- 5 minutes ago
Could an energy deal be the key to peace between Russia and Ukraine? DW speaks to Agata Loskot-Strachota of the OSW Centre for Eastern Studies and Benjamin Schmitt of the University of Pennsylvania's Kleinman Center.
Category
🗞
NewsTranscript
00:00Winter is coming, energy supply is low, prices are high, putting pressure on Europe, Ukraine and Russia.
00:07No wonder then that President Trump's peace envoys have floated an idea for an energy truce.
00:13According to media reports, they want to let Russia sell gas to Europe through Ukraine again.
00:19It's one proposal in a war where energy is already a weapon.
00:23Russia attacks the power that keeps Ukrainian homes warm and factories running.
00:28Ukraine hits the oil industry that helps fund Russia's war.
00:32Could those pressures help bring an agreement closer?
00:36And what would Europe have to risk if access to its energy market became part of the bargain?
00:41Welcome to The Dip, your podcast for money, power and consequences.
00:46I'm Daniel.
00:49Agata Voskot-Strahota has tracked Europe's reliance on Russian gas from the supply cuts of 2009 to the day Russian
00:57gas stopped.
00:58crossing Ukraine.
00:59She is from the Center for Eastern Studies in Warsaw.
01:03And Benjamin Schmidt advised the U.S. State Department on European energy security
01:08and worked in Ukraine while Russia already occupied Crimea.
01:11He joins us from the University of Pennsylvania Kleinman Center for Energy Policy in Philadelphia in the United States.
01:17Welcome to The Dip, both of you.
01:20Agata, just to start on a personal level, I suppose, you've closely followed the energy aspect of the conflict.
01:28But have you personally felt the effect of the lack of energy security in Europe yet?
01:34The price rises and the concerns?
01:37How has that impacted yourself?
01:40Agata Voskot- Well, the prices in Warsaw, in Poland, are higher than they used to be.
01:46And then the other thing is that actually what we witness are these hybrid attacks.
01:53Last December, there was this huge cyber attack, which did not really impact us,
01:59but which was all over the media, which, you know, was directed towards big part of energy and heat suppliers
02:10in Poland.
02:11Well, Agata, I would just say we'll get into all of the details of that in a bit.
02:16But do you feel concerned by it all?
02:18Do people in Poland feel concerned about the state of things?
02:21Agata Voskot- I think they are.
02:25Well, they are not really, you know, feeling the danger of cutting off our supplies, but they feel that prices
02:35are higher and that there is lack of stability and certainty that gas, oil, electricity will flow no matter what.
02:47We know that accidents happen. So I think to some extent we are aware of that.
02:52Okay. Yeah. And we'll dive into all of that state of energy security in Europe in a moment.
02:57Benjamin, during your time at the State Department, you went to Ukraine representing American support for its energy security.
03:05How does it feel to watch Washington now discuss restoring Russian energy trade as part of peace talks?
03:15Well, thanks for having me on. And I'll just start by saying it's unthinkable.
03:18This is a retreat from consistent U.S. policy to support Europe's energy security and in particular diversify away from
03:26vulnerabilities that have been set up over decades,
03:28where Vladimir Putin has, in particular, weaponized energy through everything from threats of gas cutoffs for political reasons, enacted gas
03:39cutoffs for political reasons,
03:40warfare against EU regulations, through all of the things we're seeing now, which I've got to mention, including sabotage attacks
03:48on energy and critical infrastructure, threats towards NATO, etc.
03:51So it's a it's a multispectral threat matrix that the U.S. has always supported Europe on what the Trump
03:58administration has done.
04:00And I call it the Russian energy October surprise, because all of this happened in the weeks before the the
04:07midterm elections here.
04:08You have this list of of really reprehensible energy policies, Trump's so-called diesel deal, where he's trying to get
04:15diesel prices down by by having this minuscule amount of diesel fuel be sent to the United States from the
04:22Russian Federation,
04:23or it's giving money to Putin's regime without actually bringing the gas, the the diesel price down.
04:30And Agatha, how does Europe view America's role in these negotiations?
04:35Is it an interloper or is it a necessary intermediary?
04:40Well, I would say, first of all, relating somehow to what Ben said, that indeed, this is big, big irony
04:47that when Western Europe actually realized that there is a huge security level or angle to all energy deals with
04:56Russia,
04:57then the U.S. has actually changed its mind and tries to build these relations on purely economic and commercial
05:07terms, supposedly.
05:10So you asked what is the role from European perspective of U.S. in all that.
05:16And I would say that there is actually no clear idea if U.S. should be an intermediary in EU
05:26-Ukraine-Russia triangle.
05:29Actually, EU feels left aside to some, you know, bilateral talks by the U.S. with Russia.
05:38But there is also a second level that for years, for decades, actually, in Europe, especially in Central Europe, especially
05:45in Poland,
05:47the U.S. was a country which guaranteed to some extent security and also a source of diversification.
05:54So Poland and Lithuania and, I don't know, many, many other countries, also Germany built a lot of LNG infrastructure
06:03in order to diversify away from Russia.
06:07And actually, when Russia, because it was Russia which cut the gas supplies in 2022 and Russian flows decreased substantially
06:19to Europe,
06:19this was U.S. LNG, actually, which enabled us to survive, to diversify and to continue going with our economies,
06:29et cetera.
06:30So right now, I think there is a great level of also surprise and ambiguity.
06:35We don't know how to think about that.
06:38And Benjamin, I just want to bring this in.
06:40And so, you know, Agatha's laid out her view on there about how it's an incredibly complex issue.
06:49And then Trump comes along with this simple plan.
06:52And it's a proposal that was reported by The Wall Street Journal.
06:56It's not fixed in any sort of final peace deal or anything like that yet.
07:01But it is an example of the kind of things that are being considered.
07:04Could you just briefly, and I say briefly because it could be gone within a week,
07:08it's symbolic for us for the purposes of this episode, can you just briefly lay out what is being proposed
07:16here?
07:17Well, I want to say with a high level of confidence that this is a Russian plan.
07:22This is not a plan that was cooked up by the Trump administration itself.
07:26These are old, you know, policy recommendations that the Putin's Kremlin and his cronies have been pushing against Europe for
07:35years,
07:35bringing Russian gas at scale back into Europe would, if you set aside all the energy security sort of things
07:42and look at pure, raw, mercantilist economics, which is oftentimes what Trump and his people in his orbit do,
07:50this would block U.S. LNG from having a market as a diversification source for European energy security.
07:59I mean, so this would undermine U.S. businesses that supposedly Trump is putting first.
08:06At the same time, you have these proposals that keep being reported on, for example,
08:09bringing back Nord Stream View by Trump-connected individuals, friends of Don Jr., etc.,
08:15this guy Gentry Beach.
08:17There's also been reports of this guy Stephen Lynch trying to do this, businessmen, right?
08:22So the idea is, from their side, they keep saying that, well, we will buy the distressed asset,
08:29in this case Nord Stream, rebuild it, and then it will be de-Rucified.
08:34It will be owned and operated by American interests, and therefore we can supposedly, quote-unquote,
08:43you know, regulate the pipeline such that Russia can't weaponize its energy.
08:47This is absolutely absurd.
08:49Look at the physical design of the pipeline.
08:53The pipeline is still, to quote Daniel Plainview from There Will Be Blood,
08:58the straw is still going into the milkshake of Russian natural gas, right?
09:03So this pipeline is still connected to Russian natural gas.
09:05If the Russians wanted to cut off gas for any reason, they could simply do so.
09:09There's no way to de-Rucify this.
09:12That's such a good point to bring Agata in on.
09:15Agata, if Europe gets unfettered supply of Russian energy again, will they back down on
09:23their promise to phase out Russian gas, for example?
09:27Because it's tempting.
09:29I mean, you look at German industry.
09:30It's been struggling because of the high energy price.
09:33You've seen factories close.
09:35People lose their jobs.
09:37Companies having to invest billions to move their production elsewhere.
09:40It would be really tempting, right?
09:43Even though there's all of the, you know, the ire behind it, if this type of decision were
09:50to be made, we're talking about the cost of living here.
09:55Yes, indeed.
09:56But at the same time, we live in a specific political and legal reality in Europe.
10:02And in political terms, there is an agreement, which was not that easy to reach.
10:08But actually, right now, there is an agreement between all member states to phase out Russian,
10:15both oil and gas.
10:17And many, many countries have already done so.
10:19And there is also a law, which is, well, first we have sanctions, but they are temporary,
10:24but we have also regulation on phasing out Russian gas.
10:28And it says that we will phase out all energy since, you know, early next year
10:34and since autumn next year, all Russian gas.
10:36And for now, there are no signs that this regulation or even no discussions
10:42that it should be somehow, you know, changed, etc.
10:44But theoretically speaking, we could, you know, imagine that laws are, I don't know,
10:50torn apart and that some energy, well, some changes come.
10:56But I would say it would be very difficult, very painful and very costly process for Europe.
11:04Why is that?
11:05Because it would actually open a Pandora box.
11:08We know that, as you said, we live in difficult times.
11:13There is winter time coming and gas prices are already rising.
11:17There is a scarcity of gas.
11:19So indeed, there are some short-term gains to be earned by some.
11:24But at the same time, they come at huge expense because we already witnessed
11:29cellularized weaponization of supplies by Russia.
11:32We know that these exact flows, these sales feed Russian war machine.
11:38We also know that Russia ruthlessly uses energy and its ties with Europe against Europe
11:46to actually destroy the unity within the EU and to destroy the willingness and ability
11:53to confront Russia and to help Ukraine.
11:58Well, I'd like to turn now to Ukraine itself.
12:01And Agata, after the 3rd of November strikes, DTEC, which is the biggest private energy company
12:08in Ukraine, said three of its five thermal power plants were offline.
12:13What does repeated damage to Ukraine's energy system do to the country's ability to keep
12:19its economy going?
12:22Well, of course, it does disaster.
12:25And of course, Russian attacks are exactly aimed at destroying strategic critical infrastructure,
12:35destroying the ability of Ukraine to supply energy, heat, water, etc. to its citizens and
12:42to destroy their willingness to defend themselves.
12:45But then because of that, even more, it is important to keep our European support to Ukraine
12:52and ability to actually defend themselves.
12:57The EU has announced €920 million of support, kind of going back to what you were saying there
13:04about the EU support, and that should support Ukraine's energy system this winter.
13:09But how much does that support really mean when the attacks keep coming from Russia?
13:17I would say that any support means, especially if it's well-targeted.
13:23I know that Europe also supports Ukraine with energy equipment and supplies of different components which are needed for repairs.
13:35I know that also Ukraine managed to buy and store enough, well, actually the biggest amounts of gas during last
13:46year in their storage.
13:47So they are quite well prepared to gas where I survived this winter.
13:54I would say that there is also a very interesting angle to this Ukraine-Russia possible gas deal.
14:03That Ukraine right now produces significant amounts of gas and because of its economy being much smaller than it used
14:12to be
14:13before the war, we can well expect that when the war ends, it is able to satisfy its own needs
14:20with its own gas.
14:22So any deals with Russia are actually not needed for Ukrainian own gas needs, own energy demand,
14:32but they are, well, sort of, well, way to enable it to profit a bit from transit, but actually it
14:44does not need it that much in its own energy and the gas terms.
14:51And, Benjamin, just to dig into that a little bit more and what Agata was saying, to what extent can
14:59Ukraine increase the resilience of its energy system?
15:04And is this a place where international allies can assist, including America?
15:12Yeah, I mean, I think that Ukraine has been a model citizen in terms of the manner in which it
15:19has innovated in terms of energy, infrastructure, physical protection, right?
15:24You have everything from passive systems like these gabion rock-filled cages that they set around critical components
15:33and, you know, all the way through earthen berms and burying parts of the infrastructure.
15:38They obviously have to stockpile backups for everything from transformers to power lines to everything else in the energy supply
15:50chain.
15:51So that's a part of this.
15:53But unfortunately, we're also talking about a war, right?
15:57The Ukrainians have innovated on the ability to, you know, basically go after drones and protect these infrastructure from that.
16:06But now we've kind of seen Russia innovate.
16:09They're now having these jet-powered drones that are harder to defend against.
16:14And so the energy security strategy for Ukraine in terms of infrastructure protection keeps coming back to military solutions.
16:21They need more, as I understand it, F-16 fighter jets that can go after these jet-powered drones.
16:29And again, building these sort of alternative infrastructures that cross-cut the legacy east-to-west Soviet mega trunk lines
16:37for natural gas and electricity and things like this is really important.
16:41That's why Poland has built Baltic Pipe, the gas interconnector pole in Lithuania.
16:46They're building a – they have a large LNG facility at Swinovistia.
16:51They have an under-construction floating storage and regasification unit floating LNG terminal at Gdansk.
16:57And then you have all the way down from Greece, Bulgaria, Romania, Moldova, and Ukraine,
17:03basically all of these gas pipelines that are going to cross-cut and have gas come up from the international
17:09market,
17:09from LNG through to Ukraine.
17:12Then let's cross the border and look at the Russian side of the equation then,
17:15because obviously the – when we talk about energy, there's a slight difference in this.
17:21So Ukraine needs electricity and heat to sustain its population and economy
17:25while Kyiv is targeting Russia's oil industry to disrupt its fuel supplies and war income.
17:32In terms of the key strategic targets, those are the ones that stand out.
17:36So Agata, when turning to Russia, it has found much of – found other bias for much of its oil,
17:43despite all of the sanctions that have taken place.
17:46How much economic pressure has Europe's retreat from Russian energy really put on Moscow,
17:53considering that they found these alternatives?
17:56Well, of course, the oil market is a global market, so it's much more difficult to close imports by Europe
18:06and expect that this oil will not flow to other places.
18:11But what we had agreed also, besides sanctions, was oil carb, and Russia actually for years has been selling its
18:20oil
18:20at a lower price than the market price. That is the first thing.
18:26It was selling also to further markets, that is to Asia, China, Turkey, India, etc.
18:34And so, costs of transport also make a difference there.
18:38And then, for some time, at least we had also US secondary sanctions, and so US putting pressure on big,
18:47big buyers,
18:48especially India, of Russian oil, not to actually buy it and not to refine it.
18:55And then, Russian profits decreased substantially, and it was really felt in Moscow.
19:04But there was this unfortunate decision of Washington to start the war, together with Israel, against Iran,
19:13when the war in the Middle East started, and when it appeared that it's not that easy to finish it,
19:19and that it has significant impact on global energy markets, including the common market,
19:25and that high oil prices are transmitted into US gasoline or diesel prices,
19:35then the US started this game of seeking solutions.
19:41And then, so one of the solutions was about engaging Russia and so offering a waiver to sanctions,
19:49firstly, on oil that was stored on the water.
19:53And that enabled Russia to sell gas, oil during times of high prices, so to capitalize on that.
20:04And then, just recently, there was another exemption, temporary exemption from sanctions on diesel,
20:11and we know that there is some Russian diesel flowing to the US.
20:15So, at the same time, as you said, we have this Ukrainian counter-attacks, actually acts of self-defense.
20:22And so, Ukrainians are targeting with the drones, etc., Russian oil complex, including refineries, including storage tanks.
20:32And the aim of that is exactly this, to minimize Russian ability to profit from the high prices, from the
20:42market circumstances,
20:43and to minimize Russian ability to minimize Russian ability to finance the war machine by this means.
20:49Yes, and I wanted to bring Benjamin in on this because I could feel him itching to explain an aspect
20:54of this.
20:55And so, I just wanted to ask you, when these drone attacks happen on refineries, of course, they lose the
21:01refining capacity, but they still have the crude oil.
21:04What does it take away from Russia when a refinery goes out, but they still have the crude oil left?
21:12Well, I mean, just at a physical level, it means that they can't refine a crude product, in this case,
21:19Russian-year-olds-grade crude,
21:21and they have to get it out onto the market as crude oil through these Shadow Fleet tankers, or run
21:28out of storage.
21:29If they run out of storage, that means they have to make the hard decision on whether to shut down
21:32production,
21:33or figure out another way to do that.
21:37So, it means that they make less money off the crude because they can't make the various products out of
21:42it.
21:43Right, exactly, exactly.
21:45And so, I think when we're talking about international sanctions, the scope of the sanctions continue to be right.
21:53I mean, I think we keep building this out.
21:55We've come a long way from the old oil price cap of the Biden era to actual energy sanctions and
22:02sanctions against the Shadow Fleet.
22:04And we saw this in the Lindsey Graham and Blumenthal bill that was almost unanimously passed,
22:13maybe not fully unanimously passed, but overwhelmingly passed by U.S. Congress.
22:18And then, a month later, the Trump administration, President Trump, issued what's known as a national interest waiver,
22:26saying it is not in the national interest of the United States to enforce these sanctions at this time.
22:30But, you know, whose national interest is it?
22:33It's not the national interest of the United States that is being served by waiving these sanctions.
22:38It's the national interest of the Russian Federation.
22:40And so, those absolutely need to be not only unwaved, so brought back into force, but also enforced properly.
22:50You see the European Union littoral states start to go out and interdict these Russian Shadow Fleet vessels.
22:58All right. We're coming towards the end of our time.
23:02So, Benjamin, my last question to you is basically what factor you think energy should play in a peace deal,
23:10what it is likely to play in a peace deal, because the fact is, you know, whether we like it
23:16or not,
23:16it could be critical to any sort of a truce that comes out of this.
23:23So, what would an actual peace deal with energy at the heart of it look like?
23:29Well, it's a good question.
23:32I don't necessarily believe that energy has to be a significant part of the deal.
23:36It certainly can't be that it's used yet again as a quote-unquote carrot to then allow Russian oil and
23:43gas to flood back into the European market
23:45to reestablish the energy dependence that Europe had on Russia in the battle days of the 2000s, 2010s,
23:55that Russia would just weaponize in the future.
23:57They understand that they have the European continent over a barrel, pardon the pun, on this front.
24:03I think that if, if, if the Russian Federation truly had a peace deal and they truly, you know,
24:12stopped attacking Ukraine and stopped the sabotage and kinetic attacks on NATO territory
24:18against energy and critical infrastructure and all of these sort of things,
24:21and I don't believe that there is any real hope in the near term for that to happen,
24:25at least not under Vladimir Putin himself, whose power vertical now relies on a wartime, you know,
24:33economy and a wartime political environment.
24:36But let's say that happened, then I think that you would eventually see some sanctions lifted
24:41after verifiable steps were taken on the Russian side.
24:45And Agata, just to round this off with you, how, how optimistic are you that this balance can be
24:52struck on the one side that Europe can reduce its dependence on Russian energy, including when
24:59there are further constraints on top of things such as the difficulties with the, the oil supplies
25:04coming out of the Strait of Hormuz and the Red Sea, we saw recently as well, and at the same
25:09time
25:09ensure that a peace can be struck with, with Russia. Can that balance truly be made? How does Europe get
25:17that done?
25:18I think this is a very, very difficult balancing act for sure. I completely agree with what Ben said,
25:26that energy should not be in center of any peace deal. It could be a byproduct, it could be a
25:33side effect
25:34of a just and stable, sustainable peace achieved on other fields by Russia and by Ukraine with some EU
25:47assisters, but probably not a central role. So this is what I think. I think that for Europe, it's very,
25:55very important to design a plan for this winter to survive it as well as possible. At the same time,
26:06to
26:07make it compatible with its long term goals, that is, decarbonization and decreasing actually importance of
26:15fossil fuel imports, because only in this way it will decrease its vulnerability of supply shocks, which can be
26:23triggered by different developments all over the world. And I'm pretty sure that Europe has already
26:31learned a lot from the experience of the gas crisis 2022-23 and so that it has both the instruments
26:40in
26:40place, experience, but also the partners worldwide. And then when the winter ends, I think all options are
26:51again on the table because the lower gas demand will allow Europe to go more, I don't know, bold or
27:01anti-solutions developed or thought about.
27:06And remember, Europe only has around 75% of its gas storage is filled, which is the lowest amount going
27:13into
27:13winter since 2013. And that's been part because of the Hormuz crisis and in part because they hoped that
27:18would have been over by now. But it's really dangerous and it needs to be resolved very quickly.
27:24Yeah, the time is difficult, both in the gas market and in the diesel market, but I understand that we
27:31work on that and I hope we will, well, design ways to overcome short-term challenges, not necessarily in a
27:40way that involves, you know, re-engaging with Russia in any way.
27:45Agatha and Benjamin, thank you very much for breaking this complex topic down for us. It's
27:50really appreciated. Thank you.
27:53That's it for this week on The Dip. Thank you very much for listening. Don't forget to leave
27:57a comment or a question. Any feedback is welcome wherever you're listening to this or even watching
28:03it as well. And if you're not subscribed in the podcast app of your choice, go ahead and do so.
28:08Just look for The Dip. But until next time, thank you very much for watching.