Serbian President Aleksandar Vucic announced on Sunday that he had struck an “extremely cheap” natural gas deal with Russia. It’s not the only country that still relies on energy trading with the Kremlin.
The European Union is one of Russia’s top oil and gas customers. European OECD countries accounted for 49 percent of crude oil and condensate exports in fiscal year 2021, and 74 percent for natural gas. This emerges from a report by the American Office for Energy Statistics EIA.
It’s a situation that most EU countries want to change. They imposed sanctions on Russia because of the Ukraine war and are now feverishly looking for alternatives to the Kremlin’s oil and gas. The goal: to become less dependent on Russian fossil fuels.
It is unclear whether and when this will succeed. What is certain, however, is that there are some countries inside and outside the EU that continue to trade energy with Moscow despite the war. And at favorable conditions.
The most recent example is Serbia: President Aleksandar Vucic only announced on Sunday that he had secured an “extremely cheap” natural gas deal for his country with Russia. Serbia is almost entirely dependent on Russian gas, with the country’s main energy companies being majority-owned by Russia.
“Serbia’s pro-Russian policy once again makes it clear how close the ties between Serbian politics, its secret services, the military and also the (energy) business contacts to Russia are,” says Frank Umbach in an interview with FOCUS Online.
He is Research Director of the European Cluster for Climate, Energy and Resource Security (EUCERS). The political scientist says: “Of course, Russia uses every opportunity to drive a political wedge into the EU and European solidarity. Serbia’s principled and traditional pro-Russia policy offers an opportunity for this.”
It is interesting that Serbia officially wants to join the EU. An unrealistic goal if you ask Umbach. “In terms of domestic, foreign and economic policy, Serbia is much further away from EU membership than Ukraine, which shares the values of democracy, a market economy and the rule of law much more,” he says. In addition, large parts of the Serbian elite would reject EU membership.
But not only the Balkan state is willing to continue buying Russian energy. Even Hungary – in contrast to Serbia already a member of the EU – is not averse to oil and gas from Moscow. The Hungarian government confirmed this at the beginning of May.
Foreign Minister Péter Szijjártó said at the time that his country was not prepared to give up the security of its energy supply. When the EU discussed an oil embargo against Russia on Monday, the project threatened to fail because of Hungary.
One is not fundamentally against the next EU sanctions package, but needs additional guarantees, said Prime Minister Viktor Orban at the EU summit on Monday afternoon in Brussels. “We are ready to support the sixth package of sanctions if there are solutions for Hungary’s energy supply.”
In the end, the heads of state and government agreed on a compromise. For the time being, only Russian oil deliveries by sea are to be stopped. The Russian “Druzhba” pipeline, which supplies Hungary with oil, remains in operation.
Just like Serbia, Hungary is open to further energy deals with Russia. “These countries are quite small, but it’s very worrying that this is happening,” Margarita Balmaceda from the Davis Center for Russian and Eurasian Studies at Harvard University told Deutsche Welle at the end of April.
Russian oil and gas continue to be popular outside of Europe. For example in China. Only Saudi Arabia delivers more oil to the Middle Kingdom than Russia. However, the gas quantities exported to China are significantly lower than those to Europe.
“Russia exported 155 billion cubic meters of gas (bcm) to Europe last year, plus 15 bcm of liquefied natural gas (LNG). The only pipeline that otherwise exists is the Power of Siberia pipeline to China, which Sberbank confirmed in 2018 as the most expensive and least profitable pipeline is,” says Umbach.
He makes what he means clear with the help of current figures. In 2021, only 10.5 bcm was delivered to China via the pipeline, plus another 5.5 bcm of LNG. But there are signs that Moscow wants to expand energy trade with China.
Just a few days ago, both countries signed a deal worth billions – according to which Russia will pump gas worth the equivalent of 290 billion euros via a new pipeline into the Middle Kingdom over the next 30 years.
“Since Asia will be the growth market for global gas demand in the next few years and decades, the entire oil, gas and coal export policy must be redirected to Asia more than ever,” says energy expert Umbach. To do this, however, “first of all, the fossil infrastructure would have to be built up”.
He is also alluding to India and Pakistan – two other countries that remain open to gas and oil trade with Russia. In India, Russian oil has so far accounted for just under two percent of total imports. But that no longer seems to correspond to the status quo.
Because oil imports rose rapidly in March and April. India has not yet condemned Putin’s war of aggression in Ukraine. Russian crude oil, which many European countries no longer want to buy, is not being missed by Indian refineries – and they are buying it at greatly reduced prices.
Because: A barrel of Ural oil currently costs around 34 US dollars less than a barrel of North Sea Brent. Before the war started, the difference was only seven US dollars. “The biggest buyer for Ural oil sold overseas is now India,” said oil expert Felix Todd from the commodity industry service Argus Media recently in an interview with the “Handelsblatt”.
So far, Pakistan has also held back from scolding Russia. Possibly for economic reasons: With “Pakistan Stream”, Moscow wants to build a pipeline that will transport liquefied gas from the port city of Karachi to the north of the South Asian country. Although it will only pass through Pakistan, it could also transport Russian gas.
In the end, Umbach is convinced: “The Ukraine war and the Western sanctions will accelerate the reorientation of Russian fossil exports to Asia.” by around 20 percent and gradually phase out the use of conventional natural gas after 2030″.
The political scientist believes that Russia will “lose its status as a major energy exporter”. Among other things, “because only part of the oil can find its way to other markets, Russia has to accept drastic price reductions of 30-45 US dollars per barrel and the insurance premiums for tanker oil transport have become extremely expensive”.
Other experts also assume that Russia’s importance on the energy market will shrink in the long term. Fernando Ferreira, a geopolitical risk analyst at energy consultancy Rapidan, is one of them.
He told Deutsche Welle: “They just won’t be the energy power they are today. Not because they don’t have the resources, but because they don’t have the outlets or the technology to get the fuel out of the ground.”