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Fueling Great Power Conflict: Russian Energy Statecraft

Updated: Sep 10, 2020

State influence and ownership of Russian energy companies gives the Russian Federation a strategic advantage over the United States, requiring coordination with private companies and allies to combat geostrategic posturing. Russian energy development abroad is critical for the American nonproliferation regime as well as being a benchmark of Russian soft power. This brief will address how the structure of the Russian energy sector offers strategic advantages, how the Russian Federation uses such advantages to achieve strategic goals, and existing attempts to combat the expansion of the energy sector.

What’s Yours is Mine

Russian natural gas and oil companies are ostensibly private firms but exist under the aegis of the state which turns the energy industry into an explicit tool of Russian foreign policy. Following the fall of the Soviet Union, Russian oil companies were vertically integrated and privatized by wealthy oligarchs.[1] Vladimir Putin viewed oil and natural gas as strategic assets for Russian foreign policy and made key alliances with oligarchs while exiling dissenters. This allowed the energy companies to use the political weight of the state to help negotiate claims to oil reservoirs in former Soviet states where pipeline infrastructure still existed and likewise the state can direct the economic weight of the oligarchs to strategic aims.

The Currency of Power

Russia aims to extend its energy industry further west into Europe and expand its nuclear reactor exports to the former Soviet Union as well as developing nations to solidify geostrategic influence. Russia dominates the natural gas market in Eastern Europe making up a majority of the energy portfolio several countries as well as roughly 40% of Germany’s energy profile thanks to cheap overland pipelines.[2] Russia is also making strides to develop its liquid natural gas (LNG) sector with new projects in the United Arab Emirates.[3] In the nuclear sector, Russia leads the world in the export of nuclear reactors with new projects in India, Africa, China, and Eastern Europe. This expansion correlates with military and political overtures across the African continent and hybrid warfare in Eastern Europe.[4]

Sanctions Upon Sanctions

The American response tends towards economic sanctions either directly through primary sanctions or through secondary sanctions upon countries in which Russia has strategic interests rendering mixed results. The invasion of Ukraine among other expansionary actions have resulted in punitive sanctions on the Russian energy sector. In 2019 the United States levied secondary sanctions explicitly for the protection of Europe’s energy security on two Russian pipelines. Such punitive sanctions have not deterred Russia from operations in Ukraine or Syria and the response from American allies to energy sanctions has been mixed. At best, allies like Poland support bulwarks against Russian influence, but allies economically affected such as Germany calling for protective measures against secondary sanctions to German companies. [5].

Powering Strategic Goals

Russian state ownership of its nuclear industry and state stewardship of its natural gas and oil industry give Russia a strategic ability to direct investment while including the benefits of vertical integration. This advantage is leveraged to keep energy exportation and development in sync with political and defense priorities in Eastern Europe and the Global South. American responses to this strategy have been inadequate in curbing expansionary behavior and diminishing Russian market influence. New tactics may be required to address this problem.

Policy Recommendations

The United States must manipulate demand for American liquid natural gas and nuclear energy by subsidization of LNG and standardization of reactor designs. If the United States is to counter Russian use of its energy sector for international leverage, it must address the issue through out-competing Russian cheap natural gas and nuclear energy at the market through subsidization of its LNG and standardizing reactor practices in addition to the use of sanctions.

  1. Subsidization of liquid natural gas

Russian natural gas is so competitive in global markets because the land-based pipelines carry natural gas to a large number of clients without shipping costs owing to the country’s large geographic size. If the United States subsidizes liquid natural gas exports, American LNG becomes more competitive in international markets, reducing demand for Russian natural gas.

  1. Standardization of reactor designs

The United States is the only country with a private nuclear industry. As such, it is up to the states to regulate reactor designs and there is no standardized reactor design for the entirety of the US. A lack of standardization increases costs to domestic reactor production which hinders the ability of the United States to make its reactors more efficient through a learning-by-doing model. In turn, it makes the exportation of reactor technology more costly than Russian counterparts. Standardization allows for the United States to begin to become competitive against Russia in the nuclear sector.


 

Works Cited

[1]Yergin, D. (2011). The quest : energy, security and the remaking of the modern world. Penguin Press.

[2]Keating, D. (2018, July 23). How Dependent Is Germany On Russian Gas? Forbes. https://www.forbes.com/sites/davekeating/2018/07/19/how-dependent-is-germany-on-russian-gas/#303e68963b48

[3]Himaja. (2020, August 31). Russian firm NOVATEK ships first liquefied natural gas cargo to UAE. Retrieved from https://www.hydrocarbons-technology.com/news/novatek-ships-liquefied-natural-gas-cargo-uae/

[4]Russia in Africa: What's behind Moscow's push into the continent? (2020). BBC News - Europe, BBC News - Europe , 2020.

Chatzky, A. (n.d.). Have Sanctions on Russia Changed Putin's Calculus? Retrieved from https://www.cfr.org/in-brief/have-sanctions-russia-changed-putins-calculus

[5]Rennack, D. E., & Welt, C. (2018). U.S. sanctions on Russia : an overview ([Library of Congress public edition].). Congressional Research Service.






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