Granholm predicted in an interview that America will see “record” oil production starting next year.
In Europe, gas prices this winter are expected to go so high that markets will break down, industries will close and governments will impose rationing. In advance, some Europeans are chopping wood.
In Belgium and the Netherlands, firewood prices have doubled. In Germany, Google searches for firewood have spiked. In Hungary, logging restrictions have been loosened. Last week, Bulgaria banned wood exports outside the EU.
“The winter is coming, and we don’t know how cold it will be,” the Czech Republic’s minister of industry and trade, Jozef Sikela, said last month. “But what we know for sure is that Putin will continue to play his dirty games.”
James Brooke is fellow for the Foundation for Defense of Democracies. A longer version of this column originally appeared in The New York Sun.