German government breaks sanctions regime for Russian gas

On Sunday evening, the Ukrainian government issued a withering condemnation of a deal between the German and Canadian governments which would allow Siemens to export banned technology in the form of a gas turbine to Russia for supposed maintenance of the Nord Stream 1 pipeline. Kyiv asserts that it was an “adjustment of the sanctions regime to the whims of Russia” that violated international solidarity and increased impunity for Russian aggression.

According to GTSOU, which runs Ukraine’s gas system, Russia has spare capacity in other pipelines and could continue to supply Germany with gas without the delivery of the turbine. Instead, Putin is using maintenance of the infrastructure that carries its fossil fuels to Europe to force Germany’s hand, gambling that Germany will in the end prioritise cheap gas. To nobody’s surprise, on Wednesday, Gazprom stated that even with the return of the ‘critical’ turbine, they could not guarantee the proper functioning of Nord Stream 1.

The situation has highlighted the intricacies of European and Russian dependencies: EU countries are reliant on Russian fossil fuels for their energy needs, but at the same time the Russian fossil fuel industry is beholden to the Western companies’ oil and gas technology that is difficult or impossible to source elsewhere.

Conversations around Russian energy sanctions tend to focus on import bans: what is prohibited to flow out of Russia and into the West. This focus on the most visible dependency, the one we in the West feel most acutely, makes sense – import bans are the most immediate mechanism we have to stop the stream of European money to the Kremlin. Less attention has been paid to export bans, concerned with the goods and services that are prohibited to enter Russia from Western nations. Because American and European companies proactively built Russia’s fossil fuel infrastructure, it is these restrictions that threaten the long-term viability of Russian energy exports.

For years Russia tethered its future as one of the world’s largest oil producers to expansion into the Arctic. As the nation’s more central oil fields have declined, focus has turned north to the far reaches of Siberia where hostile conditions and lack of existing infrastructure makes oil production highly technical and complex. Despite the exorbitant cost of accessing these unconventional sources of energy, Western companies, among them oil majors Shell, TotalEnergies, and ExxonMobil, eagerly flocked to the Russian Arctic providing critical technology, financing and expertise to enlarge the country’s production.

From exploration, to drilling, to extraction, Western companies have been uniquely responsible for securing Russia’s prominence as a global energy giant, and without them, the industry will struggle. Of particular importance are American oilfield servicing companies Halliburton, Schlumberger and Baker Hughes, which are gatekeepers to now-sanctioned technology that Russia needs to maintain and expand production. Speaking to Russia’s dependence on Western companies for its gas output, Senior Rystad Energy Analyst Daria Melnik stated “We don’t have our own technology, we don’t have our own equipment, we don’t even have gas turbines or LNG tankers”, a reality that was made all too clear during the wrangling over the Siemens turbine.

Germany’s scramble to return the turbine to Russia began in June when Gazprom reduced gas flows through Nord Stream 1 by 60% of normal capacity, saying they needed the component which had been sent to Montreal for repairs and was subsequently stranded by sanctions. German government officials recognised that Russia’s demand was a poorly disguised tactic to exert pressure and push up prices, with German economic and climate minister Robert Habeck calling the request a “pretext” for an economic attack. Despite this recognition, and Habeck’s warning that Russia would likely just find another technical excuse to discontinue gas supplies, the German government sprang into negotiations to push Canadian allies to deliver on Russia’s request. 

The exemption granted in the face of Ukrainian opposition is emblematic of other inconsistencies in Europe’s response to Russia’s invasion, not least their continued funding of a war that they vehemently condemn, and which is costing them dearly. Russia may well turn off the taps completely this winter. For many countries, they already have. It is no fairer to leave people in energy poverty vulnerable to the whims of a dictator than it is for Germany to proactively cut gas supplies from Russia. Europe has better alternatives: rapidly upscaling the use of renewable energy – which is cleaner and cheaper – and simultaneously reducing consumption. By submitting to Russian extortion Germany is tinkering around the edges and weakening the collective effort against the war, when they should be boosting insulation, upgrading energy efficiency, and expanding renewables well before winter begins.