energy crisis | CEPA
It’s not just hydrocarbons
The West is grappling with high energy prices and scarce supplies. At just 2% of GDP, natural gas exports are not a critical vulnerability for the Kremlin. But gas imports are essential for customers like Germany. Municipalities are already reducing heated swimming pools there. Much worse is in store. Gas prices for winter delivery are seven times higher than their long-term level. Some power companies in France and Germany are already bankrupt; bailouts are looming. Then come the industrial enterprises hit by rationing. Germany protects its consumers from market prices, but it cannot protect their jobs.
This will test the unity of Europe, as last seen in the migration crisis of 2015 or the euro crisis after 2010. It will be all too easy for populist politicians eager to appease skittish crusading voters, ban energy exports, collapse the EU single market.
For the real shortage of energy is not that of molecules and electrons. It’s political energy: synapses in the brains of politicians and voters. The West is growing weary of the war in Ukraine, just as the costs of confrontation with Russia are becoming greater and more visible.
So far, the danger seems remote. Ukraine is getting new weapons, albeit slowly. Western donors are providing cash to keep the war-ravaged economy afloat: The European Union has just accepted another emergency loan of one billion euros ($1 billion). Morale, despite appalling losses, is still high. The Russian offensive in the Donbass has run out of steam, at least for now; it is losing ground in the south.
But the lull is illusory. Ukraine prints money to survive, in unsustainable quantities. Tax and customs revenues are collapsing. Exports have dwindled. Central bank reserves are falling: down a tenth in June alone. Ukraine says it needs 9 billion euros per month to continue, double previous estimates. Naftogaz, the state energy company, is struggling to pay its bondholders. A lot of money has been pledged; much less delivered.
Western countries, worried about their own defenses and with arms industries configured for other priorities, are running out of weapons to send. Ukraine got enough friends to keep them from losing, but not enough to ensure victory. In the resulting war of attrition, Russia, larger and with huge stockpiles of old-fashioned weapons, has the upper hand.
Add to that the political and economic tensions that we will have to face this winter and the picture looks bleak. But far darker will be the results of cowardice and indecision. Putin has two goals in this war. One is to destroy Ukraine as a functioning state. The other is to show that its will is superior to that of the West. Imagine what the world will look like if he succeeds. A victory for Russia in Ukraine sounds the death knell for other countries: Moldova and Georgia soon, but then the Baltic states of Estonia, Latvia and Lithuania. The credibility of the West, built over decades, will be shattered. In the end, we wanted to stay warm more than we wanted to stay free.
It will also send a powerful message to Xi Jinping as he ponders how to handle China’s rise and America’s decline.
The answer is not to wait for winter to bite. This is using the summer months to impose unbearable costs on the Kremlin. We should give Ukrainian commanders the green light to strike deep inside Russian territory. We should provide tanks, fighter jets and other weapons. We should intensify our financial and other sanctions against Russia. We should fund Ukraine’s economic stability. We must clearly and credibly state our goal: a comprehensive military victory for Ukraine.
Expensive and risky? Yes. But look at the alternative.