Energy relations are a sign of Russia’s declining global standing

My colleague and I have recently argued that the limited scope of sanctions that the Biden administration imposed on a Russian natural gas pipeline to Germany (Nord Stream 2) have not been about Russia. Rather they have been a reflection of U.S. interest in rekindling transatlantic ties to counter China’s expansionist policies. But the decision about Nord Stream 2 sanctions — assessed against a greater backdrop of international relations — indicates much more: it points to a failure of Vladimir Putin’s foreign policy direction that aims to see Russia returning to the center of world affairs. 

This policy has seen Russia involved and weighing in on many global issues, including the conflict in Syria, Iran’s nuclear program, Venezuela’s collapse. Russia’s aggression against Georgia and Ukraine have also put Russia back in the center of global attention as have Russia-based cyber-attacks and meddling in the U.S and European elections. 

Russia has also risen to a status of major global producer and supplier of fossil fuels, amplified by recent developments such as: participation in the OPEC+ alliance and buildup of natural gas infrastructure to facilitate Russian gas exports. Indeed, Russia’s rise as a major energy producer and exporter has been one of the most successful stories of the post-Soviet era, crucial to its economic performance and political success of Vladimir Putin. 

But energy is not enough to return the country to the position of world’s super power. In fact, energy relations rather point to the opposite: Russia’s transformation from a hegemon to a regular participant of world affairs. 

Consider the cases below: 

1. The limited sanctions on Nord Stream-2, rather than a bow to Russia, are the result of the U.S. focus on rekindling transatlantic partnership to counter China’s growth as a global economic and political power. This ability to discount Nord Stream-2 — and the willingness of European gas buyers to increase their exposure to Russia — has been also supported by recent changes in natural gas markets that decrease Russia’s dominance and geopolitical influence. A move to higher decarbonization within the EU may further enhance this trend. 
2. The Power of Siberia pipeline, made to export Russian gas to China, began operations in December 2019, marking an important step in Russia’s pivot to Asia. But the project’s history points to China dictating the terms of engagement. China decided to go ahead with the pipeline after over a decade of bilateral talks and only after Russia had been significantly weakened by Western sanctions that followed the invasion on Ukraine. The route of the pipeline has closely followed Chinese preferences and gas pricing has been extremely competitive to the detriment of the pipeline’s profitability. The lack of flexibility in marketing pipeline flows highlights continued Russian vulnerability to pressure from gas buyers (in Europe and China) who can leverage their access to global gas flows.
3. Russia has certainly advanced its position as an oil supplier as part of the OPEC+ agreement. As research points out, OPEC has lost its ability to effectively balance oil markets following the entrance of flexible U.S. oil supply, though some of the control could be recaptured with Russia’s help. Nonetheless, the country is only part of the equation, where consideration of other state actors, in particular Saudi Arabia are, at least as — if not more — important and consequential. The risks of this approach were highlighted by the brief but intense price war between these two oil powers last year and by continuing tensions over production discipline and price preferences.

That is not to say that Russia should be underestimated or dismissed. Russia will remain an important global energy supplier and is likely to be an important player in energy transition given its rare minerals endowment. Geopolitically, Russia has a lot of sway in the region and its willingness to engage in international conflict and malign activities make it a serious actor and a threat in international relations. But as Russia continues to be an important part of the U.S. foreign policy, its current position is not akin to what it was during the Cold War. 

Thus, Russia’s goals, actions and demands will be increasingly assessed against the larger goals and behavior of other actors. From the U.S. perspective this will be predominantly China as well as the needs of U.S. allies such as the EU, the U.K. Canada, Australia, etc. It is quite telling that the Biden administration has broken away from the usual “reset with Russia” that new U.S. administrations have usually sought at the beginning of their tenures. 

The June 16 meeting between Presidents Joe Biden and Vladimir Putin will give more insight into the way in which the current administration will consider Russia’s international presence. Rather than a “general reset,” however, it is more likely to be about specific commitments as the U.S. sets up to reinvigorate its transatlantic ties to manage the rising transpacific competition with China. 

Anna Mikulska is a nonresident fellow for the Center for Energy Studies at Rice University’s Baker Institute for Public Policy & senior fellow at the Kleinman Center for Energy Policy and Foreign Policy Research Institute. She is co-editor of the recently published volume: “Monetizing Natural Gas in the New “New Deal” Economy. Follow her on Twitter: @anna_b_mikulska