The Global South Is Keeping Russia’s Energy Economy Afloat

As villages and towns change hands in Ukraine during the counteroffensive operations against Russian forces and Moscow grapples with internal instability following Wagner’s failed mutiny, the global energy map is also being redrawn. The war has not only dramatically reduced oil and natural gas flows between Russia and Europe, but it has reshaped energy connections around the world. This evolving shift in energy connectivity could play a significant role in shaping the outlook of the standoff between Russia and the West, as well as Ukraine’s own future.

Ukraine’s own energy sector has been decimated by Russia’s full-scale assault against the country dating back to February 2022. More than half of the country’s power generation plants have been destroyed or damaged, either accidentally or as a result of direct targeting by Russian forces. The public faces frequent cuts in power, heating, and water, and the economic toll has been valued by some estimates at more than $10 billion. The recent destruction of the Nova Kakhovka dam will place even more pressure on Ukraine’s energy sector and economy as a whole.

The West has also been substantially impacted. In the aftermath of Russia’s invasion, the U.S. and EU passed the strongest sanctions to date against the Russian energy sector while making ambitious plans to diversify away from Russian oil and natural gas supplies. The United States cut imports from Russia almost immediately, while the EU—traditionally Moscow’s largest market for energy exports—stopped all seaborne Russian oil imports by the end of 2022 and has reduced Russia’s share of its total natural gas imports from around 40 percent prior to the war to below 10 percent in the beginning of 2023.

The EU’s reduction of its reliance on Russian energy has included enhancing energy efficiency measures and continuing its ambitious shift to renewable energy sources but has primarily come from shifting its imports to other partners. In 2022, the EU increased natural gas imports by 28 billion cubic meters (bcm) from Norway, Azerbaijan, and Qatar, while the United States alone provided the European bloc with an additional 37 bcm of liquefied natural gas (LNG) exports. LNG has given the EU’s energy sector much greater flexibility and dynamism, which was previously reliant on (and subject to political manipulation by) Russia via piped natural gas, including the now-defunct Nord Stream pipelines. The EU now has an expanded ability to receive tankers from all over the world, including from the United States and other allies with which it shares strategic interests in the Ukraine conflict.

In response, Russia has also significantly reshaped its energy connections since the conflict began, pointing toward wider geopolitical realignments. Russia has ramped up its energy exports to many countries in the non-Western world, including China, India, some Gulf states, and even NATO member Turkey. While none of these states directly supports Russia in its war against Ukraine (with the partial exception of Beijing), none has joined the West in sanctioning Russia over the conflict, instead choosing to expand energy ties with Moscow out of economic self-interest and a desire to foster a more multipolar world order. Russia has even found new energy markets in places like Pakistan and Africa, which are also reluctant to support the West’s strategy to pressure the Kremlin.

It is this dichotomy between the “West and the rest,” a point Moscow has emphasized in its information operations around the war, that has made the Russian economy surprisingly resilient. While Western sanctions against and diversification from Russia’s energy sector have been a significant source of pressure for the Kremlin, they have not led to the economic collapse that some observers had predicted. Russia’s GDP faced a relatively modest 2.1 percent contraction in 2022 and is projected to return to growth in 2023 by some estimates, while the country’s oil and gas revenues actually increased by 28 percent, or nearly $37 billion, in 2022 compared to the previous year.

Which brings us back to the Ukrainian conflict. Because energy sales have enabled the Russian economy to stay afloat, they have also facilitated the Kremlin’s ability and willingness to continue to wage its war in Ukraine. This, in turn, has made it more difficult for Ukraine to reclaim territory despite its increased levels of military and economic support from the United States and NATO, as the country’s initially modest gains in the ongoing counteroffensive have shown. Part of the West’s calculus to diversify from Russian energy was to deprive Moscow of its revenues that fuel its military operations, but the Kremlin has until now been able to largely offset this by building up its economic and diplomatic relationships outside of the Western world. The diplomatic support from the likes of China, Iran, and Qatar following Wagner leader Yevgeny Prigozhin’s attempted mutiny are a reflection of this.

Yet as the energy sector has proved over the past year, things can change fast, and future shifts in energy flows could prove pivotal in not only the economic position but broader geopolitical standing of both Russia and the West in their standoff over Ukraine.

For Russia, Moscow has clearly placed its bet on Asia, and especially China, to replace Europe as its primary energy market. China’s oil imports from Russia hit a record high of 9.7 million tons in May, more than twice the levels prior to February 2022, and in stark contrast to Europe’s focus on LNG imports, Moscow and Beijing have signed long-term deals to expand gas pipeline infrastructure between the two countries. Overall, Russia’s energy flows to China are set to grow more than 40 percent this year. However, this may prove a risky bet for the Kremlin. The price Russia receives for its energy from Asian countries is generally lower than it received from Europe, and emerging green technologies and decarbonization plans across the world will place Russia’s fossil fuel-dependent economy at risk in the medium to long term. Indeed, Russia’s invasion of Ukraine has fueled global investment into clean energy at an unprecedented level this year.

For the West, the energy outlook appears brighter. The EU has diversified its energy mix, and the bloc has plans to expand its natural gas trade with the United States by up to 50 bcm by 2030. This should help offer a balance between a stable and secure energy supply and the shift to renewables to address the challenges of climate change, all while strengthening the cohesion of NATO countries to continue their support of Ukraine. However, Europe could still face energy risks in the short term, including this upcoming winter, if weather and storage levels do not prove as favorable to the bloc in averting shortages as last year’s relatively warm winter did. This, in turn, could shape the Europeans’ commitment to continue assisting Ukraine, as will the election cycle in the U.S. and the effectiveness of the Ukrainian counteroffensive currently underway.

And for Ukraine itself, the country faces the daunting task of rebuilding much of its energy infrastructure, which remains vulnerable to Russian attack. At the same time, Ukraine will have Western support to reconstruct a more modernized and greener energy sector, one that is likely to be much more integrated with the European system. The future will be determined not only by shelling and front-line bravery, but the flow of global power.