This report explores the challenges faced by consumer and supplier alike in Europe and Eurasia, recognizing that European dependence on Russian energy will be a reality well into the future and that Europe can increase its energy security only by working with—not against—Russia.

INTRODUCTION
For two weeks in the freezing January of 2009, homes and businesses across Europe were left without heat, the result of a murky dispute over gas prices between Russia and Ukraine.

When Moscow and Kiev failed to agree on a formula for calculating price and transit fees for the coming year, the gas simply stopped flowing. Europe, which gets a significant proportion of its gas through pipelines that transit both Russia and Ukraine, bore the brunt of this confrontation between the two feuding post-Soviet neighbors.

Blessed with enormous deposits of oil and natural gas as well as a location at the strategic crossroads between the major consuming countries of western Europe and East Asia, Eurasia (that is, Russia and its one-time satellites in the Caspian Basin—primarily Azerbaijan, Kazakhstan, and Turkmenistan)—will be a vital source of Europe’s energy in the foreseeable future. Ensuring reliable access to Eurasia’s energy at a reasonable price is therefore among the most crucial strategic imperatives for Europe and, by extension, for Europe’s allies in the United States.

The emergence of Russia as the dominant player in Eurasia has made the European Union’s (EU) dependence on the former Soviet states for its energy security increasingly problematic, a reality highlighted all too clearly by the Russia-Ukraine gas crisis of January 2009. ...

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Council Special Report No. 43. February 2009
Jeffrey Mankoff

Council on Foreign Relations
New York Headquarters
58 East 68th Street
New York, NY 10065
Tel 212.434.9400
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Fax 202.509.8490
www.cfr.org

Conclusions and Recommendations
For the West, Russia’s emergence as a dominant force in Eurasian energy politics is both a challenge and an opportunity. Although Russia is in many ways a problematic partner, it could contribute to improving energy security both for Washington’s European allies and, more speculatively, for the post-Soviet states of the Caucasus and Central Asia. Given the growing political instability in the Middle East, the United States would do well to think about ways of leveraging Russia’s vast holdings of oil and gas to expand the supply of available energy.

Doing so will require establishing a framework for Russia to be a constructive participant in European oil and gas markets, and insulating against the danger that Russian supply will fall short, for either political or technical reasons.

The West should consequently adopt a two-pronged strategy based on the principles of integration and diversification. Adopted in tandem, these principles can be mutually reinforcing: integration will lessen diversification’s impact on relations with Russia, and diversification will ensure that integrating Russia does not thereby increase European dependence on it. Diversification, which will require new infrastructure such as pipelines, liquified natural gas (LNG) terminals, and nuclear power plants, will take more time. ...

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