Russia’s energy policy is well positioned to benefit from Eurasian energy trading.
On the one hand, Russia can trade with European oil importing countries. The other alternative is the economically strong East Asian region.
1. Russia’s history shapes its current energy policy
Russia’s history determines Russia’s actions to this day. Because of its position on the European plain, Russia is exposed to the Western forces, but geopolitically it has secure borders on its southern, eastern and, above all, northern borders. Russia’s geography also determines its energy policy. There are large energy reserves in the north and east of the country, some of which have not yet been exhausted. Permafrost has frozen the oil and gas deposits in northern Siberia, but the true wealth of Russia’s raw materials is slowly coming to light. It should be noted here that Russia is actually using its energy reserves very strategically, and until recently Russia was also able to secure political influence in Eastern and Central Europe by exporting its vast oil and gas reserves. This has not always been economically advantageous for Russia, as in the case of Ukraine. Nevertheless, gas transit allowed countries such as Ukraine to charge transit fees that were a good income and contributed to the state budget.
2. Nordstream 2 is a major Russian energy project with political dimensions
With the construction of NordStream 2 through the Baltic Sea and the commissioning of the new natural gas pipeline feeding natural gas from the Leningrad region to Lubmin in Rügen to supply the German and Central European markets with natural gas, a large part of these transit charges will be eliminated. Nevertheless, the German government asserts that the commissioning of NordStream 2 will not lead to a reduction in natural gas supplies through the existing natural gas pipelines, which will run through Ukraine and Poland, among other countries. But the abolition of the transit fees is a severe loss for the transit countries, which leads to them to show their displeasure, and support the United States vis-à-vis Russia and Germany to stop the construction of the Nordstream 2.
3. China is becoming increasingly important as a buyer country for Russia’s oil and gas reserves
It is already foreseeable that due to China’s growing economic influence in East Asia, an ever larger share of fossil fuels will find buyers in the Chinese market, if only because of China’s increasing purchasing power. It has to be said that Russia has not made a good deal with the Chinese regarding the supply of natural gas to China for the next 30 years. In fact, the price the Russian energy companies have negotiated is well below Russia’s expectations, and it is already clear that the new Power of Siberia pipeline will not be so profitable for Russia and Russia will definitely have problems with significantly lower revenues from the export of natural gas to maintain its government spending. So for now, Europe remains the most important market for Russian oil and gas, but that will change in the long run. I went into more detail on Russia’s energy policy vis-à-vis Europe in another article.
The Russian bear likes honey very much, let’s not sugarcoat it, but the Russian bear has much more oil, and is picky about who he does business with.
Many thanks for the shared interest in the energy world!