Since the Russian military ramp up at the end of 2021, the international community, in particular Europe and the US, have stood united in their support of Ukraine and opposition to the Russian Invasion. While there have been points of disagreement and contention, the coming winter will be the largest test of the unity of the Western coalition so far, as Europe works to fill its energy deficit and the US braces for higher petrol and energy costs. EU Energy Ministers and Heads of State have met 3 times in the last month, with more meetings to come as they work towards answers, and an economic strategy for the winter is a key portion of this week’s Annual Meetings of the IMF and World Bank Group. As a hard winter draws closer, the US is identifying the ways it can best continue its support of Ukraine and support Europe’s energy needs while decreasing the impact of rising costs at home.
How Will the US Support Europe?
Since the early days of the Russian invasion, the Biden Administration has been clear in its commitment to export as much Liquefied Natural Gas (LNG) as possible to Europe. In recent weeks, the administration has ruled out bans or curbs on LNG exports through the winter, in a continued effort to support Europe’s gas needs. This decision has been met with resistance by Democratic Senators, who argue that uncapped exports will contribute to higher heating costs at home – LNG suppliers are already shipping 60% of their yield to Europe. With Russian LNG an unreliable option, any dip in American LNG exports would be filled by Chinese gas – a political non-starter for many in Washington as the behind-the-scenes battle for influence between the US and China continues. There are also growing accusations of profiteering by LNG producers in the US and Norway, which has replaced Russia as Europe’s largest LNG supplier – Norway’s petroleum sector expects to see over $100 billion in profits in 2022. These accusations have not gone unheard, and Oslo is working with EU leadership in Brussels to develop tools to stabilize markets and reduce excessively high prices “in a meaningful way.”
Back in the Spring, US Treasury Secretary Janet Yellen was one of the first to propose gas and oil price caps in an effort to control energy prices and restrict Russia’s ability to finance its continued invasion. While the G-7 has been slowly moving forward with the proposal after crossing the first major approval hurdle on September 2nd, a similar proposal before the EU Commission is struggling to gain traction, with resistance from Germany, Hungary, and other members. Even Member States like France, that support a price cap in theory, are uncertain as to how it would be implemented. For a deeper dive into the conversations within the EU, read this piece by our French team.
Military and Diplomatic Complications
With the Russian military facing a recent string of defeats in eastern Ukraine, suspicions and fears in Europe and the U.S. have grown over Russia’s use of sabotage, such as on the Nord Stream pipelines at the end of September. The sabotage has driven concerns within the EU and US over the safety of other energy sources, including US LNG shipments to Europe. These have led for calls for increasing both cyber- and physical protection for key pieces of energy infrastructure in the near-term.
US / EU Energy coordination has also been complicated by the OPEC+ decision to cut oil exports by 2 million barrels a day (~2% of global supply) beginning in November. The decision was met with frustration and disappointment in Washington, where a group of Democratic Senators have proposed cutting U.S. military support for Saudi Arabia and White House officials have said the Administration is “reevaluating its relationship” with the Saudi Kingdom. If Washington’s threats are unsuccessful in shifting Saudi or OPEC policy, the production cut will increase the value of Russian oil exports and may further increase energy and petrol costs for Americans in the last weeks before the midterm elections.
The coming weeks will hopefully see decisions from the EU commission, the G-7, and the US regarding their policy approaches to the growing energy crisis. While the specifics of these decisions are unknown, the cost of a united front against Russia is certain to be seen through rising energy and petrol prices through the winter.
Subscribe to Our Newsletter