Pavlo Palamarchuk/AP Photo
A worker at a Ukrainian gas facility in Volovets, western Ukraine, controls a valve, October 7, 2015.
The conversation about the crisis in Ukraine, where there are currently 100,000 Russian troops amassed on the eastern border seemingly poised for action, revolves around security: the security that Russia seeks by demanding that Ukraine not be admitted to NATO as a member state and the security that Washington and its Western European allies seek by demanding a Russian commitment not to invade. Mentioned as a complicating factor is the fact that Russia is the leading exporter of gas, coal, and oil to Europe. With electricity bills in Europe already reaching new heights this winter, warfare in Ukraine could increase the energy hunger.
But what if energy supply is not a complicating factor but the main reason the crisis began? Indeed, Russia and America have a decades-long history of competing over the European energy market. Often, they used ideology or national-interest concerns to explain the cause of friction. But just as often, the real motive behind numerous crises was plain old commercial competition.
The Russian-American carbon rivalry was born at the end of World War II. By 1944, Stalin became convinced that the U.K. and the U.S. were conspiring to divide the global oil market between them, leaving the Soviet Union out in the cold (he was wrong; oil was actually a cause of friction in British-American relations at the time). In response, Stalin tried to preserve Russia’s traditional sphere of influence in northern Iran, a region considered by the Soviets to be oil-rich. Toward that end, he erected two puppet regimes on the shores of the Caspian Sea. However, in the spring of 1946, following American pressure, Stalin had to throw in the towel and pull the Red Army out of Iran. The crisis contributed to the collapse of trust between the two superpowers.
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The Cold War, which intensified during the next year, led to the severance of trade ties between Western Europe and its traditional sources of energy in the eastern part of the continent, such as Polish coal and Romanian oil. Washington responded with alacrity. The Marshall Plan included credit lines, which European aid recipients could only use to buy Mideast oil from American corporations. Between 1947 and 1950, the State Department helped a consortium, which included Standard Oil of New Jersey (now ExxonMobil) and Standard Oil of California (Chevron), to construct a pipeline (known as the Tapline) that streamed Saudi oil to the shores of the Mediterranean. When the Syrian government dug in its heels and refused to let the pipeline pass through its territory, the CIA engineered a coup that brought to power a more friendly government.
Despite America’s best-laid plans, by the early 1950s Soviet oil was making a comeback on the world market, especially in developing countries. American oil corporations had good reason to describe this development as a strategy of “Communist subversion.” At the time, these companies were under investigation by the Justice Department for price-fixing. The lawyers involved in the case believed that the suit would allow them to break these corporations in the same manner that Rockefeller’s Standard Oil was dismantled in 1911. However, the oil corporations refused to provide documents to DOJ, claiming that this would undermine national security. Since there was a revolving door between oil companies and the halls of power, the State Department and the National Security Council backed them up, and the Eisenhower administration let the investigation peter out.
Major discoveries of oil in the Volga-Ural region during the late 1950s further increased Soviet interest in exporting to Western Europe. The Kremlin wanted to build pipelines that would connect their oil fields in the Volga-Ural, the Caspian Sea, and Central Asia, and carry the black gold into the heart of the continent via Czechoslovakia and East Germany. To entice European partners, the Soviets offered to sell at below-world-market prices.
What if energy supply is not a complicating factor but the main reason the crisis began?
The first to bite was Italy. Its national oil company, known as Eni, was in search of reliable suppliers, while the Soviets badly needed large-diameter steel pipelines. In 1960, the two sides signed an oil-for-pipelines deal. Eni would remain Moscow’s largest customer in Western Europe until 1970. This was a breakthrough for the Soviet oil industry and a major threat to the profits of American oil corporations, which up to this point were making a killing in the European market. In 1961, the American delegation to NATO tabled a proposal for a comprehensive embargo on the export of steel pipelines to the Soviet bloc. However, the proposal met only a lukewarm response by other member states.
In 1964, the Soviet Union completed its pipeline network, dubbed the Druzhba (“friendship”) project. In the next few years, it began to compete with American energy corporations in the Middle East. It signed large deals in Iraq, Iran, and Afghanistan, and built pipelines that connected Iraqi oil and Afghan and Iranian gas to Soviet infrastructure. These steps allowed Moscow to imitate the U.S. strategy of acting as middleman between Middle Eastern producers and Western European customers.
No wonder the Reagan administration was livid when it found out that the Soviets were embarking on another big project: a pipeline running from Siberia’s gas fields to West Germany. Citing concerns about European dependence on Soviet supply, the administration threatened to slap sanctions on German and French companies that supplied crucial assistance to Moscow. When the Western European partners signaled they that would not budge, Washington folded and allowed the project to be completed. (Incidentally, the author of a monograph on this episode is the current secretary of state, Antony Blinken.)
The dissolution of the Soviet Union in 1991 and the adoption of a market economy by the Russian federation were supposed to end the ostensibly ideological conflict of the Cold War. However, it turned out that geopolitics and economics speak louder than words. After a decade-long hiatus in the 1990s, Russia and the U.S. went back to the “great game” of energy competition. They spent the first decade of the 21st century fighting over who would create Europe’s southern gas corridor. The EU, aided by the U.S., tried to pursue the Nabucco project, which was aimed at streaming Central Asian gas to southern Europe via Turkey. If completed, the pipeline would have bypassed Russia and diversified Europe’s suppliers. However, by 2013 it became clear that the project would not come to fruition. One year later, Vladimir Putin beat Europe to the punch and signed a deal with President Erdogan to create TurkStream, transporting Russian gas via Turkey to Bulgaria (it went operational in 2020). As a result, Russia solidified its position as Europe’s main gas supplier.
It did not take long for the U.S. to strike back. The shale gas revolution allowed the U.S. to increase its gas production exponentially after 2005. Under President Obama, Hillary Clinton’s State Department aggressively pushed fracking technology in Eastern Europe. With Chevron as a leading investor, drilling in Eastern Europe was supposed to create alternative sources of gas that would lessen European dependency on Russia. These hopes were soon shattered. Popular resistance, legal complications, and bad luck stymied American efforts. Nevertheless, in the last six years the United States became one of the three largest exporters of liquefied natural gas, and in early 2021, the U.S. became Europe’s top supplier.
All this forms an essential background to the current events in Ukraine. Both the Druzhba project and the Trans-Siberian Pipeline run through Ukrainian territory, because at the time they were constructed Ukraine was a part of the Soviet Union. As a result, one-third of the gas Russia supplies to Europe passes through that country. It is therefore no surprise that Russia exhibits extreme concern about the fate of Ukraine. It’s worth mentioning that in both 2007 and 2014, Russian pipelines were blown up, probably by Ukrainian nationalists.
Although Russia tried to lessen its dependence on Ukraine by investing heavily in the construction of other pipelines that bypass that country, the loss of infrastructure in Ukraine would severely limit Russian gas exports. Putin therefore responded harshly every time he thought that Ukraine was drifting toward the West. Twice he used gas supply stoppage as a lever, and when that failed to bring about the desired outcome, brute military force. Consequently, in 2014 Russia invaded Crimea and the eastern parts of Ukraine. At the end of 2021, Putin resorted to the same method.
Washington is in no hurry to respond to Russian threats. The crisis plays right into the hands of American shale gas companies, which are reaping a windfall. American liquefied natural gas exports to Europe increased by 40 percent in the last quarter of 2021 and are expected to be much higher during the first quarter of 2022. American energy executives have declared in recent weeks that they were eager to replace Russian pipeline gas with American liquefied gas.
Nevertheless, an escalation of the crisis into open warfare would be bad for all parties. It might bring about a sudden stop to any kind of Russian exports to Europe and would cause a severe shock to the European and American economies. For these reasons, the crisis will probably drag on for some time, and end with a whimper rather than a bang.
