21 May 2022

Helen Thompson: are we facing an international energy crisis?

From Saturday Morning, 6:07 pm on 21 May 2022

The world is not just seeing high oil prices, it is at the beginning of a fully-fledged energy crisis, says Helen Thompson, a professor of Political Economy at Cambridge University.

Thompson's latest book Disorder: Hard Times in the 21st Century, explains the overlapping geopolitical, economic, and political shocks of recent years, showing how much unrest has originated in problems generated by fossil-fuel energies, and the major role played by banks and debt.

Helen Thompson author of Disorder

Photo: Supplied

Putin regards gas as 'a geo-political weapon'

Thompson - whose previous books include Oil and the Western Economic Crisis (2017) and China and the Mortgaging of America (2010) - said Ukraine's status as an energy transit state has contributed to its current position.

She said from 1991 at the beginning of Ukraine's existence as an independent state there was a set of divisive issues between Russia and Ukraine.

"Energy was very much to the fore and that was because the pipelines that the Soviet Union had used to sell gas and oil to Western Europe during the Cold War years now went through Ukraine.

"Ukrainians and the Russians had to reach agreements about payment for that oil and gas and the maintenance of those pipelines and they caused a lot of tensions."

Thompson said Russian President Vladimir Putin believed the Western European countries would be very constrained in the way they could react to Russia's actions in Ukraine, due to their dependence on Russian oil and gas.

Russia is about to cut off gas supplies to Finland on the basis it is seeking to join NATO and Thompson said this is further evidence that Putin regards gas in particular as "a geo-political weapon".

"He regards it as the most important, in some sense instrument of power that Russia possesses."

The issues surrounding energy situation today can be traced back to the 1970s oil crisis and more recently 2005, Thompson said.

The Orange Revolution occurred in Ukraine in 2005 when a president was elected who wanted to move the country away from Russia and to become a member of the European Union and NATO although that did not happen, she said.

"I think we can see a serious deterioration in relations between Russia and Ukraine thereafter."

Thompson said it was also in 2005 that the German and Russian governments agreed to build the Nord Stream pipeline under the Baltic Sea, "the first of them that bypasses the transit of gas from Ukraine".

The world's production of oil also stagnated in 2005, she said.

"It's also true I think that by 2005 you can see Russia and China moving closer together and it was the year in Europe in which the French and the Dutch both rejected the European Union's constitution treaty."

In 2014, the European Union worked with the then Ukrainian government to provide it with associate membership of the EU, but Russia "was deeply unhappy about that prospect".

Thompson said it was naive to believe that Ukraine could be brought closer to the EU without having a security guarantee from NATO.

"To try to bring Ukraine closer to the European Union without a security guarantee seemed to me to be likely to produce the kind of Russian response that we saw in annexing Crimea in that year."

Thompson said although the French and German governments were prepared to work towards Ukraine's associate membership of the EU, they both vetoed Ukraine's membership of NATO.

'Turkey's indispensable'

Turkey's president Recep Tayyip Erdogan earlier this week restated his opposition to Finland and Sweden joining NATO.

Turkey has a crucial position in NATO due to its position on the southern coast of the Black Sea and it provides a geographical link between Europe and the Middle East, Thompson said.

But she said Turkey has repeatedly been rebuffed from joining the EU.

The French, and President Emmanuel Macron in particular, have been uncomfortable about Turkey being a NATO member, she said.

"But if you look at a map and you look at where Turkey is and what NATO needs to do in relation to defending states against Russia, including supplying weapons to Ukraine, it not being a NATO member but receiving lots of NATO support at the moment, then Turkey's indispensable."

However Turkey has a set of grievances, she said, including about the Kurds and the support that some European governments including Finland and Sweden give to Kurdish positions.

"It would like the focus of NATO to be more compatible with Turkish geo-political objectives, particularly in relation perhaps to the East Mediterranean."

Thompson said Turkey is in a position where it can ask for some of its grievances to be addressed in exchange for acquiescence.

She said it shows how difficult it is for NATO to remain united about big issues for any length of time.

Geo-political faultlines around energy will continue

An increase in renewable energy has led to an overall increase in energy consumption, rather than it replacing fossil fuels, Thompson said.

She said there are a number of countries where the proportion of renewable energy in their electricity mix is significantly higher than it was a few decades ago.

"But by contrast if you look at something like transportation, we're pretty much where we were where the use of oil is concerned."

Thompson said some countries such as China and India have been engaged in increased oil and gas consumption as their economies grow.

But she said China has considerable advantages in terms of green energy.

China is in a strong position in terms of electric vehicles, it dominates metal extraction, it is responsible for a higher proportion of solar panel manufacture, she said.

She said energy has always been and will continue to be geo-political.

"I think that it's quite probable that in the end geo-political competition around metal extraction will be somewhat different than geo-political competition around oil and gas partly because the metals are not as arbitrarily distributed around the world as oil and gas have been."

Thompson said given that we will be living with multiple energy sources - both green and fossil fuels - for some time the old geo-political fault lines around energy will remain, but there will also be new geo-political faultlines around green energy.