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The Role of Decarbonisation In Shaping the Russian Invasion of Ukraine

by Man Lok Kwok Europe Dec 16th 202210 mins
The Role of Decarbonisation In Shaping the Russian Invasion of Ukraine

Since the beginning of the Russo-Ukrainian war, the global community has focused on political motifs, such as the expansion of NATO and Russian irredentism, to explain the causes of the Russian invasion. However, there is a lack of attention to the potential role of decarbonisation in shaping decision-making in the Kremlin. The global energy transition has already led to unprecedented disruptions in fossil fuel demands that put the fossil fuel market on the brink of collapse. In this article, we analyse how the dependency on fossil fuel export weakens the economic sustainability and resilience of Russia and we explain the role of decarbonisation in shaping the Russian invasion of Ukraine.

Background and the Political Importance of Ukraine to Russia

Since February 2022, the Russian invasion of Ukraine has led to devastating casualties, destruction of infrastructures, displacement of millions of people, and the disruption of international energy and food trade, which threaten global economic, human, and environmental security. 

In the pasted few months, Russian authorities have offered multiple rationales to justify their aggression of Ukraine. From denying the sovereignty and statehood of Ukraine and citing the shared historical and cultural identity between Russia and Ukraine to accusing the Nazification of Ukraine, and blaming the expansion of NATO in Eastern Europe and Scandinavian and state terrorism by Ukraine for blowing up the Crimea bridge. Aside from the rationale of reclaiming the historical land of Russia, other justifications focus on national security and the state survival of the Russian Federation, reflecting the sense of insecurity from Russia. 

In Putin’s essay “On the Historical Unity of Russians and Ukrainians”, he argues that Russians, Ukrainians, and Belarusians are all descendants of a historically-constructed identity, Ancient Rus. Putin further questions the legitimacy of the Ukrainian territorial integrity by claiming that “Kiev simply does not need Donbas” and asserting the “true sovereignty of Ukraine” can only be achieved through partnership with Russia. Putin’s article reflected the vital political role of Ukraine in contemporary Russian irredentism and the revival of the former glory of the Russian Empire and the Soviet Union. 

While the actual motivation behind Russian invasion of Ukraine is still being debated, the global responses to climate change and the natural resources in Ukraine might act as the underlying factors that reinforce the decision-making of the Russian officials. The ongoing trend of decarbonisation and electrification of the energy and transportation sector will decrease the importance of fossil fuels in Europe and the world, weakening Russian economic and political power globally in the long term. The decline in resource rent would have significant implications for Russia, such as growing economic, social, and national insecurity. Additionally, these implications will result in a fundamental shift in the balance of power in Eurasia that will diminish Russia’s global influence. Therefore, the following article suggests that the Russian invasion of Ukraine at this particular moment is related to decarbonisation and argues that the annexation of Ukraine, if successful, can extend Russia’s global influence beyond the fossil-fuel era.

The Russian Economy and the Dependency on Fossil Fuels

The 2014 Russian financial crisis has significant security implications for the fossil fuel dependency on the Russian economy. Contributed by the economic deceleration in China and the US and the oversupply of oil in the market, oil prices plummeted by 44% between June and December 2014, and the oil price dropped by 70% between 2014 to 2016. The collapsed oil price was regarded as the biggest collapse in modern history, at least before the pandemic. The stagnated oil price combined with the Western economic sanction on Russia for their invasion and annexation of the Crimea Peninsula resulted in Russia’s 2014-2016 financial crisis. The financial crisis led to the devaluation of the Russian rouble, high inflation, budget deficits, and recession, as reflected in the 37.8% drop in the Russian GDP between 2014-2016. 

The Covid-19 pandemic was a significant revelation for the Russian economy. The extractive industry and fossil fuel export in particular are the most vital source of income for the Russian economy. Historically, Russia has been the largest natural gas exporter globally. In 2021, Russia was the largest fossil fuel exporter globally. Prior to the pandemic, the total Russian export in 2019 was worth US$416 billion; the export of mineral products (e.g. crude and refined petroleum, petroleum gas, coal, etc.) alone accounted for US$255 billion, or about 61% of total exports. In 2020, fuelled by the pandemic-led economic disruption, stagnated energy demand, and historically-low energy prices, the estimated value of energy imported from Russia to the UK and EU      dropped from US$113.2 billion in 2019 to $68 billion in 2020. As a result, Russian exports recorded a significant decline, worth ‘only’ about $330 billion. The pandemic and significantly decline in global energy demand also resulted in the Russian GDP dropping from $1.69 trillion in 2019 to $1.49 trillion in 2020. The dependence on the extractive industry exposed the Russian economy to higher vulnerability to external macroeconomic shocks and lowered Russia’s economic resilience. 

Although the Russian economy is exposed to the boom and bust cycle in the oil and gas industry, Russia still remains a significant economic force in the global economy due to its energy sector. However, the global rush to transition to net-zero economies could result in an irreversible change in the global energy demand that will destabilise and further weaken the Russian economy. 

You might also like: The Growing Importance of Food and Water Security Amid the Ukraine-Russia War

EU’s Decarbonisation Plan and the Future of Fossil Fuels

The European Union has long been a net energy importer and Russia’s largest trading partner. Imports from Russia contributed to 24.4% of Europe’s total energy consumption in 2020. In 2021, the EU, the UK, and Norway imported about 49% of their oil and natural gas, equivalent to 33% of Russia’s total oil and gas exports.

Since the ratification of the Paris Agreement in 2016, Europe has speeded up the process of decarbonising its energy sector and established the timeframe for phase-out fossil fuels. Prior to the Russian invasion, the EU aimed to significantly increase the share of renewable energy to 40% by 2030, but later revised it to 45% in 2022. Major European economies are rushing to increase their renewable portfolio; Germany aims to achieve 80% of renewable energy in the energy mix by 2030, and the UK targets to decarbonise the electricity system by 2035. Additionally, other decarbonising measures in Europe, like the electrification of the transportation system and heating system, the development of hydrogen-based fuel and technology, and other energy efficiency targets, are going to further decrease the demand for fossil fuels. 

The IEA’s Electricity Market Report released in July 2022 illustrated the glimmering situation of the fossil fuel market. Between 2018 and 2020, renewable energy was the faster-growing electricity source and replaced a portion of fossil fuel-based generation. In 2021, IEA released another report that predicted that oil and natural gas demand would peak soon after 2025, assuming that countries follow their decarbonisation pledges. The impacts of decarbonisation on the oil and natural gas price will be devastating. 

In an article published by the research consultancy group Wood Mackenzie, it predicted that in a 1.5C global warming scenario, the projected oil demand in 2050 will decrease from the current demand of 99 million to 35 million barrels per day. The oil price is projected to drop to $55 per barrel by 2030 and below $40 per barrel by 2040. Similarly, in the same scenario, McKinsey predicted that natural gas demand will decrease by 23% and 72% by 2030 and 2050, respectively, compared to the demand in 2016.

You might also like: The European Energy Crisis: How Are Countries Handling the Gas Shortage?

The Correlation Between Resources Rent and Russian Aggression

Many researchers point out the correlation between high energy prices and the aggressive foreign policies from the Kremlin. For example, Snegovaya’s research on the Russian presidential speeches between 2000 to 2016 discovered that Russian presidents (Putin and Medvedev) tend to be more aggressive and assertive under high oil prices. Similarly, previous Russian aggression toward its neighbouring countries usually occurred at a time of high energy prices. For instance, both the 2008 Russo-Georgian War and the 2014 Russo-Ukrainian War happened when oil prices soared to $125 and $102.57, respectively. As Bob McNally, the energy advisor under the Bush Administration, once explained: “Higher oil prices along with other measures Moscow has taken to protect its financial system from sanctions will help it withstand garden-variety sanctions.”

Since 2021, the global energy price has reached unprecedented levels, allowing energy exporters like Russia to accumulate wealth. In 2021, Russia recorded sales of 9.1 trillion roubles (about US$119 billion) worth of oil and natural gas with a revenue of 1.1 trillion roubles, 51.3% up from the initial project. Such high oil and gas price contributed to Russia’s current account with a historical level of $120.3 billion. The high resource rent and existing account allow Russia to accumulate wealth to withstand external economic shocks like economic sanctions or trade embargoes. 

According to the Central Bank of the Russian Federation, the international reserves (and gold reserves) of the Russian Federation reached a record high of $643.2 billion on February 18, 2022, a few days before Russia invaded Ukraine. 

Energy Transition and Russian Invasion of Ukraine

The aforementioned devaluation and diminishing energy demand affect not only Russia’s direct income but also the upstream and downstream supply chain of the fossil fuel industries, including equipment manufacturing, oil refinery, and storage facilities. Russia could lose its most vital income source, which could result in a long-term economic recession that leads to a fundamental shift in the Russian economy, military capacity, and national power. Therefore, the energy market over the past year provided what could be the last opportunity for Russia to harness the surge of energy prices to fuel its military campaign and asperation in Ukraine. 

Secondly, given that Russia has long been utilising its energy sector to maintain its influence over Europe, the Middle East, and North Africa region (MENA region), the annexation of Ukraine could allow Russia to assert a certain influence in Europe in a post-fossil-fuel economy by controlling the abundant mineral and agricultural resources in Ukraine. Ukraine is rich in mineral resources, including strategically important minerals for a green transition, such as nickel, graphite, manganese, and lithium. These mineral resources will be vital for Europe’s decarbonisation process. For instance, the EU is set to satisfy 69% and 89% of its growing battery demand by 2025 and 2030, respectively. The Russian invasion of Ukraine could allow Russia to obtain Ukraine’s mineral wealth and increase Russia’s economic importance in a green economy. 

Thirdly, food exports from Russia and Ukraine are vital for the MENA region. For instance, the wheat import dependency on Russia and Ukraine in the MENA region range from about 35% (Sudan) to over 85% (Turkey). Annually, the MENA region imports 90 million tonnes of grain, or 30% of grain consumed, with Russia and Black Sea exporters like Ukraine and Romania dominating the market. Russia directly or indirectly controlled food security in the MENA region, e.g. part of Russia’s wheat export to Turkey is processed into wheat flour and exported to other MENA nations.

Despite food export being less lucrative than energy trade for Russia, it is a strategically important good for Russia to assert its importance in the MENA region. Russia has been trying to return to the Middle East since the military intervention in the Syrian civil war, as the Kremlin is reshaping Russia into a more assertive major power that can advance beyond its periphery. Energy diplomacy between Kremlin and the Middle East is the major force for the growing rapprochement between Russia and the MENA region. In the age of decarbonisation, the declining fossil fuel demand could weaken the linkages between the two energy powers. 

Controlling Ukraine would provide an opportunity for Russia to extend their relationship beyond energy diplomacy. The cascading climate effect in the MENA region will decline and destabilise food production and security, increasing import dependency. Russia announced plans to boost its grain export from 45 million tonnes in the 2019/2020 market year to up to 63.6 million tonnes by 2035, indicating the growing importance of Russia in the global grain market. The aggregated export from Russia and Ukraine will empower Russia to assert its prominence in the food supply and increase its bargaining power in the MENA region.

You might also like: The Environmental Implications of the War in Ukraine

Future Implication

This article demonstrated the potential role of global decarbonisation and climate change in shaping the foreign aggression of Russia. The case of Ukraine’s invasion hints at the possibility of escalating geopolitical conflicts and resource-related conflicts surrounding fossil-fuel economies in the decarbonising era. The recent energy price surge created the perfect economic and fiscal environment for Russia to execute its invasion plan before the downfall of oil and gas demand and prices in the near future. Additionally, the Russian invasion of Ukraine could be seen as a means to preserve Russia’s global influence after the collapse of the fossil fuel market by controlling the vital natural resources in Ukraine.

Contradicting the central promise of “leave no one behind” by the sustainable development goals, global decarbonisation will reshape the global economy and political environment. The vulnerability of Russia in a decarbonising world also reflects the vulnerability of other fossil-fuel economies will face, such as Saudi Arabia, Qatar, Nigeria, UAE, and Iran. Many of these economies are characterised as developing countries and lack the institutional capacity, economic resilience and diversity to withstand the shocks from the changing fossil fuel demand, which could lead to increasing poverty, food insecurity, and intensifying global economic inequality. The Mexican state of Tabasco case provides a glimpse into the potential situation if governments fail to respond to collapsing oil and gas prices. The plummeted oil price in 2014 resulted in mass-scale unemployment, recession, rose in extreme poverty. The stagnated economy pushed many previously engaged in the oil sector into crimes that led to the growing crime rate and gang violence in the region.

The downplay of the impacts of green transition could have detrimental impacts on the deliverance of sustainable development worldwide and increase global inequality. Therefore, besides establishing a loss and damage fund for vulnerable countries, future summits on climate change need to discuss the possibilities of providing aid and human resources for fossil-fuel-dependent economies to restructure their institution and economy in a decarbonising world.

You might also like: Renewables on Track to Become Largest Source of Global Electricity by 2025, IEA Says

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