Dependency or interdependency? Energy relations between Europe and Russia have become increasingly complex since the end of the 90s. The financial crisis and the drop in the price of oil mean that Moscow must be more flexible. That is in the best interests of both partners.

The opinion of William C. Ramsay

Director of the European Governance and Geopolitics of Energy Program at the French Institute of International Relations (IFRI), he was formerly Deputy Executive Director of the International Energy Agency from 1999 to 2008 and Deputy Assistant Secretary for international energy issues, economic and foreign policy sanctions, and strategic commodities for the United States Department of State.  As such, he was instrumental in expanding dialogue between energy producing countries and international institutions. He is also a former Economic Counselor at the US Embassy in Riyadh, Saudi Arabia, and taught as a Peace Corps volunteer in French-speaking Africa (Guinea).

Russia's appeal as an energy supplier is obvious: its geographic proximity, the availability of vast resources at reasonable cost, and its commitment to joining European power grids make it a logical partner from every angle.

Russia should take advantage of Western capital and talent

Russia alone cannot satisfy all of Europe's energy needs. Especially for liquefied natural gas (LNG) or oil and gas from deep offshore fields, due to obsolete technology and/or equipment. So Russia needs what Western producers can bring, either through joint ventures or simply by buying their services. Also, Russia has not explored the full potential of its resources. Russia is very rich in natural gas, but only the most easily accessible reserves have been exploited so far. It could contract for this task with operators that are more flexible and “nimble” than Russian gas giants Surgutneftegaz and Gazprom. A few years ago, Russia decided that cooperation with Western companies was not the way to go. It may want to revisit that policy now that oil is down to $50 per barrel and, with financial markets in turmoil, financing in the range of $50 billion per year is hard to find. It could do this by reforming its mining laws to make concessions and operating permits more attractive to foreign investors, for example, or it could improve its tax system or environmental safety. And, of course, Russia should abandon the methods it has used to prevent foreign companies from developing locally.

The crisis will have an impact on new gas pipeline projects

The financial crisis could provide an opportunity for Russia to restore balance in its relations with the West. The country has long feared, not without reason, that the rest of the world was only interested in grabbing its oil and gas reserves. That is no longer the case today. In fact, it is the Russian operators and the Kremlin that dominate both sectors. Instead of turning inwards, they should take full advantage of European, American and Asian talent.
The current crisis will also have an impact on ongoing pipeline projects. It will be more difficult to finance oil pipelines with the need for additional capacity now more uncertain.  The price of natural gas, pegged to the price of oil, is bound to decline, though with a six month lag. The consequences on pipeline projects will be the same. In fact, projects such as Nabucco and Northern Stream are still in the talking stage and construction has yet to start.
Russian operators called on Western expertise and capital in 1999-2001, when the rubble was devalued. Today, these same operators are putting pressure on the Russian government to reopen cooperation. Could this be the beginning of a new chapter or is it just a footnote? Let's hope that we are on the verge of a new era that is truly sustainable and beneficial to Europe and Russia, and that Russia will end its distrust of foreigners. I believe the Russians have begun to understand that it might be very costly for them to "turn off the tap" to their immediate neighbors. The risk may be lower with the 12 new members of the European Union, as these countries are not yet fully integrated into the larger Europe of 27. But the Russians would hesitate to interfere with France, Germany, Italy and others, if for no other reason than that they share too many interests with those countries.