2 March 2022
Ukraine and energy
Launching his invasion of Ukraine, Russian president Vladimir Putin presumably believed he would not be severely punished by Europe, which relies on Russia for its energy needs. Natural gas accounts for just over 20 per cent of the European Union’s energy consumption, and approximately 40 per cent of that is Russian gas. Current European gas stocks would be depleted in six weeks if Russian supplies were cut off.
The dependence on Russian resources has done little to temper Europe’s response to the invasion; instead, it has started looking for new energy supplies, including potentially from Australia.
Germany, the EU’s most populous country, and its largest economy, relies on Russian gas for over half of its supply. Over the weekend German finance minister, Christian Lindner, stated that renewable energy is “freedom energy”. But renewables cannot currently meet German demand. In the short-term, Germany has announced plans to construct two new liquefied natural gas (LNG) terminals and to buy more gas on the global market as a way of reducing its dependence on Russia.
For Australia, one of the world’s largest LNG producers, the rush by countries in Europe and elsewhere to secure energy supplies presents a significant opportunity. However, approximately 90 per cent of Australia’s LNG exports are tied to long-term contracts with China, Japan, South Korea and Taiwan, and only a small amount of gas is available on the spot market for new customers. To accommodate the rise in global demand for LNG, Australian companies will need to increase production.
Last week, when the UN Security Council voted on a resolution to condemn Russia for its invasion of Ukraine, India disappointed many in the West, including Australia, when it abstained. The perception was that, like China, this provided a tacit approval of Russia’s actions.
However, the calculations for India are more complex. New Delhi is caught between the expectations placed upon it by the West, and its crucial security relationship with Russia, India’s largest defence supplier. Military hardware of Russian origin constitutes over 50 per cent of India’s overall military assets. Even as the country has begun to diversify its defence supplies, it relies on Russian parts for the maintenance of its existing equipment.
As India’s global power grows, its primary concern is to counter China, both in its disputed border-regions and throughout the Indian Ocean. Because of this, India is not willing to jeopardise its defence supply arrangements with Russia.
Yet, this doesn’t mean India is pleased about Russia’s invasion of Ukraine. While its vote in the Security Council may have suggested ambivalence, the language used to describe Russia’s actions has been firmer than usual and, over the weekend, Prime Minister Narendra Modi spoke with the Ukrainian president, Volodymyr Zelensky. India has also offered humanitarian aid to Ukraine, including medical supplies.
Alongside securing its necessary military components, India’s abstention may also have ensured a line of communication remains open between New Delhi and Moscow – an asset that Australia and its allies could find valuable the longer this invasion persists.
Australia’s own agency in Ukraine is limited. Economic relations between Australia and Russia are of no great significance; meaning Australia is unable to exact serious financial impacts on Moscow. Canberra has worked with its allies and partners to create a unified series of sanctions, but this is mostly a preventative action that ensures Russian officials and entities cannot use Australia to circumvent measures that target where their real money is.
Australia has also offered important practical support, this week committing to providing A$105 million in financial support to Ukraine. This will include A$70 million for NATO to provide lethal and non-lethal military equipment to Ukraine, and an initial A$35 million in humanitarian support. Canberra has offered assistance to combat Russia’s cyberwarfare against Ukraine. Places in Australia’s refugee intake will also be made available for Ukrainians.
But Australia’s most distinctive response has been on the diplomatic front. It has concluded that China holds considerable sway over Putin and may be able to effect a change in his behaviour. This is a fair assumption, given that the two countries have become increasingly close, and that sanctions are making Russia far more reliant economically on China.
Yet, it is unclear if the forceful tone Australia has used will achieve the desired result. Prime Minister Scott Morrison stated, “The suggestion that there is some security pretext by Russia for this invasion, which has been suggested by the Chinese government, is completely unacceptable.” The defence minister, Peter Dutton, claimed that it is “deeply disturbing, that China has essentially encouraged Russia”. This kind of language does little to appeal to Beijing’s responsibilities as a burgeoning superpower.
Beijing may well be in a position to try to restrain Putin’s aggression. Yet this may require a little more diplomatic tact.