Russia hopes to benefit from Britain’s departure

Julia Kusznir is Energy expert and has worked as postdoctoral fellow at the Jacobs University in Bremen

For several decades, the United Kingdom has been vital to the formation of the European energy market. It was one of the first European countries to privatise and deregulate its national electricity and gas markets, and has since benefited from the collective power of the EU to counter the threats of energy exporters such as Russia, thereby minimising the risks for national energy security. How Britain’s exit will affect EU-Russia energy links and the EU’s energy security is of critical importance to Europe’s currently tense relationship with its large neighbour.

The British energy market is, at present, deeply integrated into the European energy market. Brexit will exclude the UK from a number of important European energy projects, the institutions responsible for the development of cross-border electricity interconnectors, and the harmonisation of energy prices. It will also force the EU to rethink its energy strategy and reorganise its institutions. If the UK decides to remain a member of the EU’s energy institutions, additional negotiations with EU member states will be needed, holding back substantive progress on the internal energy market and having unpredictable effects on its further design.

Despite this deep integration, the UK is dependent on fossil fuel imports from, among other countries, Russia. This dependency has increased significantly over the last decade due to the depletion of British oil and gas reserves in the North Sea and the cessation of domestic coal mining. Before the referendum, Amber Rudd, a Remain backer and then energy secretary, signalled that Britain’s
withdrawal could make the country’s energy market vulnerable to Russian gas supply, saying that Russia could use Britain’s dependence as a weapon. This warning could now very plausibly become reality.

Russian gas supplier Gazprom is currently negotiating with several major energy companies in the UK to increase its supply to Britain and several other European countries, acting via its subsidiary, Gazprom Marketing & Trading, which operates in Britain. Russian oil company Rosneft is working together with the UK’s BP – which just so happens to own 19.75% of Rosneft’s shares – having seen the referendum result for Brexit as a great opportunity for the development of offshore projects. Since the implementation of EU economic sanctions against Russia, imposed in response to the Ukraine crisis in July 2014, BP has not been able to participate in joint projects with Rosneft. Brexit could change this situation and grant Rosneft access to BP’s European projects. Russian national energy companies could, as a result, strengthen their position on the EU energy market for considerable economic benefit.

But the UK was one of the biggest supporters of economic sanctions against Russia. After the referendum, some high-ranking Russian politicians expressed their pleasure at the result, and hoped that economic sanctions would now be lifted sooner rather than later. European officials wasted no time in prolonging them until January 2017, and plan to further extend the sanctions until full implementation of the Minsk agreement on ending the conflict in eastern Ukraine. This isn’t a case where Britain’s engagement is significant enough to change the decisions of EU officials. The UK will not leave the EU for two or three years at least, and negotiations on the look of the EU’s institutions without the UK will take time. It’s therefore unlikely that Brexit will seriously change the EU-Russia economic relationship.

Nonetheless, there should be no doubt that Moscow will try to force a review of the EU’s restrictive measures. It will play on the differences between European countries, lobbying those that criticise the EU’s stance on Russia, such as Greece and Hungary. It will back Eurosceptic movements across Europe. But it would be an exaggeration to think that Russia could significantly strengthen its influence on European decisions during and after the UK’s departure. The EU relies on Russian fossil fuel imports (Russia provides 45% of Europe’s oil, 39% of its gas and 28% of its coal), but around a third of Russia’s export revenues depends on the EU’s energy demand. That mutual dependency hinders Moscow’s ambitions for greater influence. And Russia isn’t immune to the market instability caused by the referendum vote. The Russian economy has already been suffering from the effects of Western economic sanctions, and a further serious political and financial crisis in Europe would have devastating effects for Russia too. This is not at all in line with the country’s interests.

The EU gives its members a free hand in taking decisions on energy production, the energy mix and energy supply, as well as on internal trade regulations. It has limited influence on national energy policies. But over several decades the EU has become a key actor in addressing the security of supply and climate dimensions of energy policy for its member states. With the implementation of the Third Energy Package for the internal gas and electricity market in 2009, the EU developed a tool that not only affects the foreign policies of member states in energy matters, but also challenges Russia’s dominance over the EU energy market.
For now, it’s unlikely that Brexit will weaken the EU’s position in its energy relations with Russia. But there is the possibility of a negative turn in many fields of European cooperation, and a shift
in the balance of energy policy away from Brussels to national governments, thereby weakening future collective action. This threat, if realised, would make the EU more vulnerable to Russian
influence. Brexit may open up more doors for Russia to achieve its foreign policy goals, but it will not necessarily make the EU an easier partner for the Kremlin.