One year after Russia’s invasion of Ukraine: An energy war and massive disruption
Breanne Deppisch
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Russia’s invasion of Ukraine one year ago resulted in an energy war that upended markets and imposed painfully high energy costs on people worldwide.
Here are some of the consequences.
PAIN IN EUROPE
The European Union has long been dependent on Russia for most of its fossil fuel imports. Prior to the war, the EU had purchased roughly 50% of Russia’s oil exports, both crude and refined, and over 60% of its natural gas.
But EU leaders were quick to halt business with Moscow in the wake of the invasion, passing eight separate sanctions packages targeting its energy sector in an effort to starve Russian President Vladimir Putin of his primary source of revenue.
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The final sanctions packages exposed deepening fissures within the bloc, however, and on more than one occasion prompted Hungarian Prime Minister Viktor Orban to threaten to veto the deal. (Orban, whose country relies heavily on Russia for energy, agreed to approve several measures only after the other 26 countries relented and granted Hungary generous exceptions.)
But EU leaders spent much of 2022 in a desperate race to fill their gas storage tanks before autumn, hoping to store as much gas as possible as the bloc braced for its first winter without Russian fossil fuels.
The disruption threatened to impose severe hardship on millions as natural gas prices soared over the summer to roughly 10 times the prices seen before the invasion.
But thanks to a remarkably mild autumn and winter, Europe was granted a reprieve.
In November, unseasonably warm temperatures descended across the EU, breaking high-heat records in more than 11 countries and sending temperatures climbing as high as 35 degrees above average. As a result, gas storage remained higher than even the most optimistic models had suggested.
In fact, the EU even saw a period of oversupply, with gas storage tanks so full that some buyers were forced to choose between either selling off some of their stored gas or storing their surplus in Ukraine.
Mild conditions are expected to last through March, the end of the EU’s winter season. Currently, their gas tanks stand at about 71% full, far above analysts’ predictions and putting member countries in a far better position than expected as they begin to fill their coffers for the next winter season.
US PROVISIONS EUROPE
The Biden administration jumped at the opportunity to facilitate more liquefied natural gas shipments to help Europe replace lost Russian gas.
But the Biden administration may not have been prepared for the massive surge in demand it was met with: Over the last 12 months, overseas buyers inked more than four dozen long-term contracts and contract expansions for U.S. LNG.
European buyers have notably been party to many of these contracts, falling second only to Asian buyers.
The surge in new contracts has put President Joe Biden at odds with some environmental constituencies and has prompted some to suggest it could even put his climate legacy at risk.
RETURN TO NUCLEAR ENERGY
Some countries have extended the lives of nuclear reactors or reversed their long-held positions on nuclear power amid rising concerns about supply shortages.
In Europe, some countries long opposed to nuclear power have slowly warmed to the idea, especially as a near-term bridge to replace Russian supplies.
Germany, which had long been among the most prominent anti-nuclear voices in the EU, saw one of the most high-profile shifts in the West.
Last year, leaders were forced to walk back their nuclear phaseout plan, which had the country on track to shut down all of its nuclear plants by the end of 2022, and instead move to extend the lifespan of its three remaining reactors.
Belgium, for its part, announced plans to extend the lifespan of two reactors by 10 years due to the invasion.
Japan has also embraced nuclear power, marking a major policy pivot following the 2011 Fukushima disaster. Last August, Japanese Prime Minister Fumio Kishida announced plans to restart 17 of Japan’s 33 operable nuclear power plants by the summer of 2023 and to extend the life of its existing nuclear plants. Kishida said Japan will also weigh construction of new facilities as well in what would be a major milestone for the island, which has not allowed the construction of any new nuclear facilities since the 2011 incident.
Japan imports 94% of its energy supplies and previously relied on Russia for 9% of its natural gas.
OIL PRICES
Global oil prices skyrocketed in the immediate aftermath of Russia’s invasion, sending prices from $76 per barrel to more than $110 per barrel, surpassing the $100 mark for the first time since 2014.
In June, futures for international Brent crude climbed to a whopping $120 per barrel, their highest point since 2008.
This touched off a painful increase in gas prices for U.S. drivers, who saw the national average rise to an all-time high of more than $5 per gallon in June.
In an effort to alleviate the high prices and protect his fast-dropping approval numbers, Biden in March ordered the release of 180 million barrels of oil from the Strategic Petroleum Reserve, the largest one-time release ordered by a president in U.S. history, draining the nation’s crude stockpile to its lowest point in 40 years.
But the drawdown prompted criticism from Republicans, who argued that the sales could limit the nation’s ability to respond in an actual supply emergency.
G-7 OIL PRICE CAP
The United States and other G-7 economies began pushing last spring for a price cap on Russian oil exports. The two-part cap, which took effect in lockstep with the EU’s ban on Russian imports of crude and refined petroleum products in December and February, respectively, was designed to limit Russia’s excess energy profits also encouraging it to continue to produce.
But roughly three months since the first part of the cap came into force, analysts say it’s difficult to say how much, or even if, the price cap is curtailing Russia’s profits.
That’s because Russia has spent months amassing a fleet of “ghost ships,” or unregistered crude tankers, to allow it to ship outside the price cap.
According to data from the Financial Times, Russian ghost fleet shipments have increased from less than 3 million barrels in November to more than 9 million barrels in January, the first full month since the price cap on Russian crude came into force.
How much oil Russia is keeping on the market outside of the price cap is an open question.
Earlier this month, trading giant Trafigura estimated Russia could have as many as 600 shadow tankers on the water, amounting to roughly 20% of the global fleet.
Russia “can really move oil outside the reach of open shipping and insurance systems,” Ben Cahill, a Center for Strategic and International Studies analyst, said in an interview. “And it’s just becoming murkier all the time.”
Still, Treasury Secretary Janet Yellen and other Treasury officials have stressed that their primary goal is keeping Russian oil on the market.
And on Thursday, Yellen said the cap does appear to be curtailing Russia’s profits by as much as 60%.
“We’ve continued to see emerging markets negotiate deep discounts on Russian oil, which keeps oil in the global market but sharply reduces the Kremlin’s take,” she said, though she declined to offer more specifics on how they gathered the information.
“The way I see it, our sanctions have had a significant negative effect on Russia so far. While by some measures, the Russian economy has held up … Russia is now running a significant budget deficit,” she added.
LOOKING AHEAD
Even one year into the war, it can be difficult to assess just how much this punishing tranche of sanctions will hurt Russia.
“No sanction is going to start one day and immediately create this huge shift in Russia’s war effort or in Russian policy,” said Doug Klain, a fellow at the Atlantic Council’s Eurasia Center who specializes in Russia, defense, and international security.
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“Many of these things are designed to have a cumulative effect that we really aren’t going to see in full for quite some time — perhaps years or even decades in some of these cases. But in putting all these things into force, they build on each other over time,” he said.