Is Europe Re

May 05, 2023

As the Ukraine War drags on and energy prices remain high, a number of figures in Western Europe have begun advocating a restoration of Russian gas imports.

Over the last fifty years, western European energy businesses developed deep personal and business connections with the Soviet and then Russian gas industry. The greatest exponent of this relationship is former German chancellor Gerhard Schroder. As chancellor, he cleared the way for the Nord Stream 1 pipeline project, becoming its chairman after he left office. Alongside this job, he was a persistent advocate of an ever-stronger German-Russian energy relationship.

For Schroder and others like him in the European energy sector, the small matter of an all-out, state-on-state war on the European continent between Russia and Ukraine does not necessarily mean an end to business as usual. For now, it is true that Gazprom exports of Russian pipeline gas to the European Union have collapsed. Nevertheless, many business and political leaders want to return to "normal" as soon as possible. Already in Germany, Saxony's prime minister called for the Nord Stream 1 pipeline to be repaired and Russian gas flows restored. In Italy, one of the members of the Russian-Italian energy old guard, Paolo Scaroni, has been elected to become the chairman of the Italian energy giant ENEL.

It is not too difficult to see the game at play. The "business as usual" crowd, led by the likes of Schroder and Scaroni, will be pushing for doing deals on gas flows with Moscow.

At first sight, Re-Schroderisation looks impossible. Imports of Russian pipeline gas to Europe have fallen from 40 percent of European imports to around 5 percent. The largest Russian gas importer, Germany, has secured several new LNG floating regasification ships to import LNG. German ministers are constantly repeating talking points on energy diversification. Germany will take Norwegian natural gas, LNG, wind, solar—anything but Russian gas. However, beneath the radar Russian natural gas has not wholly gone away. Whilst it is true that Russian pipeline imports have collapsed, Russian LNG imports have increased. In fact, across the EU, Russian LNG imports are now only in second place to U.S. LNG imports.

More fundamentally the economic and political support system for Russian energy imports across Western Europe has not disappeared. It may be that, currently, it is seeking lower visibility, but that support system is ready to reengage and push Russian gas at the first opportune moment. Already we have Saxony's prime minister, Michael Kretschmer, making the case for the repair of Nord Stream 1. Interestingly Kretschmer uses the suppression of Germany's nuclear power station, the last three of which were switched off on April 15, as a justification. This case for restoring flows through Nord Stream 1 fits with a broader strategy of German supporters of Russian gas. They know that it is going to be difficult to furnish Germany with sufficient alternative energy sources with the effective ending of Russian gas imports. The loss in the last three years of altogether six nuclear power stations increases demand for more power from elsewhere, and planning restrictions make it difficult to bring wind power on enhanced networks to where it is needed. No one wants to massively increase coal use (though that is happening). All the German supporters of Russian energy need is a really cold winter and the Chinese buying up sufficient liquid natural gas on global markets that natural gas prices ramp up dramatically. At that point, the case for repairing Nord Stream 1—at the mere cost of $500 million—and returning to business as usual will be made.

This is not just an argument that will be made just in Germany. Schroderization, which sees European politicians and business executives seeking and supporting deep connections with the Russian energy market was, and remains, a feature of the Western European energy sector as a whole—not just in Germany. One can now see Re-Schroderization also in play in Italy, where the Meloni government, pushed by its pro-Russian Berlusconi wing, appointed a member of the Russian-Italian energy old guard, Paolo Scaroni, as chairman of ENEL, the Italian energy giant.

Scaroni was previously CEO of the other major Italian energy company, ENI, and developed a strong relationship, as the Kremlin minutes themselves demonstrate, with Vladimir Putin. He also supported, and partially financed, the ill-fated South Stream project which had the aim of undermining Ukraine by providing an alternative transit route for Russian gas into Europe. The clear overall aim of Moscow was not just to weaken Ukraine's revenues but also to reduce Ukraine's importance to the EU, making it easier (in theory) to attack later, with less chance of any European interest. ENI under Scaroni also locked Italy into the Russian gas network by sustaining long-term gas contracts with Gazprom and acquiring gas fields in Russia.

Like many others like him, Scaroni has shown no rethinking or repentance for his actions. He has continued to argue that Italy needs Russian gas for another decade and has opposed sanctions on Russia. This is despite the fact that the Russian invasion of Ukraine threatens European security and the international order. And despite the fact that the actions of Scaroni, Schroder, and others in the Western European energy establishment essentially encouraged Putin to contemplate invading Ukraine. From an energy perspective, their actions made Europe dependent on Russian gas, and when Moscow pulled the energy rug from underneath the EU, European consumers ended up paying the bill. The cost of EU energy imports in 2022 was three times what it was in 2021.

It is not difficult to see that Scaroni will soon be coordinating with the pro-Russians in the German energy establishment to push a resumption of Russian gas imports. All it will take is a cold winter, limited LNG, and high energy prices, and Scaroni will be seeking a revival of Russian gas flows, with Gerhard Schroder, and other Russian "energy understanders." The Re-Schroderization of the Western European energy sector will then be fully underway.

Dr. Alan Riley is a Senior Fellow at the Atlantic Council, Washington DC. He specializes in antitrust, trade and energy law, and EU policy issues.

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