Russia’s Friends of Convenience
Energy competition is getting stiffer.
By: Ekaterina Zolotova
New U.S. sanctions have targeted Russia’s energy resources.
Europe, one of Russia’s most important buyers, has not joined the embargo but has promised to accelerate its plan to diversify its sources by the end of the year.
This may be easier said than done.
The industry is such that markets are slow to change even if prices are not.
Existing infrastructure also plays a significant role; existing tankers, pipelines and refiners help enable Russia to account for about 40 percent of the European Union’s natural gas needs and about 20-25 percent of its oil needs.
Even if Europe successfully moves away from Russian energy, time is on Moscow’s side.
It’ll take years to, say, construct new pipelines, erect ports capable of receiving liquified natural gas, or set up facilities capable of refining different types of crude – to say nothing of the structural supply issues such as OPEC directives and existing contracts with Asia.
Even so, Russia is counting on the support of its allies in the energy market as its erstwhile customers look for other options.
One such ally is Venezuela, a stalwart patron in Latin America that the U.S. is already trying to peel away.
Last week, a delegation from Washington arrived in Caracas, where representatives from both sides discussed oil issues.
Talks touched on the possibility of ending sanctions on Venezuela that have been in place since 2019, while the head of Venezuela’s Petroleum Chamber said the country is ready to increase production to help meet North America’s needs.
Russia isn’t especially worried about oil here.
There are a ton of obstacles and no small amount of animosity to overcome for Washington and Caracas to strike a deal.
The U.S. Congress is considering legislation to ban the import of Venezuelan oil, and considering the dilapidation of Venezuelan oil facilities, it would have a hard time ramping up production quickly.
Moscow’s concern is geopolitical: Venezuela is one of the only countries that broadly supports Russia, one that holds a lot of strategic value as a cudgel against the United States in the Western Hemisphere.
The bigger challengers to Russia’s energy position, then, are in Eurasia.
It’s true that European countries such as Germany and Italy buy a ton of Russian energy, but competition is getting stiffer.
Exports from Azerbaijan are gaining momentum, new terminals for receiving LNG are being built, a transition to green energy is underway, and the EU itself is threatening to reduce dependence on Russia.
To be clear, Russia still has an advantage in the short term.
But in the long term, it may have a stronger competitor in Iran.
If sanctions are lifted, Europe expects Iran to be a viable alternative to Russia for a few reasons.
For one thing, Iran ranks fourth in the world in oil reserves and second in natural gas reserves.
Iranian production can also be stored quickly, even if it’s unclear just how much it can do. (Despite U.S. sanctions, Iran exports 1.2 million barrels per day, down from 2.8 million before sanctions.)
And perhaps most important, geography works in Iran’s favor.
The border with Iran is located in the east of Turkey, which is closer to the Trans-Anatolian Natural Gas Pipeline, plus Iran can lay a gas pipeline through Turkey to the Black Sea to connect to the offshore part of the Turkish Stream.
Iran already supplies Turkey with an average of 10 billion cubic meters per year of gas through the Tabriz-Ankara main gas pipeline, and according to the latest data, the share of Iranian gas in Turkey's energy balance in 2021 was about 16 percent.
Meanwhile, there is reason to believe Iran sanctions may soon be lifted if a new Iran nuclear deal is reached.
Russia believes the deal would give Europeans access to new resources, even as the current sanctions on Russia prevent it from enhancing its position in the Iranian market (through things like investment and infrastructure development).
Hence why Russian authorities have suddenly raised doubts about the agreement’s prospects.
To that end, during nuclear negotiations, Russia demanded written guarantees from the United States that Western sanctions would not interfere with trade and economic and investment cooperation between Moscow and Tehran if the deal is restored.
Tehran criticized Moscow, calling its demands unconstructive.
Even so, the head of European diplomacy, Josep Borrell, said that although the talks have been suspended due to unnamed “external factors,” the final text of the agreement is ready.
On Feb. 17, Washington even said that significant progress had been made and that a deal could be reached soon.
At this point, Russia would take whatever time it can get.
The longer it can delay a deal, the longer it won’t have to compete in Europe with Iran.
As far as energy goes, Russia will maintain a strong position in the short term.
But it’s starting to see longer-term threats as the U.S. and the West flirt with its allies.
Sooner or later, countries with large reserves will have a seat at the table amid all the anti-Russian hysteria.
And as long as these countries are on Moscow's side, Russia will keep calm for the time being.
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