Commentary: Unhealthy G20 dependencies on foreign oil and gas

Countries learning the hard way energy can be used as an economic and political weapon by autocratic regimes

By Mark Milke and Ven Venkatachalam
A worker is standing at the construction site of the Nord Stream 2 Baltic Sea pipeline at the pig farm. The 1,200-kilometer-long gas pipeline will transport around 55 billion cubic meters of Russian natural gas from Russia to Germany every year. Getty Images photo

Back in 2009 Russia cut off the natural gas supply to Ukraine in mid-winter, ostensibly over a pricing dispute. That action was a reminder of this hard fact: energy can and is used as an economic and political weapon by autocratic regimes — in this instance, Vladimir Putin’s Russia.

We have more recent examples of the same phenomenon.

In February,  Saudi Arabia’s energy ministry directed the state-owned oil company, Saudi Aramco, to raise production significantly and thus flood the world market with cheap oil to depress prices and harm competitors. The Russians then exacerbated the price collapse by refusing to adhere to a 2016 Saudi-Russian agreement on the matter.

On the Russian side, as Sergey Sukhankin pointed out in a University of Calgary School of Public Policy paper, “In March, Igor Sechin, president of Rosneft, convinced President Vladimir Putin that if Russia could keep oil prices below $40 a barrel for an extended period, U.S. shale oil would no longer be economically attractive and the Americans would lose market share.”

The Russian-Saudi actions underline the economic and political risk of such actions to resource-rich nations, but also to countries that have little or no domestic oil and gas reserves and thus rely heavily on imports.

Is it possible to measure such risk? We think so and the question is timely given the G-20 summit hosted by Saudi Arabia this year. To calculate the risk, we matched up oil and gas import data with freedom rankings from the Freedom House, the Washington D.C.-based think tank that has categorized countries and territories by their degree of freedom since the 1970s (Free, Not Free, Partly Free).

The G20 is made up of 19 countries and the European Union (EU). After subtracting the EU and sifting through available data for the 13 Freedom House “free” countries among the G20, we came up with ten countries that could be matched up on oil and gas imports and their reliance on “not free” countries.

Here’s what we found from the 2019 data: Canada and the United States were the least dependent on tyranny oil as a proportion of all imports, with just 16 per cent and 19 per cent respectively imported from countries categorized as Not Free.

In contrast, Germany (61 per cent of all oil imports came from Not Free countries), South Korea (almost 66 per cent), France (69 per cent), Japan (86 per cent) and Italy (87 per cent) were all highly dependent on foreign oil from Not Free countries.

On natural gas, Canada imported almost no gas from a Not Free nation (a small volume flowed in from Angola in 2019) while the United States imported no natural gas from such sources. However, those democracies in the G20 most dependent on tyranny natural gas as a proportion of all gas imports were Germany (almost 49 per cent), India (75 per cent) and Italy (almost 83 per cent).

Does reliance on tyranny oil or natural gas really matter? Multiple politicians from European countries think so.

After their 2009 experience with the Russian mid-winter cut-off, the Ukrainian government later chose to source natural gas through different suppliers.

As the Atlantic Council’s Daniel Fried has written, “since Ukrainians overthrew Putin-controlled President Viktor Yanukovych in 2014, Ukraine’s government has wisely developed alternative means of purchasing gas, including Russian gas, through pipelines from its western neighbors that bring Russian gas to Ukraine from the West (so-called “reverse flow”).”

Fried notes that this means “that Ukraine no longer purchases any Russian gas directly from Russia for domestic consumption, a major national security achievement that mitigates much of the Kremlin’s energy leverage over them.”

Other countries also recognize that dependency on oil and gas from autocracies and tyrannies is fraught with risk.

Germany, for instance, is now debating the danger of being over-reliant on imports of Russian natural gas. That dependency will soon increase as the Nord Stream 2 natural gas pipeline is completed and becomes fully functional. This debate became acute after the August 2020 poisoning of Russian Opposition leader Alexei Navalny, which German Chancellor Angela Merkel, among others, blamed on the Kremlin.

The head of Germany’s parliamentary committee on foreign affairs, Norbert Röttgen, even urges the cancellation of Nord Stream 2. He argued that “We need to respond with the only language that Putin understands, the language of natural gas.”

Meanwhile, Poland’s foreign minister Konrad Szymanski also cited the poisoning as a reason why Nord Stream 2 must be abandoned, arguing that the new natural gas pipeline “will make the European Union economically dependent on Russia and undermine our ability to take decisive steps against this type of malign behavior.”

The case for measuring the potential dependency of free countries on imports of energy from autocratic and tyrannical regimes is anchored in the reality of international power politics, a reality to which politicians in Ukraine, Germany and Poland are already aware.

Mark Milke and Ven Venkatachalam are with the Canadian Energy Centre, an Alberta government corporation funded in part by carbon taxes. They are authors of Tyranny oil and gas dependency in the G20 democracies.