The Cold War derives its name from the fact that there was no large scale fighting between the U.S. and the Soviet Union. What actually happened was an exercise in game theory, where both nations were forced to recognize that advantage could not be gained through the use of nuclear weapons. This is famously referred to as Mutually Assured Destruction (MAD). Today, we have an entirely different situation unfolding, where the electricity and heating needs of tens of millions of Europeans hang in the balance. Pipelines, ports, and refineries have now replaced the old game pieces of troops, tanks, and missiles, and it is abundantly clear that the Hot War cannot be resolved by game theory alone.
According to the BBC, 23% of the EU’s natural gas comes from Russia. This overall figure is a bit misleading as nations like Hungary (24% of total energy use), Slovakia (22%), Lithuania (36%), and Latvia (27%) are far more dependent on Russian gas than nations like Spain, France, or the U.K. Another key fact is that 70% of the gas supplied to the EU uses pipelines running through Ukraine. Given Russia’s takeover of Crimea and their ongoing, bloody battle with Ukraine, it has provided extra motivation for Europe to find ways to reduce their dependence on Russian energy sooner rather than later.
Given the crisis in Ukraine, the EU and the U.S. are working together to help Eastern European nations become more energy independent by providing capital, technology (fracking), and political support. A U.S. official recently commented that they would like to see a “20 percent slice cut out of Russia's current share of the Eastern European gas market by 2020.” On the other side, Russia is making its own moves. An $11.3 billion deal with Hungary for the building of two new nuclear reactors is certainly one of their recent wins, as the friendship between Putin and Orban appears to be quite cosy. Russia has also vowed to increase energy supplies to Turkey after EU opposition defeated his pipeline proposal. Despite these moves, Russia is still dealing with falling oil prices and the ruble that has plunged more than 50% versus the U.S. dollar.
We are now living in a world where the supply of energy is outstripping demand. Fracking has unlocked an enormous amount of oil and natural gas in the U.S. and this technology is now being shared around the world. The ability to produce and distribute liquid natural gas (LNG) is one that can now be developed by nations all over the world. For countries like Russia that are very dependent on energy exports, this either delivers a wake up call or signals the downward spiral of defeat. Let’s just hope that the Hot War involves Russia developing its energy industry rather than invading another nation by force in a desperate effort to save itself.
For more information on the Hot War, please refer to the following articles:
The New Cold War Is Over Europe’s Energy Future, Business Insider, Bradley Klapper and Matthew Lee, February 3rd, 2015 (http://www.businessinsider.com/the-new-cold-war-is-over-europes-energy-future-2015-2#ixzz3R91UushR)
Russia's gas fight with Ukraine, BBC News, Paul Kirby, October 31st, 2014 (http://www.bbc.com/news/world-europe-29521564)
How Much Europe Depends on Russian Energy, New York Times, September 2nd, 2015 (http://www.nytimes.com/interactive/2014/03/21/world/europe/how-much-europe-depends-on-russian-energy.html?_r=2c)
For more information about the Corvinus Global Business blogger, go to https://www.linkedin.com/in/kevinmjackson1.
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