Ukraine’s extraordinary military success in rolling back the Russian occupation around Kharkiv in early September has raised hopes that Kiev may be on the cusp of a broader victory that would see Russian troops ejected not just from the Ukrainian territories taken since February, but also Russian-annexed Crimea and the Donetsk and Luhansk regions occupied since 2014.
Can we infer from this that the war could soon be over? Or that Russia could resume its role as a major oil and gas exporter to Europe? In short, no.
Ukraine’s north-eastern charge will buoy Ukrainian morale and heap more pressure on President Putin, especially from Russian nationalists, dismayed with the performance of their country’s military. Putin’s latest outreach to his Chinese counterpart looks desperate rather than bold.
But the prospect of a settlement by force or diplomacy that opens the way for Russian oil and gas exports to flow unsanctioned into Europe is close to zero. While Russian oil exports have been surprisingly resilient given EU sanctions, we still expect oil trade to diminish toward the end of the year as the embargo bites.
On the gas front, European buyers would ideally like years rather than weeks to replace imported Russian gas. But the Kremlin’s decision to shut off supply has forced that painful adjustment to happen sooner. This is a hard lesson for European citizens, but EU leadership is unlikely to have any last-minute doubts about its divorce from Russian energy. For its part, Moscow may have overplayed its hand — Europe is once bitten, twice shy.
An honest appraisal of Moscow’s weaponization of energy shows the gloves have been off for months. Beyond holding back gas supply to European customers, Russia has interfered with central Asian oil exports and made its influence felt in other spheres. The failure to clinch a new Iran nuclear deal and the pent-up oil supply that implies is thought in part due to Russian pressure on Tehran. OPEC’s September switch to tightening supply rather than raising it also benefits Russia, keeping oil prices high just as its export volumes are set to decline.
In summary, this war isn’t over and even when it is, Russia’s position as a strategic energy supplier to Europe is irreparably damaged, which is why Ukraine’s military progress has passed by oil and gas markets with barely a murmur.