The world is witnessing one of the most tragic events of the 21. century with Russian attacks on Ukraine. The arguments put forward by Russia for the occupation of Ukraine were not accepted by the international system, except for a few states, and this occupation also led to a great public reaction in democratic countries. Western countries, on the other hand, started to impose sanctions against the Russian administration after the attacks on Ukraine. Many experts point out that the sanctions will become more severe and that the heavy economic bill of the sanctions may unleash a serious opposition movement in Russian society. However, it is observed that in response to the sanctions, nationalist discourses and the use of force are increasingly adopted in Russian foreign policy under Putin government. We talked to Eser Özdil, about many aspects of the Russian occupation of Ukraine, from its effects on regional politics to energy security. Özdil is the founder of Glocal Group Company, who also has international lobbying experience in the energy sector.
Could the trade, economic and financial sanctions that NATO countries implement preventively due to Russia’s occupation of Ukraine and Russia’s decision to recognize the Luhansk and Donetks Republics narrow Russia’s area of influence in the region?
The monetary equivalent of Russia’s oil and natural gas exports last year was over $165 billion. The exclusion of Russia from SWIFT will cause serious problems in foreign currency exports, especially in energy trade.
I would like to answer your question by comparing the sanctions after the occupation of Ukraine with the sanctions during the 2008 declaration of independence of Abkhazia and Ossetia and the 2014 annexation of Crimea. Because I think that the tone and effect of the sanctions in the short and medium term will not be the same in a period when the threat messages against Finland and Sweden are increasing with a military operation that turns into a total occupation of Ukraine.
After the annexation of Crimea, we see that the sanctions imposed on Russia by Western countries, especially the EU, USA, and Canada, generally targeted the oil and natural gas industry. The main axis of the sanctions was the prohibition of technology supply to oil and gas companies, the suspension of loans to Russian energy companies, and the imposition of a travel ban on some influential figures not only in the oil and gas industry, but also in Russian political life, such as Igor Sechin. These sanctions, though mild in scope, had negative effects on the Russian economy. Many calculations have been made that the short and medium-term effects of these sanctions are hundreds of billions of dollars.
However, the current situation is very different from the situation in 2014. It goes far beyond the concept of low-intensity regional conflict by supporting several separatist regions. We are talking about a total invasion against a sovereign state of the international system, and this situation has increased the security threat perception of many states, especially Eastern Europe, the Baltics and Turkey. The arguments put forward by Russia were not accepted by the international system, except for a few states, and also caused a serious public reaction.
Even the sanctions that were announced first are harsher and more economically painful than those in 2014. It is clear that the sanctions against Russian banks and financial institutions, especially Sberbank and VTB, the removal of these banks and institutions from the international financial system, as well as the freezing of assets, sanctions against Russian energy and defense companies and restrictions on Russian oligarchs have strong effects on the Russian economy in the short term. The Russian stock market has lost more than 40% of its value, Gazprom’s shares have fallen close to 50%, the ruble had a historic fall.
The removal of Russia from the SWIFT system will be the heaviest economic sanction. At the time we spoke to you, the Minister of Foreign Affairs of Ukraine Kuleba announced that the decision to remove Russia from the SWIFT system had already been taken and the technical proceedings were ongoing. The monetary equivalent of Russia’s oil and natural gas exports last year is over $165 billion. The exclusion of Russia from SWIFT will cause serious problems in foreign currency exports, especially in energy trade.
I think that Putin made a serious mistake with his large-scale operation against Ukraine and that although the short-term effects of the sanctions are limited, they will be devastating in the medium and long term. If Ukraine shows resistance, and the news from the field is that there is a strong resistance, I think Russia will have a serious difficulty in continuing the military operation.
In terms of the use of soft and hard power elements in Russia’s foreign policy-making processes under Putin government, how do you think Russia’s position in Ukraine will be shaped in the future?
The process could lead us to a Russia without Putin.
Weeks before Russia use of military force in Ukraine, it had begun media propaganda to prepare the way for the invasion. For some time, the Russian media was making anti-Ukrainian news and accusing Ukraine of being an authoritarian country that oppressed the Russians. As a matter of fact, Russia presented its military operation as a “peace force” sent to stand out against a “neo-Nazi” Ukraine. So, at one point, Russia is using the soft power credits it obtained from its victory in the Second World War to legitimize the invasion. Of course, the focus of Russia’s discourse is the Russians in Ukraine.
However, on the other hand, we also see that Russian foreign policy cannot pursue a foreign policy agenda based on consent on the former Soviet Bloc, which has long been regarded as its historical backyard. After the Chechnya war, Russia did not refrain from using hard power in Georgia and Ukraine. It has also provided military support, albeit at low intensity, in large-scale anti-government demonstrations in Belarus and Kazakhstan recently. In the Karabakh war, however, Russia punished Armenia with a controlled war against its efforts to improve its relations with the West.
We can see that Putin is now increasingly adopting the use of hard power in foreign policy. For this reason, I think Putin will use military options until the end in the wide invasion operation launched against Ukraine, and as the resistance gets tougher, Russia’s attacks will also get tougher. The process may lead us to a Russia without Putin.
How do you evaluate President Putin’s long speech, which includes history and nationalist discourse, in terms of the foreign policy he will develop in the region before he invaded Luhansk and Donetks?
The human cost of sanctions and war will cause serious problems in Russia’s domestic policy, and this will create serious internal opposition in the implementation of the said expansionary foreign policy.
Ukraine has an important place in Russian culture and nationalist discourse. From the point of view of Russian nationalists, Ukraine already belonged to Russia, and the invasion of Ukraine is only about reclaiming what is their right. Putin’s speech is an extension of this perspective. Putin argues that Ukraine became independent as a result of the communist regime’s fault, and it actually belongs to Russia. With this speech, Putin separates today’s Russia from the Soviet Union, on the one hand, and on the other hand he claims that the broad Russian borders in the USSR period should be redrawn. It seems that witnessing the collapse of the Soviet Union left deep traces in Putin’s mind and Putin wants to revive the Soviet legacy during his presidency.
This does not limit the issue only to Ukraine. For example, it includes the Baltic countries, Eastern Europe, and Stalin’s demand on the Straits. In other words, if we look at Putin’s speech, it gives the impression that the Russian administration wants to follow an expansionist policy in the short and medium term. That’s why the clearest messages in the support statements for Ukraine come from Eastern European countries.
One of the important parameters here is how the Russian society and elite will respond to this aggressive attitude. The human cost of sanctions and war will cause serious problems in Russia’s domestic policy, which will create serious internal opposition in the implementation of the said expansionist foreign policy. As a matter of fact, Putin is securitizing Ukraine in his speech to eliminate this possibility, that is, he presents it as a threat to Russian national security. Hence, it is trying to legitimize the occupation of Ukraine. The international community does not quite believe this. The protests in Moscow and St. Petersburg right after the occupation show that the Russian people do not look kindly upon war. I think that the economic sanctions, the growing support for Ukraine and the internal opposition that will emerge will press Putin.
In a high-intensity conflict, how will the energy supply security of Europe be shaped which depends on Russia’s pipe gas at an annual rate of 40-41%?
It should not be forgotten that all technical, commercial, and legislative developments seriously shook Gazprom’s revenues and market dominance, especially between 2015 and 2020.
Natural gas trade between Europe and Russia started during the Soviet era. The truth is that Europe needs energy and Russia needs income from energy. In addition, investments in the energy sector are long-term and expensive investments. Therefore, one should not expect a dramatic change in the short run. In addition, there has been an increase in the amount of natural gas flow to Europe since the beginning of the war. There has been no problem so far in the transit flow through Ukraine too. It is understood that all parties have tacitly agreed that natural gas trade should continue with caution.
Although similar discussions were experienced especially in the 2010 and 2014 crises, my belief is that due to the occupation of Ukraine, the debates on security of supply and high dependency and ultimately alternative planning will be taken more seriously. The 2006, 2010 and 2014 crises led the EU Commission to take some measures in the field of natural gas. Especially the 2006 and 2010 crises led to concrete results such as strengthening cooperation between member countries, completing market integration and accelerating infrastructure investments. Poland, Lithuania, Croatia built LNG (Liquefied Natural Gas) terminals, the EU financed and accelerated the construction of the BRUA pipeline, the Greece-Bulgaria interconnector and the interconnector line construction processes allowing reverse flow. In addition, the stress tests carried out by the EU transmission line operators association ENSTSO-G, again in 2014, made it clear that the EU countries connected by interconnector lines would be able to deal with future gas crises much better. It should not be forgotten that all technical, commercial and legislative developments seriously shook Gazprom’s revenues and market dominance, especially between 2015 and 2020.
In the upcoming period, I believe that there will be serious studies on both the diversification of resources and the strengthening of the infrastructure by using renewable energy, LNG terminal construction and supply, and supplying gas from alternative geographies such as the USA, Qatar, Egypt, Israel, Iran, Turkmenistan, and the Caspian Region to reduce dependency on Russia. I’m thinking. It is possible to see that statements in this direction are being voiced in an increasing tone in the international press.
By justifying with force majeure, is it possible for Russia to reduce or cut off the gas flow to Europe for 10 to 20 days?
Of course, it might happen. Although Russia refrains from defining the current situation as war, in natural gas contracts, “war” is a defined issue within the force majeure clause. Therefore, the flow can be stopped for a short or long term on the grounds of the war. However, the more Europe is hesitant to stop its energy supply from Russia, the more Russia plays it safe to continue this trade. As I mentioned above, we have been seeing an increase in the physical gas flow to Europe since the beginning of the invasion of Ukraine.
Well, coming back to Turkey, how can possible conflicts in Ukraine affect our country’s current energy supply security? For example, even if Turkey’s LNG-based energy supply planning is more expensive than long-term contracts, can contracts contribute to security of supply in an environment of extraordinary circumstances?
Turkey has increased the capacity of LNG terminals to supply gas to the system, which was at the level of 37 million cubic meters/day, to 120 million cubic meters/day.
When we shot down a Russian fighter jet on the Syrian border in 2015, the possible consequences of our high dependence on Russia occupied the public at large. Since then, Turkey has increased the capacity of LNG terminals to supply gas to the system from 37 million cubic meters/day to 120 million cubic meters/day. It has accelerated its underground warehouse investments and is increasing its capacities. Despite this, our daily demand goes up to 300 million cubic meters during the coldest days of winter. When we come to the 2030s, it will reach the level of 400 million cubic meters. Again, our natural gas supply from Russia can reach up to 90 million cubic meters during the peak days of winter. As it will be remembered, a month ago, we had supply problems due to the decrease in the daily pipe gas input amount owing to both the gas cut in the line from Iran and the failure to renew some of the contracts that expired at the end of 2021, and we had to suppress the demand by approximately 50 million cubic meters per day. As an extreme example, let’s consider that there is no Russian gas in such a period. Of course, even the gas needs of residences cannot be fully met. However, this is an extreme scenario and considering that the next period is spring and summer, there will be a serious decrease in our daily gas demand, reaching an average of 140-150 million cubic meters, and in some days much lower. In this case, we will not have a long supply shortage with gas from LNG terminals and other sources. However, since the Turkish Stream and Blue Stream lines coming from Russia to our country directly reach us under the Black Sea, I consider the possibility of physical interruption extremely low.
In the past 10 years, European countries have made great progress both in regulating the free market where gas can compete with gas and in investments in natural gas storage facilities to diversify their natural gas supplies. If Russia cuts gas for technical reasons, how much of the supply can the existing LNG terminals meet?
There are serious differences in infrastructure between the east and the west of Europe. Italy, Spain, France, England have significant LNG capacity. Turkey is also among the countries with the highest LNG capacity in Europe. For the last 4 weeks, Europe’s LNG supply is at historically high levels, but despite this, many European countries would have serious problems if Russian gas was completely cut off. Since many of the Eastern European and Balkan countries are almost entirely dependent on Russia, the problem would be greater here. They would try to increase LNG flows from Poland, Lithuania, Croatia, and Greece. Support can be requested from Turkey.
On the other hand, global gas markets are also extremely tight, there is not much open capacity for supply. Therefore, even if there is capacity, it would not be possible to completely replace LNG and Russian gas. Let’s consider the most extreme scenario again. With effective interruption and reduction procedures, the process for the next 1-1,5 months can be managed. In 2014, ENTSOG tested this, and serious progress has been made in terms of infrastructure since then. The decrease in demand in the spring and summer months would also facilitate the management of the crisis.
To what extent do the alternatives solve problems in sourcing natural gas from outside Europe?
It would have a very limited contribution in the short run. As I explained above, regional constraints and global markets make LNG supply difficult. Gas from conventional pipelines can also be increased at extremely limited rates.
The US Senate enacted the National Defense Authorization Act in 2020, in a bipartisan manner, and it announced that the companies involved in the construction of the Nord Stream-II project, which was to transport 55 BCM gas annually from Russia to Germany, would be sanctioned on the grounds of national security. What changes will the suspension of the Nord Stream II project cause in the planning of European security supply?
Not activating Nord Stream-II does not physically affect the system.
The Nord Stream-II project was controversial from the very beginning. While the Eastern European countries were against it because of their dependence on Russia, Ukraine was also opposed to the second line, as in the Nord Stream-I project, because it would reduce the country’s income from gas transit. Germany was positive about this project, both because it would be the major country in the supply of Russian gas to Europe and because it would provide a large supply of natural gas to German companies. As with the gas coming from Nord Stream-I, gas coming from the second line could be sold to other European countries and even to Ukraine through interconnectors.
The occupation of Ukraine caused a change in the position of the German government with the pressure of the international public opinion. Technically, gas from Nord Stream-II can be transported to Europe via Ukraine and Poland routes, but Gazprom has repeatedly stated that it will not choose this route. Even before the invasion of Ukraine, Gazprom changed the market share prioritization strategy it had followed until 2020 and started to follow a price prioritization strategy. The fact that Nord Stream-II is not activated will not physically affect the system. But the main question on the agenda right now is whether Russia will cut off the gas flow, and if it will, how long and in what quantity.