Harper’s Russian energy sanctions: Cui Bono?

Larry Hughes

Both during and after the G7 meetings in Europe, Canadian Prime Minister Harper argued for energy sanctions against Russia as a penalty for its annexation of Crimea. As net-energy importers, the European Union showed little enthusiasm for energy sanctions, knowing full well that they would bear the brunt of them — unlike Canada or for that matter, Russia.

In 2012, the EU’s demand for crude oil and natural gas was 611.3 million tonnes and 447.4 billion cubic meters (bcm), respectively. Of this, Russia supplied the EU with 286.5 million tonnes of oil (about 47% of demand) and 130 bcm of natural gas (about 29% of demand). As past Russian-Ukrainian confrontations over natural gas (in 2006 and 2009) showed, the loss of Russian energy would cause economic and social hardships in the EU. Similarly, if Russia were to lose the EU as a market at this time, its economy would probably collapse. It is in neither party’s interest to have this happen — just as it wasn’t when, throughout much of the Cold War, the Soviet Union supplied western Europe with oil and natural gas.

The EU is probably aware that there is more to Mr. Harper’s push for energy sanctions than punishing Russia — Canadian oil producers and refiners could benefit if the EU reduces its imports of Russian oil. Before the end of this decade, Enbridge’s Line 9 and TransCanada’s Energy East projects will be moving almost 70 million tonnes a year of western Canadian unconventional crude into eastern Canada. Some or all of this could be used (either as crude or refined product) by the EU to replace Russian oil. The catch will be convincing the EU to rescind its fuel-quality directive against importing oil obtained from the tar sands — they can expect to hear a great deal about Canada’s “ethical oil”.

Punishing Russia with energy sanctions will be a long, slow process. Moreover, it is debateable how painful they would be to the Russians. While almost all of Canada’s oil and natural gas exports go to one market (the United States), Russia has several: for oil (about two-thirds to the EU and about one-quarter to Asia) and for natural gas (90% to the EU and the rest to Asia). With the completion of its Eastern Siberia Pacific Ocean pipeline, Russia is making increasing volumes of crude oil available to the Asian market.

Russia and China are on the verge of a major energy deal. To assume that Russia has weakened its negotiating position because of the threat of energy sanctions and the potential loss of market share overlooks the fact that China still requires foreign energy to meet growing domestic energy demand and to address a number of past energy decisions. In cities such as Beijing and Tianjin, the emissions from the combustion of high-sulphur coal for heating and electrical generation are proving detrimental to both public health and the environment. The Chinese government needs to replace coal with cleaner alternatives such as natural gas.

Mr. Harper may also want to be careful what he wishes for — if energy sanctions are imposed on Russia and lifted against Iran, Iranian oil and natural gas could find its way to the EU by pipeline through Turkey and Greece or Bulgaria.

By telling the EU to implement energy sanctions against Russia, Mr. Harper is attempting to shift attention away from the problems he’s facing in Canada by presenting himself as a world leader. This may work for his supporters; however, given the EU’s need for Russian energy and the apparent success of the targeted economic sanctions, the EU will probably ignore Mr. Harper’s arguments. And it’s unlikely that Mr. Harper’s energy sanctions are causing Mr. Putin to lose much sleep.

Published Chronicle Herald (19 April 2014)