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Our Subterranean Order

Amid a hasty breakup with Russian oil and gas, the West finds itself at a crossroads

On February 24, as tens of thousands of Russian troops pushed into Ukraine, something else was flowing into the country beneath them. That something was Russian natural gas, which passed through Ukraine via pipelines on to countries like Germany, Austria, and Italy. The first full day of President Vladimir Putin’s invasion, which prompted a total breakdown in diplomatic relations between Russia and the West, also marked an increase in the volume of gas flowing from the former to the latter.

Beneath the surface-level geopolitical order, where premiers and diplomats excoriate each other on the floor of the United Nations, there is a subterranean order, a system of global economic interdependence founded on the purchase and sale of two commodities—oil and natural gas. Before the invasion, this system functioned well enough: Russia and Germany, for example, might have opposite political goals, and each may have viewed the other’s influence as an existential threat, but they both benefited from energy transactions. Other than the fact that the products involved in the exchange were helping to render the Earth unfit for human habitation, everything was fine.

As it turned out, the system functioned too well: the economic linkages between Russia and the West have become so tight that Europe cannot risk severing them, at least not all at once. As the international community escalates its response to Russian aggression, sanctioning several major financial institutions, both Europe and the United States have refrained from a direct attack on the energy sector. Russia provides around 40 percent of Europe’s gas and more than 25 percent of its crude, and there is nowhere near enough spare capacity in the rest of the world to fill that hole. And not only that, it’s hard to imagine how Russia would find new buyers for the gas and oil it now sends to Europe. 

Other than the fact that the products involved in the exchange were helping to render the earth unfit for human habitation, everything was fine.

One might imagine that this interdependence would reduce the incentives for armed conflict between the two factions, but in fact it has failed to do so, and indeed it may have incentivized conflict on the Russian side—this is what Ukrainian climate scientist Svitlana Krakovska meant when, at a recent meeting of the United Nations, she is reported to have said that “human induced climate change and the war on Ukraine have the same roots: fossil fuels.” The only guaranteed outcome of this interdependence is that the price of conflict will be higher on both sides than it might have been otherwise.

We are now witnessing a sudden and seismic shift. The outrage of Russia’s attack on Ukraine far outweighs the economic convenience of relying on Russia for energy, and the West is now scrambling to divorce itself from Russian oil and gas even as it shies away from directly targeting the sector. Just a over week after Germany made the once-unthinkable decision to halt certification of its Nord Stream 2 pipeline with Russia in response to Putin’s aggression in the lead-up to the invasion—including the recognition of two separatist regions in Ukraine—an avalanche of public and private entities, from BP to Shell to ExxonMobil to the British utility Centrica, have followed it out as the crisis deepens. While the Biden administration has reiterated that they “don’t have a strategic interest” in sanctioning Russian oil, a major Russian oil producer has failed to award a new crude contract for three consecutive days, which suggests that parties are shying away from buying Russian oil anyway

This sudden breakup puts the continent at a crossroads. If nations like Germany want to stop using Russian oil and gas, they first have to decide how they will replace them. The thirty-one member countries of the International Energy Agency have promised to tap their strategic petroleum reserves to fill the short-term gap. But the question is whether the long-term substitute will be new dirty energy or new clean energy.

Early signals are mixed. Germany has drafted plans to build two new liquefied natural gas import terminals over the next few years, allowing it to rely less on Russian pipelines, and it has also announced plans to stockpile a strategic gas reserve. In the United States, there’s hope that the threat of a Russia-driven oil shock could revive President Joe Biden’s stalled climate legislation, but politicians on the right and the center have already suggested ramping up fracking or reviving the Keystone XL pipeline, which Biden blocked last January after years of protest. Because neither option would provide a short-term solution to the supply gap, in theory, this is the perfect time to make a moonshot investment in renewables. It’s far from clear that it will work out that way: crises may expand the window of possibility, but they also often cause leaders to prioritize political and economic expediency. It’s always easier to keep doing what you’ve been doing.

Whichever direction Europe and the United States go, there will be people who profit—the major commodities trading houses, for instance, who thrive off price instability in Russia-produced commodities like oil and metals. Even so, it would be a mistake this time around to interpret the invasion of Ukraine through the narrow question of cui bono. This is not the Iraq War, a conflict initiated in part to pry open Iraqi oil reserves for Western oil majors. A number of major fossil-fuel producers, including Shell and BP, have already exited their stakes in the major Russian oil and gas firms Rosneft and Gazprom. In the years before the invasion, these companies benefited from the subterranean order: Shell partnered with Gazprom on a massive extraction project, and BP held a 20 percent stake in Rosneft. These are profit-driven corporations, and their exit from the Russian energy firms is an attempt to mitigate the financial losses that would come with an ink-black stain on their public images. But there is no way to spin the conflict as anything but a massive bottom-line blow for them. 

Thanks to the fracking boom, the United States is now the world’s largest producer of natural gas, and we export a substantial quantity of this gas to Europe and Asia by condensing it into liquid form and loading it onto tanker ships. Even so, it does not follow that a divorce with Russia would lead to an immediate bonanza for gas frackers stateside. For one thing, the United States has a limited amount of export capacity, and we are pushing against the ceiling of that capacity already. Expanding it to meet European demand would take years, by which time gas prices might swing back and forth several times. Increased demand for liquid gas could allow American frackers and exporters to raise prices in the short term, but a long-term price increase would risk demand destruction in the all-important Asian market. Nobody is holding a perfect hand.  

What this new conflict really underlines is that the global fossil fuel market is messy. Extraction may be a location-dependent process, which means it creates inequality between places, but there is no single nation or entity with ultimate leverage over any other. The United States imports millions of barrels of oil every day, many of them from Russia, but we also export millions of barrels of oil per year. Because modern petrochemical facilities require specific kinds of oil, with specific concentrations of specific molecules, the oil in our vast domestic shale reserves is not sufficient to satisfy the needs of our domestic refineries and plants. Russia imports very little oil, but its economy hinges on the export of oil: it needs buyers. The fact that the entire world depends on a resource that only comes from a few places creates a generalized instability, a set of incentives that both encourages conflict and makes that conflict costlier for the parties that engage in it. In a world that runs on oil, “petrostate” is a question of degree, not kind.

There is no reason to believe that a world running on renewables would be free of armed conflict or that such a world would be immune to energy disruption. If a missile shell can blow up a pipeline or an oil refinery, it can blow up a solar farm or a wind-fed power plant. But the geographic versatility of solar and wind power would dramatically reduce the extent to which energy-rich nations can act with impunity on the world stage—as exemplified by the Saudi-backed proxy war in Yemen, which will soon rage into its eighth year.

In a world that runs on oil, “petrostate” is a question of degree, not kind.

Of course, even if it did ensure an equitable distribution of energy capacity, the move beyond fossil fuels would not ensure an equitable distribution of wealth. There are more than 140 million people in Russia, where energy provides some one-fifth of the nation’s gross domestic product. The situation is even more acute in Venezuela and Saudi Arabia, with populations of around 30 million each, where oil rents account for approximately 25 percent and 50 percent of gross domestic product, respectively. The dismemberment of the fossil fuel complex may be one step toward global justice, and perhaps the one that would reduce the greatest amount of suffering in the long term. But it is not the only step.

Earlier this week, amid reports of civilian casualties and widespread destruction in Ukraine, there arrived another warning of destruction on a planetary scale. A new United Nations report on climate change found that the effects of climate change have already produced significant devastation on every continent. The secretary general of the United Nations called the report an “atlas of human suffering” and said it showed that the fossil fuel system had put the world on a “frog march toward destruction.”

The irony of this moment is that while Russia and the West are a part of that frog march, they are far from the front of the line. The UN report concluded that vulnerable regions like southeast Asia and sub-Saharan Africa will see the first and most acute damage from increasing climate disasters, all of them the result of the fossil-fuel economy that developed nations have helped to build and to sustain. Thus the two factions’ mutual entanglement in the Gordian knot of oil and gas will have consequences well beyond the European continent: the greatest victims in this supposed clash of civilizations may be the billions of people caught in the atmospheric crossfire.