From the very outset of the war, there were legitimate concerns that Putin would use several levers at his disposal to either test Europe's patience or ratchet up the pain when it came to supporting Ukraine. one of the biggest being Russian oil and gas prices. Before the war began, Russia supplied anywhere between 40 and 50% of the EU's natural gas imports, and as one of Europe's main core energy producers, Russia was seemingly in a good position to use that lever and effectively hold Europe to ransom. But ultimately, the question is whether Putin has failed to do just that. As we see it, there are three major reasons why Putin's plan has so far failed: lack of foresight, political will, and lack of resources. First and foremost, the weather
For the most part, Europe has been incredibly lucky, experiencing unseasonably warm weather. Some would even go as far as saying "hot weather." Eight European countries have already seen their national temperature records for January break. In fact, Bilbao, Spain, recorded a temperature of 25.1 degrees Celsius on New Year's Day, equivalent to the average in July and more than ten degrees above the average for December. Even before the new year, the UK, Ireland, France, and Spain all declared 2022 their hottest year on record. This unseasonably warm weather has ultimately meant that demands for energy are much lower than in previous years in certain parts of Europe.
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When it comes to the second factor, foresight, from the very outset of the war, there were legitimate concerns that Putin would use several levers at his disposal to either test Europe's patience or ratchet up the pain when it came to supporting Ukraine. In other words, we kind of knew that Putin was either going to or could use natural gas supplies as a proxy war between the West and Russia, and so very quickly, steps were taken to mitigate and reduce dependency on Russia. That is to say, as the scale of the war became ever more clear, Europe began bracing for the worst. Nord Stream 2 A major natural gas pipeline connecting Russia and Germany via the Baltic Sea had its certificate suspended in February last year. More importantly, in substantive terms, European nations rushed to fill up gas storage facilities, buying boatloads of liquefied natural gas, or LNG, from the likes of the US, Qatar, and elsewhere. These gas storage facilities were filled to near capacity in the fall and are still averaging 84% full, compared to 52% at the same time last year. In fact, at the time of writing, most countries in Europe were actually adding to their gas storage more than they were drawing down. The fact that stores are so high allows many people to breathe.
All of this brings us to the third factor, political will. Both when it comes to supporting their citizens and standing shoulder to shoulder with Ukraine, many European leaders have gone far beyond what was otherwise expected of them. From Germany's major investment in the new era of its military to the doggedly neutral nations of Sweden and Finland applying to join the NATO military alliance, things that were otherwise unimaginable to happen during peacetime did happen. Added to that, countries throughout Europe have spent truly enormous amounts of money, both directly supporting Ukraine and supporting their citizens amid rising energy prices and the cost of living crisis. in the UK. The original Energy Build Support scheme was widely touted as perhaps the single most expensive tax or spend policy in British peacetime history before being slightly scaled back. Germany announced a huge €200 billion energy subsidy program, and Italy has earmarked some €21 billion to help families and firms.
Many countries have also urged their citizens to cut down on energy usage as much as they can, with the countries themselves leading the way. Local authorities in Denmark cut down on Christmas lighting over the festive season. France reduced the temperature of public swimming pools and limited heating in homes and offices to a maximum of 19 degrees, while Germany severely restricted lighting in public buildings, including the Brandenburg Gate. All three factors together have allowed for natural gas prices to come tumbling down from their lofty highs to close to €350 per megawatt hour, or about €76 a megawatt hour. None of this is to say that Putin's gas war hasn't tested and ultimately hurt European nations and citizens. While Putin may have failed to effectively cripple European economies and cut off nations from supporting Ukraine, the increased cost of living is deeply affecting a lot of people, with many unable to afford to heat their homes and many more forced to cut back. In some cases, this has led to increased deaths, given the annual flu season coupled with the remnants of COVID circulation. In fact, The Economist built a statistical model to predict excess mortality arising from a number of winter scenarios in a relatively mild scenario, which is what we are thankfully seeing. The increase in deaths could be limited to just 32,000 above the historical average. in the case of a harsh winter. That excess mortality figure rises to 335,000.
In reality, Putin's plan to hold Europe ransom might not have come to fruition last year, but it might this year. As historian Adam Tooze puts it, "barring something unforeseen, like a Russian collapse or some extraordinary deal with OPEC, there's really no reason to think that the situation is not going to get progressively more difficult." It's not obvious where the replenishment of the gas stocks will come from next year. Ultimately, the three factors that have made 2022 tolerable just might not be on our side this year. It's still too far out to predict the weather with any semblance of accuracy. The benefits of foresight are waning, and crucially, it's not a given that political will hold up for another 12 months. While most governments and politicians remain steadfastly committed to ensuring Russia is defeated, Some are already questioning the extent to which fighting for Ukraine's freedom is harming their own citizens, and there may come a time when public sentiment shifts further in favour of Ukraine, but not at any cost, not at the expense of heating homes. Something that might just be on the cards amid news that Europe's economy is slowing, with half of EU member states expected to be in recession in 2023, according to the IMF, So has Putin's plan to hold Europe to ransom failed? Well, not just yet...
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