Whatever His Motives, Putin’s War in Ukraine Is Fueled by Oil and Gas

The U.S. oil industry is hoping to fill the immediate void with increased oil and gas exports, while the EU moves in the longer term to replace Russian gas with renewable energy.

A convoy of Russian military vehicles is seen as the vehicles move towards border in Donbas region of eastern Ukraine on Feb. 23, 2022 in Russian border city Rostov. Credit: Stringer/Anadolu Agency via Getty Images

A convoy of Russian military vehicles is seen as the vehicles move towards border in Donbas region of eastern Ukraine on Feb. 23, 2022 in Russian border city Rostov. Credit: Stringer/Anadolu Agency via Getty Images

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With a Russian military convoy advancing on her city of Kyiv, Ukraine’s leading climate scientist made an emotional plea at last week’s meeting of the Intergovernmental Panel on Climate Change.

“Human-induced climate change and the war on Ukraine have the same roots, fossil fuels, and our dependence on them,” said Svitlana Krakovska of the Ukrainian Hydrometeorological Institute, as the IPCC unveiled its report on climate impacts.  

Certainly, fossil fuels are not the direct cause of a war clearly driven by the singular will of President Vladimir Putin. The world has struggled to comprehend his motives, which analysts have suggested include expansionism, grievance toward the neighboring Soviet state and a desire to reassemble what he has described as “historical Russia.”

But on a deeper level, Krakovska is right, say those who have studied fossil fuel-dependent states and aggression: Whatever is driving Putin, his war machine is fueled by oil and gas.

“Putin is able to use the oil money to get rid of any domestic political constraints and to build a military and a war chest to allow these kinds of foreign policy adventures,” said Jeff Colgan, director of the Climate Solutions Lab at Brown University. “In that way, Putin’s Russia falls into a category of states that would include Saddam Hussein’s Iraq, and Muammar Qaddafi’s Libya.”

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In his book “Petro-Aggression,” Colgan lays out his research showing that “petrostates,” countries with economies and federal budgets reliant on oil and gas exports, are about 50 percent more conflict-prone than non-petrostates.

The oil and gas industry makes up as much as one-fifth of Russia’s Gross Domestic Product, which is relatively small, less than half the size of the GDP of the United Kingdom, even though it has more than double the population. Oil and gas accounts for 60 percent of the nation’s exports and 30 percent of federal budget revenue, giving Putin a large pot of money for which he is not accountable to citizen taxpayers.

“Russia is a gas station masquerading as a country,” the late U.S. Sen. John McCain once said. 

It’s not surprising that Russia, the world’s third-largest historic contributor to greenhouse gas pollution behind the United States and China, has resisted global action on climate change.

But Putin has undermined the foundations of his petrostate with his violence in Ukraine. European Union energy policy makers last week announced a 10-part plan to end the continent’s deep dependence on Russian natural gas and accelerate its transition away from fossil fuels.

Even though the United States and its NATO allies carefully designed their first rounds of economic sanctions against Russia to avoid its oil and gas sector, the private sector is retreating en masse from doing business with Putin’s regime. Oil majors BP, Shell and ExxonMobil withdrew from ventures in Russia, commodities traders stopped buying Russian barrels and in the United States there were bipartisan calls to cut off Russian oil imports.

“Nothing is off the table,” President Joe Biden said when asked if he would go along with such a move. Economists said Putin will still be able to sell oil in Asia, but at deeply discounted prices.

No one knows how instability in the Russian petrostate will play out, but it surely will have implications for climate change. U.S. oil and gas producers have seized the moment as an opportunity to push for the expansion of their export infrastructure as an investment in energy security. If they succeed in pushing through these multi-billion dollar projects, it will lock in future business—and carbon emissions—for years to come. At the same time, environmental activists see an opportunity to rally support for redoubling efforts on clean energy.

“This feels like it may be one of the last real choice points we get on this journey,” Bill McKibben, the climate activist and 350.org founder, said in an interview last week on MSNBC. “If we can’t bring ourselves to do this while we’re watching the pictures of people demonstrating just incredible courage in Ukraine, then I don’t know if we’re ever going to.”

Invasions and High Oil Prices 

One of the constants in the last few decades of Russia’s history of foreign aggression has been its connection with oil wealth, in the view of Cullen Hendrix, a professor at the University of Denver and co-author of several books on fossil fuels and conflict.

The Soviet Union’s invasion of Afghanistan occurred in 1979, a year when world oil prices were skyrocketing due to the conflict in the Middle East that devolved into the Iran-Iraq war. In 2008, soon after global oil prices reached what would be their all-time peak, Putin’s Russia invaded Georgia, presaging the Ukraine attack as an attempt to regain control in a former Soviet state. In 2014, Russia annexed Crimea at a time when oil prices were volatile but high due to their rebound from the global recession.

“It’s really difficult not to view Russia’s history of expansionary foreign policy dating back to the Soviet Union through this lens of the way in which its strategic calculations are shaped by its status as a petrostate,” said Hendrix, who is also a fellow at the Peterson Institute for International Economics. 

Just weeks before Putin’s Feb. 20 invasion of Ukraine, Russia’s finance ministry announced the budgetary windfall it had enjoyed in 2021 as a result of unexpectedly high oil and gas prices. The Russian government’s oil and gas revenues exceeded initial estimates by more than 51 percent. In October, as Europe struggled with high natural gas prices, caused in part by a slowdown in Russian supplies, Russia was taking in almost $500 million per day in fossil fuel revenue.

“There’s this sense in which oil prices in petrostates affect the risk-reward calculations,” Hendrix said. “If oil prices were to crash into the $20 a barrel range, it would be very difficult for Putin to do what he’s doing, because he would be facing a variety of crises on the domestic front. On the other hand, when the central coffers are flush, and Putin knows that at least in the short term, an invasion is actually going to send prices even higher, that might imbue that leader with a temporary sort of irrational exuberance.”

The behavior of petrostates is shaped not just by the sheer quantity of money that oil and gas brings them, but the way that the cash pours in from outside national borders, Colgan said.

When a federal budget is funded by the nation’s own taxpayers, they feel empowered to decry misuse of funds, forcing accountability on leaders, Colgan argues. So in the United States, a nation born out of a revolution sparked in part by outrage over taxation without representation, power over federal spending belongs not to the President but to Congress, in a process that is—if not smooth—replete with checks and balances.

“People have a sense when they’re paying taxes that they own the government,” Colgan said. “But when you rely on oil export revenue, that relationship flips, where the government starts to feel that it owns the people, or can push around the people. And that creates a political problem.”

Colgan’s research shows that not all petrostates are aggressive states, but they tend to become so if petro-power becomes personalized, or concentrated in the hands of a single leader.

“Every Russian can’t help but worry” over the power that oil gives Putin, says Mikhail Khordokovsky, the former Russian oil oligarch exiled in London.

Khordokovsky knows much about the flow of oil money in Russia; as CEO of the now-defunct Yukos oil company, he was once believed to be the richest man in Russia. But after he became a Kremlin critic, Putin jailed him for a decade. After his release in 2013, Khordokovsky left the country and founded the pro-democracy group Open Russia.

In one of the “Explaining Russia” videos he has posted to his website, Khordokovsky said Russia oil and gas revenue funds the lavish lifestyles of Putin and his allies and supports the apparatus that cracks down on dissent.

“Take away the oil revenues,” he said, “and the number of special services and police personnel will be reduced to a normal, European level. It will be impossible for voters to be spat on, where we see how everyday voters are met by force.”

As Putin’s troops gained ground against fierce resistance in Ukraine last week, and thousands of anti-war protesters were arrested across Russia, Khordokovsky predicted the “decomposition” of Putin’s regime in an interview with French television. 

Putin “cannot win in Ukraine, even by taking Kyiv and Kharkiv,” Khordokovsky said. He predicted that Putin will not be able to contain the internal dissent once Russian soldiers return in coffins and the population begins to suffer the effects of economic sanctions and international isolation.

A large deployment of Russian ground forces, containing hundreds of military vehicles, are seen in convoy northeast of Ivankiv, Ukraine on Feb. 27, 2022. The vehicles were moving in the direction of Kyiv and contain fuel, logistics and armored vehicles. Credit: Maxar/GettyImages
A large deployment of Russian ground forces, containing hundreds of military vehicles, are seen in convoy northeast of Ivankiv, Ukraine on Feb. 27, 2022. The vehicles were moving in the direction of Kyiv and contain fuel, logistics and armored vehicles. Credit: Maxar/GettyImages

De Facto Oil Sanctions

After Putin launched his invasion of Ukraine, the United States and other NATO allies avoided striking directly at the oil and gas sector, even though they knew that it was the way to do the most damage to Putin. They sought to avoid collateral damage to European countries that were dependent on Russian gas imports. And they feared shocking the global economy with an abrupt cutoff of one of its biggest oil suppliers. 

Even while lauding the bravery of Ukraine President Volodymyr Zelensky as he rallied his citizens from undisclosed locations in the besieged capital of Kyiv, Western leaders declined to heed his call to cut Russia off entirely from international financial transactions. The trans-Atlantic coalition allowed continued purchases of natural gas by Germany, Italy and other nations connected to Russia’s pipelines. 

But BP quickly announced it would abandon its 20 percent stake in Russia’s giant oil company Rosneft, taking as much as a $25 billion write-down, and withdrawing finance and expertise from a giant Arctic project that was to be the nation’s largest oil investment since the fall of the Soviet Union. Shell announced it would exit its longstanding partnership with the Russian gas giant Gazprom, with CEO Ben van Beurden calling the Ukraine invasion a “senseless act of aggression.” ExxonMobil soon followed, announcing it would leave behind $4 billion in oil and gas investments in Russia. 

The departures were likely driven not only by concerns about the risks of holding investments in the country but also about the reputational damage that would have come from maintaining them. The blow was most significant for BP—its stake in Rosneft accounted for about half of its oil and gas reserves and one-third of its production. Exxon said it would “carefully manage” its exit and declined to say how long that would take, but its Russian project was not a core part of the company’s future plans. For Russia’s oil and gas production, the impacts are not clear, but analysts with Raymond James said in a note that any effects would be felt over the course of years. 

Meanwhile, in the commodities markets where oil and gas futures are sold, traders backed away from purchases of oil and petroleum products from Russia. “The enablers of oil exports—the banks, insurance companies, tanker companies and even multinational oil companies—have enacted what amounts to a de facto ban,” Tom Kloza, global head of energy analysis at the Oil Price Information Service, told The New York Times. Perhaps driven more by fear of running afoul of sanctions than by moral outrage, the are moves likely to ripple through the commodities markets for weeks.

Crude oil, which was selling for less than $80 per barrel at the end of 2021, jumped to more than $115 per barrel on the world market last week. JPMorgan estimated the price could be $185 per barrel by the end of the year.

Such soaring prices, ironically, would be a boon to Russia, and would help offset the losses it suffers on the global market, where analysts predict it will only be able to sell its barrels at deeply discounted prices—likely in Asia. 

But the impact of the war is complex and still evolving; in the end, the upheaval in the markets may not work to Russia’s benefit. The consultancy Rystad Energy last week said a prolonged war could cut demand for oil by as much as 1 million barrels per day in the Ukraine and Russia as economic sanctions and violence constrain economic activity and damage infrastructure.

Meanwhile, European Union officials developed a 10-point plan for cutting Russian natural gas imports by a third within the coming year, and eventually phasing them out altogether. “For decades and decades, the European gas supply has been dominated by Russia,” said Fatih Birol, executive director of the International Energy Agency, the organization that Western nations established after the oil shocks of the 1970s to enhance energy security. “What we are experiencing today is Russia using its natural gas resources as an economic and political weapon, and this is clear to everyone in the world.”

Pundits predicted there would be division in Europe on how to respond to Russia, since some countries—notably Germany and Italy—are more dependent on Putin for their natural gas supplies than others. But Germany immediately announced that it would withdraw approvals for the new Nord Stream 2 pipeline, turning the conduit that was to expand Russian imports into Europe into a literal $11 billion sunk cost at the bottom of the Baltic Sea. 

In the short term, the EU plan calls for no renewal of the natural gas contracts that are set to expire with Russia in the coming months. All EU nations would increase natural gas imports from other countries and fill their strategic reserves of natural gas before next winter. But in the longer term, the IEA and EU leaders announced a proposed series of steps to accelerate clean energy: fast-tracking permitting for wind and solar projects, revisiting decisions to phase out nuclear energy, doubling the rate of conversions from natural gas boilers to electric heat pumps in buildings—moves designed to permanently cut European natural gas demand.

“More than ever, ending our dependency on Russian fossil fuels, and fossil fuels in general, is essential,” said Barbara Pompili, France’s minister for the ecological transition, who helped develop the proposal. “What is at stake is both the need to accelerate our fight against climate change and the energy security and independence of the European continent.”

Increased U.S. Energy Exports Won’t Be Good for the Climate 

In the United States, politicians of both parties called for a ban on U.S. imports of Russian oil and oil products, which have been growing in the past decade and made up about 9 percent of U.S. imports last year. But the oil industry may be ahead of Washington in acting. Kelly Russell, a Chevron spokeswoman, said the company had halted imports of Russian oil and had no plans to resume them “in the foreseeable future.”

But in the United States, much of the political push to lock Putin out of the energy markets is coupled with a call to ease the pathway for U.S. producers to pick up Russia’s customers, particularly the lucrative European market. Fracking has helped the United States surpass Russia as the world’s largest natural gas producer, but to export more, the industry needs more pipelines and more of the expensive facilities that turn gas into super-cooled liquefied natural gas (LNG) so it can be shipped overseas.

Sen. Joe Manchin (D-W.Va.), chairman of the Senate Energy Committee and the key Democrat who has been blocking Biden’s big climate spending package, last week announced his proposal for getting the package back on track while addressing Russian aggression.

Manchin wants a revamped “Build Back Better” bill to ban U.S. oil imports from Russia as well as ramp up all oil, gas and coal production as well as provide support for clean energy. He also chaired a hearing designed to air concerns he has raised over a new federal policy that might constrain new gas pipelines because of their impact on climate change. His remarks dovetailed with those of the American Petroleum Institute, which last week pushed for an easing up of regulatory restraints as an energy security imperative.

In a call with reporters on Thursday, Frank Macchiarola, the institute’s senior vice president of policy, economics and regulatory affairs, said the invasion had brought into focus “many of the points we’ve been making for years,” namely that the federal government should remove barriers to producing and exporting domestic oil and gas as part of an effort to improve security. “The only long-term solution is growing America’s energy leadership,” he said.

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Environmental activists raised concerns that a new push by U.S. producers would take the world further off course from achieving the decarbonization necessary to stabilize the climate. “The fossil fuel industry is using this moment to advance their own special interests and push for more oil and gas drilling,” tweeted the environmental group NRDC.

Putin has long criticized the United States for hypocrisy on climate, even while he has stood in the way of strong global action. At last year’s global climate summit organized by Biden, Putin chided the United States for its temporary withdrawal from the 2015 Paris accord under President Donald Trump. Russia treats its international commitments with “the utmost responsibility,” Putin said.

But Putin’s pledge under the Paris accord is so weak that it actually allows for Russia to increase its emissions through 2030, since he uses as his baseline 1990, the year of the collapse of the Soviet Union and the high point for Russia’s emissions.  On the eve of the Glasgow summit last year, Putin released a new “low-carbon” strategy calling for carbon neutrality by 2060, but it contained no details on how he proposed to cut emissions.

Climate activists argue the only way to stop both the emissions and the aggression of petrostates like Russia is by choking off demand. McKibben called for the United States to consider investments in energy efficiency and clean energy as security and defense investments. For example, he said the Defense Production Act could be used to build and send electric heat pumps to Europe, permanently cutting natural gas demand and shrinking Russia’s power.

“Think of all the other autocrats that depend on oil and gas revenues to do what they do,” he said. “Why do we pay attention to the King of Saudi Arabia? Because he’s got too much oil. Why do the Koch brothers get to buy a political party and use it to deform our democracy? Because they’re our biggest oil and gas barons. If we get off this stuff, the possibilities for the world are truly remarkable.”

Colgan said it’s not yet clear whether the Russia-Ukraine conflict will accelerate the move to clean energy, or put the brakes on.

“One narrative out there is ‘Oh, God, climate is going to have to go on the back burner because this crisis is just too important,  and we have to focus on that,'” Colgan said. “On the other hand, this crisis drives home the reality that fossil fuel dependence has some very serious negative consequences, and we should be moving harder, we should be doubling down on our efforts to bring about a clean energy transition.”

He said he sees a strong sense of the latter view in the European Union’s proposal to get off of Russian gas while staying true to the European Green Deal.

“There should be a sense in Europe that they have paid for this war,” he said. “I’m not saying the moral culpability is as simple as that, but there needs to be an awareness that an enabling condition for Vladimir Putin was the oil money and the gas money.”

Staff writer Nicholas Kusnetz contributed to this report.