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n the wake of geopolitical tensions and ongoing energy crises, Europe finds itself at the forefront of grappling with the phenomenon of energy blackmail, a strategic manipulation of energy resources for political and economic leverage, according to a new report by Danish Institute for International Studies. While the term gained prominence following the Russian invasion of Ukraine in 2022, its roots run deeper, predating Vladimir Putin’s tenure in the Kremlin.

Energy blackmail, characterized by coercion and market manipulation, has been a recurrent tool employed against European countries since the 1990s. The weaponization of energy resources, primarily oil and natural gas, has posed significant challenges to European energy security, with Russia often at the center of such tactics.

The European Union has been at the forefront of efforts to diversify its energy supply and reduce dependence on Russia, particularly since the events of 2022. However, the threat of energy blackmail persists, prompting EU policymakers to reassess strategies and implement countermeasures to safeguard energy security.

EU response

In response to the threat posed by energy blackmail, the EU has undertaken several measures aimed at bolstering energy resilience. These include diversifying supply routes, accelerating the deployment of renewable energy sources, investing in innovation, and enhancing cybersecurity measures to protect digital infrastructure.

The growing interconnectedness of energy systems, while enhancing efficiency, also introduces new vulnerabilities, particularly in the realm of cybersecurity. As such, comprehensive network management strategies and robust cybersecurity measures are crucial in safeguarding against cyber threats to the energy sector.

Complex landscape of energy geopolitics

As Europe navigates the complex landscape of energy geopolitics, the need for proactive measures to counter energy blackmail has never been more pressing. By implementing effective strategies and investing in resilience, the EU aims to ensure energy security and mitigate the risks posed by geopolitical tensions and digital vulnerabilities.

As the global energy landscape continues to evolve, Europe remains committed to safeguarding its energy sovereignty and resilience in the face of emerging threats and challenges.

The report highlights the ongoing efforts of European policymakers to address the threat of energy blackmail and underscores the importance of proactive measures in ensuring energy security amidst geopolitical tensions and digital vulnerabilities.

Source: Danish Institute for International Studies

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comprehensive study reveals that the total energy finance to Africa from the Group of Twenty (G20) countries and multilateral development banks (MDBs) between 2012 and 2021 amounted to $345.76 billion. While this figure falls within the estimated range needed to address Africa’s annual energy finance gap, the distribution has been highly uneven.

Ten countries received a staggering 77% of the total finance over the ten-year period, leaving many African nations with substantial gaps in their energy financing necessities.

The study, conducted by Oyintarelado Moses, the data analyst and database manager for the Global China Initiative at the Boston University Global Development Policy Center, highlights that a few countries and multilateral financing entities, including China, France, Italy, the United States, and the World Bank Group, supplied the majority of energy finance to Africa during the specified period. This concentration of funding from a limited number of sources raises concerns about the potential volatility in funding priorities.

The breakdown of the $345.76 billion reveals that $197.17 billion (57%) came from public institutions, while $148.59 billion (43%) came from private corporations. Notably, gas/liquefied natural gas (LNG), mixed fossil fuels, and solar energy sources were the primary recipients of this finance.

A significant reduction in funding for coal projects

The study also points out that there was a significant reduction in funding for coal projects from around 2018, aligning with the global shift away from financing overseas coal projects.

While public finance was directed to projects with more diverse energy sources, private finance exhibited a higher proportion directed to fossil fuel projects. The findings underscore the need for policymakers in financing countries to consider more equitable distribution based on annual demands from historically low-level recipients, diversify financiers by redirecting financing to African regional banks and investors, and use public finance strategically to attract private investment for projects with high potential for energy access in Africa.

The study calls attention to the challenges and opportunities for energy finance growth in Africa, emphasizing the importance of addressing the unequal distribution for sustainable development in the region.

Distinct patterns between public and private sectors

The allocation of energy finance to Africa reflects distinct patterns between public and private sectors, unveiling the diverse motivations and preferences of financiers. Public energy finance predominantly targeted electric power generation, transmission, and distribution, emphasizing essential infrastructure. In contrast, private finance was more inclined towards exploration and extraction projects, particularly in the fossil fuel sector, with approximately half of private finance dedicated to activities for export purposes.

Notably, public finance played a crucial role in supporting electricity generation projects, constituting 47% of the total, while private finance leaned slightly more towards diverse end uses, including manufacturing, petrochemicals, and technical assistance.

The distribution of energy finance across African countries exhibited a concentration on a select few. A group of twenty nations secured a substantial portion, receiving $307.91 billion, equivalent to 89% of the total finance. Southern Africa emerged as the primary beneficiary, garnering 34%, with notable contributions from countries like Egypt, Mozambique, Nigeria, South Africa, Angola, and Morocco.

This regional distribution highlights disparities in the accessibility of energy finance, with Southern and North Africa leading in financial support. The concentration of funding underscores the need for more inclusive strategies to address energy financing gaps in other regions.

Source: The Carnegie Endowment for International Peace

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ecent escalations in the Red Sea with attacks by Yemen’s Houthi group have led to a heightened sense of caution among shipping companies, with some LNG tankers diverting from the crucial East-West trade route. The Suez Canal, connecting through the Red Sea, is vital for global trade, with about 12% of world shipping traffic and a significant portion of LNG cargoes passing through it annually.

In 2023, a substantial amount of LNG trade between the Atlantic and Pacific Basins has utilized the canal, indicating its critical role in energy supply chains. Qatar, the United States, and Russia are the primary LNG shippers through the Suez, with Qatar being the main exporter in the east-to-west direction.

The disruptions have not immediately impacted LNG prices, which remain steady, likely due to high inventory levels in Europe and Asia. However, oil prices have experienced a slight rally, and shipping costs have surged, with insurance war risk premiums increasing fivefold due to the risks associated with passing through the affected waters.

Closely monitoring the situation

Market players are closely monitoring the situation, with the consensus being that unless the disruptions persist for an extended period, significant market shifts are unlikely. The potential rerouting of shipments, such as those from Qatar, could lead to longer journey times and affect supply schedules.

While the crude and oil products markets are wary of the potential need to seek alternative sources, LNG market participants expect trade to be largely unaffected. However, Atlantic LNG supplies to Europe could face more significant strategic adjustments than Qatari supplies.

The situation remains fluid, with a U.S.-led international force patrolling near Yemen to mitigate risks. The shipping industry and global markets are keeping a vigilant eye on developments, as any prolonged instability could lead to broader implications for energy transportation and costs.

Potential perils

Energy Aspects’ Jake Horslen, an expert in LNG analytics, pointed out that the potential vulnerabilities in Suez Canal transit are more pertinent to the flow of Atlantic-origin LNG to European recipients than to any hindrance of Qatari LNG reaching the same markets.

Takahiro Honjo, leading the Japan Gas Association, recognized the potential perils at a recent press event but minimized the prospect of an imminent supply shortfall due to these maritime tensions.

To encapsulate, while the industry recognizes the inherent risks amidst the current instability in the Red Sea, the consensus suggests no immediate alarm. Market stakeholders are navigating the situation with prudence, prepared for a measured response to the shipping disturbances.

Source: Reuters

Ever wondered why the prices of commodities keep rising? In the realm of commerce, the change of prices is a constant. However, when the prices of a multitude of goods and services rise collectively, a phenomenon known as inflation emerges.  If you feel like your money doesn’t stretch as far as it used to, that’s the erosion of currency value over time that we call inflation. But here is the twist – even when inflation is slowing down, prices aren’t necessarily falling; but rather, increasing at a slower pace.

Recent times have witnessed a noteworthy shift in economic discourse, marked by a renewed concern over inflation. After a prolonged period of perplexity surrounding persistently low inflation, the onset of the COVID-19 pandemic instigated a substantial departure, introducing an era characterized by stubbornly high inflation. This surge in prices is linked to various factors.

These factors for the inflationary trend can be interpreted along the lines of supply and demand. On the supply side, disruptions stemming from COVID-19, such as logistical challenges and workforce shortages, converged with spikes in energy and food prices induced by geopolitical events, notably the Russian invasion of Ukraine.

Simultaneously, on the demand side, substantial financial injections into households and enterprises by governments during the pandemic aimed at mitigating the impacts of lockdowns and layoffs resulted in an increased money supply, potentially contributing to the inflationary surge.

This economic shift, has exacerbated financial burden as a result of pivotal commodities experiencing substantial price increments—such as housing, energy, and food, particularly for those whose income has not kept pace with inflation. In many countries around the world, peaking inflation had threatened governments with social unrest, noteably in Sri Lanka ,Pakistan and numerous countries in Latin America, as well as protests in relatively high income countries like the U.K.

As inflation persists, in this month’s book bundle we examine books that demystify inflation, delve into unexplored trends, address common policy mishaps, and offer solutions to aid both policymakers and citizens to sustainably navigate these seemingly precarious times.

Inflation: What It Is, Why It’s Bad, and How to Fix It unravels the complexities of the most significant inflationary upheaval in over four decades, a phenomenon that has gripped headlines and left many grappling with the tangible impacts on their finances. Against the backdrop of the cost-of-living surge triggered by the COVID pandemic, the book sounds the alarm about the potential resurgence of a “Great Inflation,” with some observers expressing concerns of an even more ominous descent into hyperinflation that has historically devastated nations.

In response, the authors, Steve Forbes, Nathan Lewis, and Elizabeth Ames, engage readers in a captivating discussion that not only answers pressing questions but also charts a course for preparing for an uncertain future.

The authors draw on their expertise—Forbes as the chairman of Forbes Media, Lewis as an internationally recognized authority on money and taxation, and Ames as an accomplished author and journalist—to challenge prevailing misperceptions that have contributed to the current crisis.

They confront the widely held belief that central banks can spur prosperity by conjuring money “out of thin air” and debunk the notion that a certain level of economic “stability” necessitates “a little inflation.” These ideas, treated as sacrosanct in Washington for decades, are scrutinized in detail in Inflation exposing why they are flawed and how they have fueled the existing challenges.

The book critically examines the heedless money-printing and underscores the perilous path such policies could lead us down. Through a compelling blend of examples drawn from contemporary headlines and historical episodes, Inflation offers a real-world exploration of the subject, directly addressing the everyday concerns of individuals dealing with the tangible consequences of rising prices. Moreover, the authors provide practical steps that readers can take to protect their wealth.

Steve Forbes, Nathan Lewis, and Elizabeth Ames, Inflation: What It Is, Why It’s Bad, and How to Fix It (Encounter Books, 2022) ISBN: 9781641772433, 196 pages

In The Inflation Myth and the Wonderful World of Deflation, Mark Mobius embarks on a journey that might just prove everything we conventionally know about inflation wrong, presenting a thought-provoking narrative that questions the very foundations of our economic understanding.

In a world marked by rapid technological advancements, Mobius contends that our traditional metrics for measuring inflation are no longer adequate, urging readers to reconsider long-held beliefs about the economic phenomenon.

Mobius explorates of the shifting landscape of technological innovation driving the creation of cheaper and superior products. The heart of his argument lies in the assertion that these transformative changes are not accurately reflected in the ways we currently measure inflation. The book boldly contends that our contemporary understanding of inflation is nothing short of a myth.

One of the book’s standout features is its illumination of the political dimensions of inflation measurement. Mobius exposes the unsettling reality of governments manipulating and exploiting inflation figures to align with their economic agendas. He delves into the extreme challenges involved in gathering accurate data for inflation measurement, highlighting the inherent inaccuracies that result from these endeavors.

A crucial point of contention raised by Mobius is the fallacy of relying on currencies as a measure of inflation when these very currencies are continually being debased by the governments that issue them. This revelation challenges readers to reconsider the reliability of traditional economic indicators and prompts a deeper examination of the intricate relationship between currency devaluation and inflation.

Most significantly, Mobius underscores the impact of technological advancements and automation on the continuously falling costs of goods and services. The book articulates how these advances contribute to a deflationary trend, contrary to the prevailing narrative of perpetual inflation. Through compelling arguments and well-supported evidence, Mobius encourages readers to recognize the transformative power of technology in reshaping our economic landscape.

Mark Mobius, The Inflation Myth and the Wonderful World of Deflation (Wiley, 2020) ISBN: 978-1-119-74142-8, 256 Pages

Another important myth-busting source is We Need to Talk About Inflation: 14 Urgent Lessons from the Last 2,000 Years. In the book, economist Stephen D. King delivers a compelling exploration of the resurgence of inflation, exposing the desperate gullibility of central bankers, finance ministers, and the collective failure to learn from historical lessons. The book dismantles the widespread assumption that inflation was a relic of the past, revealing a new economic reality that threatens to exacerbate wealth inequality on a global scale.

In a world where investors, monetary authorities, governments, and policy makers had collectively believed inflation to be a thing of the past, King highlights the startling emergence of a poisonous economic reality. This new reality brings with it the ominous specter of increasing wealth inequality, forcing individuals worldwide to confront the profound implications of this unforeseen turn of events.

King, having been among the few to sound the alarm ahead of the latest inflationary upheaval, delves into the roots of the current situation. We Need to Talk About Inflation becomes a beacon, shedding light on the key lessons from history that policy makers either ignored or chose not to heed. From the days of ancient Rome through the American Civil War and up to the asset bubbles of today, King traces the common threads of inflation, attributing its resurgence to policy errors, sovereign greed, and a collective loss of faith in currencies.

The book stands as a sobering reminder that the economic challenges we face today are not unprecedented; they are deeply rooted in a historical continuum of bad judgment and misunderstanding. We Need to Talk About Inflation serves as a crucial intervention, cutting through centuries of oversight and misinformation to offer actionable insights that can be implemented now.

Stephen D. King, We Need to Talk About Inflation: 14 Urgent Lessons from the Last 2,000 Years (Yale University Press, 2023) ISBN: 9780300270471, 240 pages

Paul Mattick’s The Return of Inflation: Money and Capital in the 21st Century emerges as both a historical retrospective and a contemporary analysis, offering a profound examination of what is undeniably the defining economic concern of our time.

Mattick’s work delves into the surprise surge in price increases. Amidst the varying perspectives on the current economic landscape, there is unanimous agreement on one aspect: the imperative to curb inflation, even if the methods to achieve this goal are a subject of contention.

The Return of Inflation distinguishes itself by placing contemporary events within the broader context of capitalism’s history. Mattick skillfully entwines the past and the present, providing readers with a comprehensive understanding of the economic forces at play. An exploration into the nature of money serves as a foundational element of the book, offering readers a concise and jargon-free grasp of recent inflation trends and the strategies implemented to manage them.

What sets this book apart is its ability to demystify the complexities surrounding inflation. Mattick takes the reader on a journey through the historical antecedents of inflation, shedding light on the evolving dynamics of the economy. Through this lens, the book illuminates the state of our contemporary economic landscape, offering insights that bridge the gap between past and present.

Mattick’s insightful exploration provides a nuanced perspective on the current economic challenges and offers a valuable resource for those seeking clarity on the defining economic concern of our time.

Paul Mattick, The Return of Inflation: Money and Capital in the 21st Century (Reaktion Books, 2023) ISBN: 9781789147919, 184 pages

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n an analysis by Noam Raydan of the Washington Institute, the recent Gaza conflict’s repercussions on energy security within the East Mediterranean have been brought to the forefront. With the region already in the limelight for its promising natural gas reserves and cooperative energy projects, the escalation has triggered concerns about the stability and sustainability of these developments.

Before the conflict, Israel had made substantial progress in its gas production, which, coupled with agreements like the U.S.-brokered maritime boundary deal allowing exploration in previously disputed waters, pointed towards a new era of regional energy cooperation.

However, the Gaza war’s outbreak has led to immediate practical implications, such as the suspension of operations at Israel’s Tamar gas field and disruptions in oil import routes, underlying the fragility of energy infrastructures in conflict zones.

Egypt and Lebanon

The ramifications extend beyond Israel, with Egypt’s energy needs and Lebanon’s precarious situation highlighting the interconnected nature of regional energy networks. Lebanon’s ongoing financial crisis has already put a strain on its energy sector, and any potential spillover from the conflict could exacerbate the nation’s plight.

The analysis underscores the need for East Mediterranean countries to reassess their energy strategies, moving away from ‘gas pipe dreams’ to more immediate and feasible reforms. The situation serves as a reminder of the region’s vulnerability to geopolitical shifts and the necessity for resilient and diversified energy policies.

Noam Raydan’s comprehensive take on the issue provides a sobering reminder of the intricate link between regional stability and energy security, urging stakeholders to prioritize sustainable and conflict-resistant approaches to energy development.

Source: The Washington Institute

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ince 2020, energy markets have faced many serious challenges. First, the COVID-19 pandemic, then, rising demand accompanied by faster-than-expected normalization, and finally, the Russia-Ukraine war, which led to record low and high prices. All this was reflected both in energy-exporting and energy-importing countries. If we add to this the discussions about increasing global warming and the need for urgent action, one question comes to the fore: should energy investments be focused on renewables or hydrocarbons?

Renewables to reduce import dependence

In the 2000s, investment in renewable energy resources began to increase with the aim of reducing dependence on imported energy supplies. As concerns about energy dependence were combined with fears about climate change, investment trends in solar and wind projects accelerated. In 2004, investments, mainly in developed countries, focused on wind energy and were just over $50 billion; by 2021, renewable energy investments accounted for about 70% of global electricity energy investments.

Over this period, several oil and gas companies have been under pressure to shift their investments to renewables or to invest in projects that reduce greenhouse gas emissions from their operations. However, by 2020, only 1% of these companies’ investments were in clean energy.

In 2022, the global energy crisis, exacerbated by the war in Ukraine, led to the largest increase in renewable energy investment after 2020. It is important to note that China and the EU commissioned a large share of the newly installed renewable energy capacity, which increased by around 50 GW globally. In fact, China has been the world’s largest single investor in renewable energy for more than a decade.

China has become a leader in solar and wind power, not only by investing in power generation, but also by allocating significant resources to their technologies. China is also building the world’s largest battery factories across the globe to meet the demand for electric vehicles and energy storage. Although the current demand for Chinese electric vehicles is almost half of the capacity being built, China clearly has ambitions to create a long-term monopoly on battery technology.

The EU is one of the regions with the highest return on investment in renewable resources. For the first time in 2022, the 27 European Union countries produced more electricity from wind and solar power plants alone than from natural gas-fired thermal power plants. More importantly, the electricity produced from both sources exceeded the amount of electricity produced from coal in the same year. When other non-fossil energy sources such as hydro and nuclear are added to wind and solar, the share is around 55%—also a historic level for the EU.

Investment continues as demand for fossil fuels recovers

The fact that investment in renewables and the amount of electricity generated are increasing does not mean that demand for fossil fuels is decreasing. Although the impact of the pandemic on economies is still being felt, oil demand is approaching pre-Cold War levels of 100 million barrels per day. This clearly shows that even if investment in renewable energy sources increases, the demand for oil will continue. Even in a country like Norway, which generates more than 90% of its electricity from renewables and has rapidly increased the number of electric vehicles, oil demand remains stable.

The International Energy Agency (IEA) estimates that if the rate of increase in renewable energy investment continues and capacity additions are roughly tripled, oil demand will peak in 2028 and begin to decline from that point. It should be noted, however, that the institution’s forecasts are often criticized and do not always reflect the truth. For example, the U.S., the world’s largest oil producer, continues to increase its oil production despite President Biden’s promises to reduce hydrocarbon production and increase climate targets, and this increase is expected to continue until 2050.

In addition to oil, demand for natural gas and coal is expected to continue rising for some time. China, the world’s largest energy consumer, is also increasing its investment in coal and gas, alongside its record investment in renewable energy. Coal-fired power plants under construction in the country are six times larger in capacity than coal-fired power projects in the rest of the world, and coal is projected to account for more than 55% of China’s electricity generation by 2025.

Natural gas, on the other hand, is emerging as the most important fuel in the transition to low-carbon energy systems. This is the result primarily of the fact that the seasonal effect of renewables has not yet been eliminated. Electricity storage technologies appear to be changing the unsustainable nature of renewable energy generation by making it more sustainable. Chinese investment in battery technologies, for example, has not backed up renewable power plants.

As a result, many of the largest hydrocarbon companies, such as Shell and Total, have decided to continue their investments in natural gas. Some of these companies, which withdrew from Iran and Russia after the sanctions, have already shifted some of their operations to the U.S. The expectation that LNG demand will continue to grow is supported by investments in regasification terminals and Floating Storage Regasification Units by European countries, such as Germany, and emerging Asian countries.

More hydrocarbon investment still welcome

Ironically, the EU countries that decided to move away from long-term contracts are now pursuing long-term agreements with the leading LNG exporters, such as the U.S. and Qatar, to secure their LNG needs. However, most liquefied natural gas exporters have already exceeded their contractual limits thanks to Asian buyers. Europe took advantage of milder-than-expected weather conditions in the 2022-2023 winter season when the Kremlin cut off the flow of gas, but this will not always be the case and reliable suppliers are needed.

Given that oil prices are being deliberately pushed up these days by OPEC+ limiting supply, rising gas prices also affect the amount of electricity generated from gas or the manufacturing capacity of many industries. Companies in gas-intensive sectors such as iron, steel, chemicals, or fertilizers have been forced to reduce their production capacity or shut down as a result of rising prices. Weak supply has already forced the European majors to de-industrialize.

In an environment where it is still not possible to switch to 100% renewables, even in the electricity sector alone, weak investment in fossil fuels will trigger a new global supply crisis. Continued investment in oil and gas will be needed for some time to avoid a new energy crisis.

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n October 1, 2023, the European Commission will regulate all trade with non-EU countries. This new regulation aims to decarbonize trade by discouraging exporters who sell carbon-intensive products. Industrial goods such as cement, iron, steel, and fertilizers will be subject to certification requirements as to whether they are carbon-free.

Such a policy jeopardizes Turkish exports to Europe which account for more than 50% of Turkey’s trade balance. Industrial goods such as iron, steel, and hydrogen also form a significant share of Turkish exports. Turkey either must change its exports or find new partners for trade. However, the country has a promising strategy to tackle both environmental and commercial concerns.

Turkey is launching a brand-new project in Bandırma: Turkish engineers, under the auspices of the South Marmara Development Agency (GMKA), have planned to build a sustainable energy production facility. By producing green hydrogen, this project has the potential to transform Turkish industry as the country can decarbonize its industrial output through green hydrogen from Bandırma.

Bandırma’s hydrogen initiative: HYSouthMarmara

Why did Turkish scientists choose Bandırma, a small town south of the Marmara Sea, as a new energy hub? The answer lies in Bandırma’s fertile alternative energy potential. Bandırma alone contains 21% of Turkey’s wind farms. This extensive renewable capacity leads to greater opportunities to produce green hydrogen, which is the most valuable form of hydrogen and the cleanest energy option.

Green hydrogen, which electrolysis plants in Bandırma will produce, can easily be produced using renewable energy. In addition, Bandırma has the capacity to produce more green hydrogen than any country in Central Eurasia. Bandırma’s renewable energy alone meets 13% of Turkey’s electricity needs.

Turkish engineers are determined to produce more electricity. Engineers will have to utilize Bandırma’s wind and solar power to produce green hydrogen, which in turn they can use to produce cleaner electricity through electrolysis. Since they already have access to Bandırma’s renewables, the only remaining challenge is to build high-capacity electrolysis facilities.

With HYSouthMarmara, Turkey can be a regional green energy hub. The GMKA estimates that Turkey will be producing green hydrogen at the volume of 500 tons per year. With this capacity, Turkish engineers can produce steel, iron, and fertilizers without intensive carbon emissions.

Combined power of boron and hydrogen

Turkey’s HYSouthMarmara project promises more than saving Turkish exports to Europe. Green hydrogen could be a strategic asset for the country as it has the potential to diversify boron-based production. Green hydrogen can be combined with boron, paving the way for new sustainable alternatives. This is a crucial development for Turkey, which has 73% of the world’s boron reserves.

Turkey’s plans for this project include the development of an environmentally friendly type of fuel. With existing boron reserves, Turkey can accelerate the production of sodium borohydride, which is a compound that is useful for storing hydrogen. The storage capacity of sodium borohydride is similar to that of diesel, and the automotive industry can easily use it for electric cars.

However, it is worth noting that aviation emits 100 times more carbon than cars, and thus a new challenge is to reduce the harmful effects of jet fuels. Turkey’s hydrogen hub offers new alternatives as green hydrogen and sodium borohydride can be combined and used to develop alternative jet fuels. Sodium borohydride is quite energy dense, so it can be used to power aircraft.

Turkey’s future in hydrogen

The feasibility of Bandırma Hydrogen Valley is being assessed by multinational institutions. Morocco’s Mohammed VI Polytechnic University, a leading institution in the field of sustainable energy, has ratified the project. Presenting itself as a promising hub for sustainable energy, Bandırma Hydro Valley has attracted n €8 million investment from the EU. The Scientific and Technological Research Council of Turkey (TÜBİTAK) concluded the project’s credibility by funding it with more than €36 million.

HYSouthMarmara is Turkey’s highest-financed environmental project to date. Funds from multinational institutions indicate that Turkey has achieved a serious level of credibility and is becoming a trusted partner in carbon-free energy production. Turkey’s energy hub will also be an opportunity for countries seeking energy independence.

On July 1, 2023, Turkish engineers started the construction of Bandırma Hydrogen Valley. When HYSouthMarmara becomes operational, it will serve the interests of Turkey and other countries. As a decarbonization facility, it will also help Turkey diversify its industrial products. From drone batteries to jet fuel, green hydrogen can help Turkey become an energy exporter in the future, and, importantly, offers Turkey a future in which it can tackle both environmental and economic issues.

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t a time when norms are increasingly pushed aside in the international arena, one great quagmire stands to impact us all: climate change. Humanity seems to be gambling its present and future, while corporations aim to delay transition for profits. It is not just an issue that effects those of us alive today, but also the distant strangers of the next generation.

Who bears the responsibility? How can we deal with climate change fairly? Should one resent the “burden” or embrace the “challenge”?  In The Pivotal Generation: Why We Have a Moral Responsibility to Slow Climate Change Right Now, political philosopher Prof. Henry Shue helps the reader dissolve the separateness between the past, present, and future, and oversee their responsibility towards climate change. Shue encourages the reader to face the historic challenge of our generation, like past generations have with the complex challenges they faced.

Q. Why are we “the pivotal generation”? Why is it a privilege to be us?

We’re the pivotal generation because we just happen to live at the time when either we do enough to prevent climate change from getting out of hand or we don’t – and this is going to be decided in the next 10 or 20 years.

We know from the science that greenhouse gas emissions, especially carbon dioxide emissions, have to reach net zero by 2050 if climate change is not to be even more severe than it’s already going to be.

It’s just common sense that if we have to go all that way by 2050, then we need to get halfway by about 2030 since reducing emissions by the second half is going to be much harder than the first half.

We have a chance to make an enormous difference and really deeply influence the course of human history. That’s the privilege – and almost an honor: to be an absolutely crucial generation. In some ways, those of us alive now are the most important people in human history, because we’re going to determine whether climate change stays relatively moderate or it becomes even more severe.

One can also think of this as a burden as we have to carry on a lot of tasks. But I find it sort of exhilarating to think that we’re in the position to accomplish as much as we can accomplish, if we get serious about the problem of climate change.

We have a chance to make an enormous difference and really deeply influence the course of human history. That’s the privilege – and almost an honor: to be an absolutely crucial generation.

Q. What makes climate change stand out as the main challenge of our generation?

It’s because so much of a difference will be made in the short time. It’s not that there are no other very important problems, we need to prevent nuclear war, xenophobia etc. But as far as we know, we don’t have to deal with those problems in the next 10 or 20 years, but in the case of climate we really do have to bring about a revolution in our energy system in the next 10 or 20 years.

Since World War II, there has never been a year when carbon dioxide emissions weren’t more than they were in the previous year, except for the first year of the COVID-19 pandemic in 2020. Every year, except for 2020, emissions are going up. That’s a deep, built-in trend, and it has to be reversed very quickly. We need to turn things around, use much less fossil fuel, and do it right away.

There are other problems that are also very important, though dealing with climate change will help with a number of other problems. For example, it will help with health. A lot of people have lung and heart disease because of the particulate matter that burning coal puts into the air.

If we burn less fossil fuel, we won’t only deal with the climate; we will greatly improve health and also save a lot of money. One of the really hopeful things already is that it’s cheaper to build a new solar energy farm and then use it than it is to keep using a coal-burning plant that’s already there. The prices of some alternatives, particularly solar, have already gone below the price of fossil fuels.

Q. Nowadays, with limited time and energy, we are made aware of an incomprehensible number of topics and are often left feeling overwhelmed. Your book highlights responsibility. How can we take responsibility for climate change in our lives?

I do, as you say, talk about responsibility. That’s partly because this is what I work on as a political philosopher, but it’s also very much in our interest to deal with climate change.

However, the thing I wanted to emphasize especially is our responsibility toward future generations. I think we picture future generations as strangers, people who we’ve never met or who we don’t know and don’t have anything much to do with us in our daily life.

In fact, in our daily life, we are shaping the world that future generations are going to live in, and so they’re not distant at all. We are shaping their world, and we have a very tight, intimate connection with them. And so, I think we do have responsibility for the problems that we leave them with. They may be able to solve some of the problems, but we’ll see to it that they have less of them.

For example, there’s going to be sea level rise, and this is going to cause problems for coastal cities. They can move or try to build sea walls or all sorts of things, so they won’t be entirely helpless, but it is true that they will inherit problems like sea level rise from us. The less we do about climate change, the more problems that they are going to inherit.

Q. What are the developed nations’ historical responsibilities?

They’re huge. It’s countries like the one I was born in, the United States, and the one I live in, the United Kingdom, which are mainly responsible. I believe the way to think about responsibility is to look at total cumulative emissions over history and the country with the greatest total cumulative emissions is the United States.

China currently has the most emissions per year, but their cumulative emissions are still quite a bit less than the U.S. I think a reasonable way to look at this is to the extent that you’ve emitted the gases that cause climate change, you are to that extent responsible for the problem. Therefore, this means most of the responsibility goes to the most industrialized countries.

There are complications to this. Saudi Arabia, for example, sells enormous amounts of fossil fuel, and they haven’t generated a lot of greenhouse gas emissions because they’re not a heavily industrialized country. But for the most part it’s the industrialized countries in North America and Western Europe, and Japan which have done the most to cause the problem. I think, the common sense principle is, if you’ve made the mess, then you should clean it up.

And one thing this means is that to get to zero emissions all countries have to stop using fossil fuel, but poorer countries can’t just find a lot of money all of a sudden, and install renewable energy everywhere. However, it’ll be bad for the climate if they follow the same route to development that countries like mine did. So, one of the ways in which a country like the U.S. or the UK can exercise its responsibility is to finance, to some extent, and, at least, invest in sustainable development in poorer countries. In this case, this means leapfrogging over the fossil fuel and going straight to non-fossil fuels like solar, wind, even nuclear. There are problems about nuclear, as everybody knows, but it doesn’t generate greenhouse gas.

Q. In your book, you talk about the fossil fuel interest having entrenched allies within the U.S. government and banking sector. Can we break up that cycle?

We’ll see. That’s the crucial battle, because even the richest countries which talked the most about doing something about climate change are all still subsidizing fossil fuels. In the U.S., there is accelerated depreciation for companies that drill new oil wells. That’s absolutely absurd! We don’t need new oil wells, and we certainly don’t need to give tax breaks to companies that drill new oil wells. This shows that a big section of our politicians is basically captured by fossil fuel interests.

I think the only hope is essentially democracy and social change brought about by people. Many fossil fuel companies say they are committed to the Paris Agreement and to net zero by 2050, but they are not doing anything to get there.

If they wanted to, they could develop plans that would change them from being oil companies to being energy companies, which is what they say they’re doing but it’s not what they’re actually doing. Since they’re not voluntarily making the transition, the only way to get them to do it is to have a political action.

There are a lot of different possible kinds of political action, like carbon taxes or border taxes. There are also many complicated questions about what exactly to do. I think we need our governments to take forceful actions that will require the transition away from fossil fuel, and that will, for a start, put a stop to additional extraction.

New oil wells are drilled using loans from the major banks, and, once again, the worst banks in the world are all American: JP Morgan Chase, Wells Fargo, Citibank, Bank of America. It’s hard to put pressure on banks, but we can try, and you can.

This spring, for example, there’s going to be a day when people cut up their credit cards if they have a credit card from these banks. By the way, there’s a report that anybody can access on the web called “Banking on climate chaos.” It’s revised every year, and it shows exactly which banks are making how many loans for the extraction of fossil fuel. And so, you can find out who the main offenders are and not give them your business.

Q. How can activists and decision-makers approach the sociopolitical implications of climate change, such as climate refugees who are projected to reach one billion by 2050?

The best thing to do is to prevent flows getting worse than they are. As I mentioned before, this means enabling countries which have a lot of poverty and quite rightly want to eradicate the poverty to do it by a path that doesn’t mean more use of fossil fuel, and, therefore, more emissions.

The countries that are wealthier should invest and assist with this. For example, India has a huge amount of coal, and it happens to be particularly dirty coal. We really need India not to burn that coal. The way to do it is to invest in their solar power. The more quickly we can bring down the amount of fossil fuel that’s burned and the amount of emissions that are released, the less the sea level will rise, and for example, the fewer people will have to flee from coastal cities.

The important thing to do is try to take actions that prevent people having to flee. People don’t want to leave their own country. It’s not only in the interest of the potential receiving countries, but if we don’t act fast, movements of refugees are going to be really very serious.

Q. In the broader global context, we see an era of international relations drifting away from norms. However, actors cooperate in certain areas while having relatively hostile relations. As far as interests are involved, it’s a kind of double standard. Should we expect states to act morally?

States do tend to pursue their own national interest, but one thing about climate change is that it is in everyone’s interest to deal with it. I think the best that any given nation can do is to carry out its own responsibilities and hope that others will respond.

Now, for exactly the reasons you gave, people worry that others will be so-called free riders. The U.S., in particular, has worried endlessly about whether if it spends a lot of money on climate change, it’ll end up having to carry the burden for everybody. If everyone holds back waiting for other people to do things, nothing will happen, and that’s where we are right now.

People have been holding back and worrying about whether they’re going to get stuck with the bill. I think the only hope is to stop worrying about whether other people are going to take advantage of you and start showing some leadership to what needs to be done and hope that others will respond by doing something similar.

They may not, and if they don’t, then one can take tougher action. For example, the EU now is going to introduce border tariffs on products that are made in ways that generate more emissions than the products would have generated if they had been made inside the EU. This is a way of putting pressure on other countries to reduce their emissions.

The hope is that rather than paying the border taxes, other countries will crack down on their own emissions. That’s a way of pressuring others: it’s not violent, but it’s pressure, and it’s not just waiting for other people to do the right thing. It is, however, tricky. We don’t want to start wars, and even trade wars if we can help it. At the same time, this is very important and we need to take measures that will be effective. Actually, the EU has been showing some leadership, and, on the whole, has been the most effective set of countries on climate change. So, there are some countries trying to do the right thing.

Q. Do you think that climate technology investments could be used as a foreign policy tool in global competition. Are we seeing such developments?

I think the best thing any country can do for its own national interest is to be leading the world in non-fossil fuel technology. A country like the U.S. or countries in the EU need to develop alternative technology in order to deal with climate change since these are going to be the technologies that the world is going to be using for the next century, or many centuries. It is also in their interest to be the ones who develop it.

If other nations are smart, they’ll be developing the technology too. The last thing you want to do is end up being a country that’s still burning coal and oil when everybody else has the alternatives. This is actually a very clear case where doing the right thing is also very much in your long-term self-interest, and can enhance your competitive position economically.

I think the best thing any country can do for its own national interest is to be leading the world in non-fossil fuel technology.

We are on the brink of irreversibility in some cases when it comes to climate change, which can squelch all hope. Do you have any optimistic concluding words for our readers?

The truth is, we’re in a real battle. We could win or we could lose, but there are some good things happening. The youth movement, the Greta Thunbergs of the world, is the most hopeful thing. Just in the last few years, young people across the world have gotten really angry at the old goats like me, who’ve been here for decades and have not dealt with the problem. And they’re getting really fired up – that’s good!

Another very good thing that I mentioned already is that the prices of alternative energy are way down, and so it’s much cheaper to install and use solar than it is to just keep using coal, for example. But as you mentioned, we know that there are so-called tipping points, cases where something in the climate passes a point of no return, and you can’t go back.

Particularly with ice sheets, which means with sea level rise, it is possible that we’ve passed at least one tipping point for West Antarctica, and we know that Greenland and East Antarctica are not too far away, especially Greenland.

This is another reason why the next decade or so is really crucial. We’ve got to turn around the emissions and the speed of the rise before we pass any more tipping points. But people are finally getting fired up and so I have some hope. We’re not doomed – there are things we can do and things we’re beginning to do. We have to keep doing them and do more of them.

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nergy has long been used as a foreign policy tool in states’ engagements with one another. First coal, then oil and natural gas, have been used to create tension or collaborations between governments. These resources enabled few countries to become energy producers and exporters on rare occasions, while all remaining countries were forced to be import dependent, and to indigenously use renewable energy resources joined by dominantly used fossil fuels.

Although green energy technologies are not new to our lives, rising concerns over accelerating climate change have pushed clean technology further in recent years. What is more, the Ukraine war has reminded us of the significance of indigenous energy resources and mines.

Clean energy: Tool developed for decreasing import dependency?

The clean technology movement was first driven by developed countries to decrease their energy import dependency and secure their energy supply. The oil crisis of the 1970s showed that governments and outside actors can intervene in the markets, and the United States and its Western allies began to search for alternative energy supplies other than those imported.

Thus, especially after 1990, the share of renewables in global electricity generation began to rise. More specifically, renewables share was 2,200 TWh in 1990 and increased to almost 7,000 TWh in 2020. Germany, for instance, is among the first countries that invested in renewable energy technologies, and among the first to manufacture solar panels and wind turbines.

German companies are still listed among the major players in clean energy technologies, and invest worldwide to preserve their market share and competitiveness. Yet, some domestic manufacturers went bankrupt because of the federal government’s overly ambitious goals and liberal market solutions.

As the German government pushed hard to increase solar power installations by implementing “Energiewende,” its green energy transition policy to phase out nuclear power, and coal power, by incentivizing foreign companies to take an active part in the domestic energy market, German solar panel manufacturers were not able to compete with foreign companies, mainly Chinese solar technology producers.

This almost spelled the end of several German panel producers at the expense of renewable energy power capacity. Today, cheaply produced Chinese solar panels feature across the European continent.

European countries, including Germany, changed the destiny of their legendary car industries, too. Thus, governments planned to ban the selling of combustion-engine cars, for instance, Norway starting in 2025 and, the Netherlands and Germany in 2030, to lower emissions arising from European roads. However, there was not an overwhelming demand for electric vehicles, and imports of electric vehicles began to rise.

Since their Asian counterparts, especially Chinese and Indians, produce at lower costs, and manufacturers like BMW, Mercedes-Benz, and Audi seem unable to respond to this price challenge, the Chinese market share especially is expected to rise from less than 5 percent to more than 15 percent by 2025.

Tough competition from emerging economies

In the 2010s, developing countries, or emerging economies as they are also known, have taken over the leadership of clean energy technologies. Although Germany, Spain, Australia, and Japan were the main donors in public investments in renewable energy in 2000, Brazil and China invested the most in 2009, and China alone was responsible for almost one-third of the global renewable energy investment in 2017.

Between 2000 and 2022, China was behind 21 percent of public investments in renewables globally. This is a very good example of how a country can market its projects as a foreign policy tool promising sustainable growth and development. The Belt and Road Initiative (BRI), for instance, is one of the biggest and most controversial projects of the last century.

China has marketed the BRI as a vision to bring progress and enhancement to those engaged in the initiative. Since its launch in 2013, a number of Chinese state-owned firms and private companies have been operating in Africa, Latin America, and elsewhere, with energy-related projects constituting the largest share. Although Chinese firms are more prone to engage in fossil fuel projects, renewable energy also has a considerable share.

Only in 2022, Chinese firms’ engagement in BRI energy projects reached $24.1 billion, which was the lowest since 2013, when green energy constituted about 11 percent.

Metals and mining projects are also of strategic importance for the BRI as they were at the heart of transition to green energy and achieving net-zero emissions. The key role played by raw materials in solar and wind power generation, battery production, electric vehicles, and in fact the whole renewable technologies sector escalated competition between countries, and China, in the last decade, again became the number one investor.

A just energy transition for all?

Yet, there are cases where  the “developed West” wants the developing or underdeveloped world to keep its natural resources underground while it continues to use its resources. At annually held COP conferences, policymakers from advanced economies complain about how they still finance polluting fossil fuels. Norway, for instance, as the world’s fourth largest natural gas exporter, lobbied at COP26 to stop financing fossil fuel development projects by 2025 unless exceptional circumstances are present.

The world’s leading oil and gas producer, the United States, and one of the top fossil fuel consumers, the EU, are also urging underdeveloped and developing countries to stop burning coal and share the burden of climate change adaptation and mitigation while suggesting the World Bank finance clean tech applications, such as hydrogen production.

Anyone familiar with the energy sector knows that today, no single economy can survive without some baseload power generation like gas or coal-fired thermal plants, or nuclear power plants. Besides, natural gas is also one of the cleanest means to heat homes, cook meals, and run heavy industries. Thus, burning coal and gas is indispensable to economic growth as energy consumption is one of the indicators of economic development.

Import or do not grow

Halting finance flows to oil and gas production projects in the developing or underdeveloped world is a soft way of saying “import or do not grow.” This could push countries to collaborate with China which has already jumped into their economies.

Moreover, recent data show that despite the promises and the immense need for climate change adaptation and mitigation measures, international public finance still flows to initiatives that harm the climate. It is also led by advanced economies of developing countries in support of clean energy, which is decreasing since 2019.

The level of financing remains well below what is needed in the most vulnerable and least developed countries like Sub-Saharan Africa, Latin America, and the Caribbean. Plus, it is worth remembering that those who push hard to stop burning coal, cut fossil fuel subsidies, and invest more in net-zero scenarios are the ones who have caused the most pollution and whose shares in historical greenhouse gas emissions are the largest.

The situation today forces the developing and underdeveloped world to choose between being part of green colonialism or not developing. What will they choose?

T

his winter will be harsher for Europe as concerns for energy supply and prices grew considerably with the Kremlin’s decision to cut off natural gas supplies via the Nord Stream 1 pipeline. The pipeline has the single largest gas transmission capacity, about 50 billion cubic meters annually, and directly links Russian gas to Germany. Russian gas supplies via Yamal had already been stopped in the first quarter of 2022 and there is almost 70% decrease in gas flows through Ukraine transit. Europe now needs to find alternatives and it has to rush.

Kremlin’s Revenge

As of September 5, Russian natural gas giant Gazprom cut off gas supplies through the Nord Stream 1. However, the way the decision was declared was as remarkable as the decision itself, since the announcement did not come from the company but rather directly came from the Kremlin. Spokesperson Dmitry Peskov told reporters that sanctions imposed on Russia and its companies are the primary reason for interfering in the gas supply and that gas flow would continue only if Western states, including Germany and the UK, lift or reduce their sanctions.

In August, Gazprom reduced gas through Nord Stream 1 more than once by citing technical problems arising from a gas turbine seized by Canada when it was undergoing routine technical maintenance. The Canadian authorities first refused to send the turbine back as the Canadian government had imposed sanctions on Russia. Then, Germany accused the Kremlin of not providing gas even though the turbine was sent back. In the last days of August, gas flows decreased to 20% of total capacity. In the first days of September, the pipeline transfers were completely stopped.

A Harsher Winter Is at the Door

Europe has already begun to experience an above-average cold autumn. Especially in the mornings, heating demand has risen above the 30-year average, which can be read as a hint of a harsh winter ahead. Meanwhile, in early September, gas storage levels were above expectation standing at beyond 85%. According to Gas Infrastructure Europe, most of the importers of Russian gas still have high storage levels compared to previous years; however, early cold weather could result in earlier than expected depletion of these storage reserves.

Energy Crisis Index as of September 28, 2022. Source: Bloomberg

Moreover, even though the price of gas is mostly set by demand, the level of non-gas-fired power generation also directly impacts gas prices. Considering that the drought on the continent is almost the worst in 500 years, hydropower generation decreases to lower levels. Drought caused reduced nuclear power output as well, as water is an indispensable part of electricity generation from nuclear power.

In September, the share of hydropower and nuclear power in the total electricity generation of the EU was about 12% and 20% respectively compared to 15% and 25% in the same month of the previous year. Although power generation from renewables is higher in the same month of this year (11% compared to last year’s 9%), natural gas is also being used more to generate power (22% compared to last year’s 17%). Thus, Europeans must immediately lower both the heating and electricity demand if they want to spend the winter in warmth.

Europe’s de-industrialization

Natural gas is not only used in power generation and heating—it is a unique commodity for the industry. From steel to chemical companies, gas is a significant part of the manufacturing process. Skyrocketed gas prices and weak supply have already pushed some of Europe’s largest manufacturers to cut down production. Temporary layoffs are predicted to be bearable, but industries that employ tens of thousands of workers may not survive in the coming years. The steel industry, for instance, employs 330,000 people across Europe and contributes about 83 billion euros to the economy. Its shutoff may not only result in increased unemployment and decreased GDP, but also in increased dependency on steel producers abroad.

Fertilizer producers also weaned away from natural gas supplies as a result of high gas prices. Fertilizer production capacity has already decreased by two-thirds in Europe and more is expected to come as winter approaches. This not only poses a threat to the production of fertilizers but to the whole agriculture sector.

Some industries began to substitute their gas needs with petroleum products, diesel being one of them. Yet, diesel supply is also risky since Russia is one of the largest diesel suppliers and the EU plans to ban imports of petroleum products as of February 2023.

Bad luck or myopia?

Larger Europe, led by the EU, has long been trying to decrease its dependency on imported energy products. The first big challenge Europeans faced was the 1973 oil crisis when Europe’s vulnerability due to its dependency on Middle Eastern oil was exposed. OPEC (Organization of the Petroleum Exporting Countries) embargoes first doubled and then tripled oil prices, pushing prosperous European economies into two-digit inflation, increasing trade deficit, and eventually causing a deep economic crisis. Yet, the European governments did not take investing in fossil fuel industry seriously and instead continued importing their energy needs.

In 2000, the EU was still dependent on imported energy resources: more than half of the union’s energy needs were met by imported energy products, and according to a document published by the EU Commission, this figure had the potential to rise to 70% in 2020 if nothing was done. The EU’s overall energy import dependency was almost 60% in 2020 with 66% of consumed natural gas and 93% of oil being imported. Although the EU had the power to interfere in internal market and environmental policies, the absence of a common energy policy affected the union adversely.

The European Union is in a tight corner. This is both due to the climate change and its effects, and to the security of energy supply. At a time when the world was struggling with agreeing on measures to tackle climate change, the COVID-19 pandemic and the following outbreak of the Russia-Ukraine War severely impacted global energy markets and supply chains.

Energy prices, led by oil, decreased to record-low levels as the pandemic pushed states to lockdown. But in the second half of 2021 with the increase in economic activities following the weakening of the pandemic, demand and prices began to go up. And the Russia-Ukraine war made everything even harder.

The EU’s Ambitious Task: Being a “Pioneer” in Global Climate Action

The EU has a complicated relationship with fossil fuels. The union owes its establishment to one of the mostly used and dirtiest fossil fuels: coal. At the same time, debates on how to reduce the use of fossil fuels have been going on since the 1960s. As climate change was brought to the global political agenda, the European Union positioned itself as one of the major actors encouraging the international community to take measures.

The executive arm of the union, the European Commission, tried hard to form a union-level climate policy after the signing of the UN Framework Convention on Climate Change (UNFCCC). In fact, the union’s effort was more tangible when the Bush administration withdrew from the Kyoto Protocol in 2001. The U.S. pullback created an opportunity for the EU and it redefined itself by setting a super ambitious goal: being a “pioneer” in global climate action.

In 2009, the EU made its first ever ambitious move, namely the European Union Climate Change and Energy Package directive, which is famous for its 20-20-20 targets, passed by the EU. The directive sets out to (1) reduce greenhouse gas emissions by 20 percent from the 1990 levels; (2) improve energy efficiency by 20 percent; and (3) raise the share of renewable energy resources in total energy consumption by 20 percent. The package was followed by a number of climate and energy policy proposals prepared by the commission, and now the EU has the “European Green Deal,” which ambitiously sets the target for Europe to be the first net-zero emission continent.

The Russia-Ukraine War: A Wake-up Call for the EU

The Russia-Ukraine war just entered its sixth month. Since the beginning of the war, the EU, as the largest market of Russian energy, has been trying to spin its Russian energy imports around. However, a first-time global energy crisis faces the union. The policymakers already passed six sanction packages and only the last two could cover energy embargoes, which will be in force for coal imports as of August and seaborne oil starting from the end of the year, while no gas embargo has yet to be agreed upon. The EU’s greatest weakness is its supply of natural gas.

Since Russia’s annexation of Crimea in 2014, the EU has aimed to reduce its dependency on Russia, especially for natural gas imports. Yet, it has become even more dependent on Russian gas supplies due to Russia’s geographical proximity and rich energy resources, as well as the union’s views of natural gas as a “transition fuel” to a low-carbon economy. Many European governments planned to increase the use of gas to compensate for phasing out their dirtier coal usage. Nevertheless, Putin’s Russia is no longer a reliable energy supplier for the EU.

Time for an Immediate Climate Act, But How?

The effects of climate change are getting worse, and the Mediterranean region is suffering more and more. The average temperatures in the summer season have risen to record-high levels all around Europe. From London to Paris, most weather forecast bodies have announced the temperature will hit above 40 degrees Celsius for the first time ever. Not surprisingly, the extreme heat waves pose a real threat. Hundreds of heat-related deaths and many wildfires have already been reported in recent months. As one of the leading polluters and victims of climate change, the EU now has to take immediate action. However, the Russian invasion of Ukraine and the global energy crisis have shackled the union, and its recent effort to greenwash fossil gas seems unlikely to succeed.

Natural gas, or fossil gas as some Europeans call it, is used to heat homes, generate electricity, run factories, and produce fertilizer. It is also a transition fuel for economies to become low-carbonized, but at the end of the day, it is a fossil fuel and emits greenhouse gasses. The EU has to reduce its gas consumption to slash its emissions by 55% by 2030 compared to the 1990 levels and become the first carbon-neutral continent in the world by 2050.

Moreover, coal and natural gas are not the only energy resources that the Europeans plan to rid themselves of. Many EU members led by Germany and Austria set to phase out nuclear power as well. Although nuclear power provides zero-emission electricity and a sustainable power supply, the environmental and safety concerns of the Europeans affect their positions. Yet, the union needs gas and nuclear power more than ever, and the Russian gas disruptions are pushing the EU to take measures.

 Labeling Fossil Gas and Nuclear Power as “Green”

On June 6, 2022, the EU made a historical decision: members of the European Parliament voted on a controversial plan to label fossil gas and nuclear power under the “green taxonomy,” which is a classification system establishing a list of environmentally sustainable economic activities. The system is planned to create security for investors and help companies become more climate friendly. By adding natural gas and nuclear power to the green taxonomy, the MEPs agreed to call them “green,” thus considering gas and nuclear powers as eligible for sustainable investment funding from 2023. The act is now waiting for the council’s backing, and if this happens, member states should quickly provide their approval.

 EU Member States’ Reaction

Germany, which is heavily dependent on gas, and France, which benefits most from nuclear power, are expected to accept the act first to make their transition to a low-carbon economy smoother by taking advantage of green finance. States that use more coal, like Poland, also support the act since it foresees investing billions of euros into the new gas-fired power plants that would replace the coal-fired ones.

Yet, the decision is controversial. Eight member states are against it, and they have diverse motivations for doing so. States like Luxemburg and Austria do not support the act and argue that only a few member states have environmentally secure nuclear reactors and only they would develop new ones. Others, such as Denmark and Spain, claim that this move would violate the union’s position on global climate action since it will pave the way for increasing its emissions over the tolerable limits. Ultimately, more Europeans are thinking that the EU’s aim to be the first carbon-neutral continent by 2050 is once again hampered by national interests.

After Russia’s decision to place the Sakhalin-2 oil and gas project under its jurisdiction on July 1, on Thursday, July 7, Russian lawmaker Pavel Zavalny said that the same happening to the Sakhalin-1 project was the obvious next move. “When sanctions are being introduced, when the companies are effectively unable to take an active part in a project, this creates various risks for us and we are forced to make such decisions,” Zavalny said.

Amid Western sanctions following Russia’s invasion of Ukraine, Russian President Vladimir Putin signed a five-page decree on June 30, seizing full control of the Sakhalin-2 gas and oil project.

The project is one of the world’s largest LNG projects with an output of 12 million tons and accounts for about 4% of the world’s liquefied natural gas production, mainly supplying Asian countries such as Japan, India, China, and South Korea.

A backdoor move to nationalization?

Although the Kremlin spokesman Dmitry Peskov denied that the changes put in effect with the new decree amounted to nationalization, it endows the Russian government with control of all shares, rights, obligations, and property currently held by the Sakhalin Energy Investment Company before its transfer to a new firm.

According to the decree, a new firm, namely Gazprom Sakhalin Holding, is to be created to take over all rights and obligations of the Sakhalin Energy Investment Company, and only a Russian legal entity will be able to buy shares in the new company. It also indicates the government will control any sale or transfer of shares therefore deciding whether foreign partners will have a chance to hold their stakes.

The consortium consisted of Russian majority state-owned Gazprom (with 50% plus one share), Shell (with 27.5% minus one share), and Japanese trading companies Mitsui (12.5%) and Mitsubishi (10%).

While Gazprom keeps its stake in the new firm, within a month’s time other partners are to ask for their stakes from the Russian government. If not permitted, the government will sell their stakes and keep the earnings in an account to be sent to the shareholder or used to repay unspecified damages under the production-sharing agreement.

According to Russian newspaper Kommersant, the decree justifies the move on the grounds that the Russian state invested in the plant, and in production and transport infrastructure, and that these facilities become the property of the state under the terms of the production-sharing agreement.

According to Bloomberg, European gas prices more than doubled since the start of the year, while Asian prices increased by about a third. This implies that due to prices, LNG from the U.S. favors Europe over Asia. The competition for shipments is high while the global LNG market is expected to remain tight for the foreseeable future.

Kremlin spokesman Dmitry Peskov said Russia would not halt LNG deliveries from Sakhalin-2 and added that the future of other projects would be determined on a case-by-case basis.

What is the future of the Sakhalin-1 project?

Regarding the Sakhalin-1 project, Peskov stated that no decision had been taken on its future. Russia’s Rosneft, ExxonMobil, Japan’s SODECO, and India’s ONGC Videsh are partners in the Sakhalin-1 fields. ExxonMobil has announced it will pull out of the project in March. ONGC Videsh hopes to remain in the project and that any takeover will not impact its 20% stake.

After the departure of ExxonMobil’s technical specialists, the project faces serious problems, such as inability to fully operate the equipment, resulting in oil production decrease. On July 7, Russian Deputy Prime Minister Yury Trutnev said that oil output at Sakhalin-1 had fallen from 220,000 to just 10,000 barrels per day (bpd).

High energy prices and potential supply shortages, already fueling inflation, remain another global by-product of the Russian invasion of Ukraine and the resulting friction with the West.

Oil has been fueling the world’s economy for about a century while coal is still widely used across the globe. Together with natural gas, fossil fuels constitute more than 80% of the global energy supply. Every single country depends on oil at least to fuel its vehicles. Even though natural gas is not as commonly used as oil and coal, in 2020, it generated about 24% of the global electricity supply while coal generated 35%. However, only a limited number of states dominate the world’s fossil fuel supply, and each uses its energy resources differently.

Russia as a fossil fuel giant

For more than three decades, Russia has been one of the world’s top oil, natural gas, and coal producers and exporters. The primary destinations for Russian energy resources are European countries, led by Germany, Italy, and France. Though Russia is the only gas supplier for many Eastern European countries, its energy share in Germany makes the country the most dependent on Russian natural gas. Germany receives 19% of Russia’s total gas exports. Germany is Russia’s number one importer of oil, oil products, and coal. Not surprisingly, this affects Germany’s and other European states’ foreign policy towards Russia.

When Putin’s army annexed Crimea in 2014, European leaders declared the move unacceptable. Nevertheless, their economies’ dependency on Russian energy resources prevented them from taking any deterring action. The EU imposed a number of sanctions targeting the energy sector but could not prohibit the import of oil, gas, or coal. At the same time, Russia threatened to halt gas flows in response to the sanctions.

However, Putin continued to export energy commodities to Berlin, and Germany went ahead with the construction of the Nord Stream 2 Natural Gas Pipeline, which has long been at the heart of the harsh criticism of Germany by U.S. and European leaders. Russia had planned for the new pipeline to replace the ones passing through Ukraine. But the EU insisted on keeping the gas pipelines via Ukraine flowing and paved the way for a Russia-Ukraine deal. Now, the EU is importing gas through Ukraine and the Nord Stream 2 pipeline project has been suspended.

Turkey is another top recipient of Russian gas, which has the largest share in Turkey’s annual gas imports. Russia also exports crude oil and oil products to Turkey, and its national nuclear power company, Rosatom, is building Turkey’s first nuclear power plant. Yet, in 2015, when the Turkish military shot down a Russian war jet after it violated its airspace, and following the assassination of Russian ambassador to Ankara Andrei Karlov at an art exhibition in Turkey’s capital, Russia did not halt gas flows to Turkey nor did it suspend the Akkuyu Nuclear Power project.

It’s clear that there is an interdependence both between Russia and the EU, and Turkey and Russia. European countries and Turkey need Russian gas and are not able to replace it in the short term. At the same time, Russia also needs to sell its gas in order to generate income. Moscow cannot replace and does not want to lose the European market, which constitutes approximately 75% of its gas, 50% of its oil, and 30% of its coal exports. In conclusion, both sides need their energy trade to continue. The collaboration between the two continues today, and Russia still Turkey’s top energy partner.

Since the beginning of the Ukraine war, U.S. pressure on Europe continues while the U.S. administration encourages its domestic gas sector to increase its export capacity. The U.S. is now the third-largest LNG exporter after Australia and Qatar, and is aiming to become number one by 2030.

Qatar’s endless quest to be an LNG power

As the technological developments enabled natural gas producers to export their commodities overseas, Qatar has been one of the countries wisely using this opportunity to expand its share in the global gas market. Although natural gas has been liquefied since the 1960s, it became more popular as demand increased across countries. Economic developments in emerging states have played a significant role in this expansion.

As the Ukraine war pushed European countries to shift away from Russian gas, leaders began to look for new suppliers. But importing gas through new pipelines would take at least 3-5 years. In the short term, increasing the LNG supply is the only way for Europe to slash its imports from Russia, and Qatar is one of the countries from which the EU wants to import more gas.

Even though the Gulf state claims it wants to export greater quantities of gas to Europe, most of its long-term gas contracts are held by Asian countries such as Japan, South Korea, and China, which cover more than 70% of Qatar’s annual gas exports. Moreover, the U.S. and Australia have been expanding their production of gas. Overall, it does not seem possible for Qatar to export more gas to Europe to replace Russian gas imports. In order for Qatar to expand its share in the global gas market, it needs to invest more in the upstream sector.

Energy as a weapon or a means of collaboration?

The Ukraine war has reminded world leaders of the significance of the energy supply’s security. Russia, the U.S., and Qatar, as countries affecting economies by directly exporting energy commodities, have drawn the most attention recently. While Russia sometimes barks but does not bite, the U.S. oppressively uses its power to suffocate its ultimate rival (see Russia), and Qatar is trying to play the role of a lifeguard.

However, it is evident that exporters are dependent on each other just as exporters and importers are interdependent. Russia needs the EU and Turkey in order to generate income, and the U.S. needs a greater share in the European market to weaken its rival. However, the oil and gas market is global and one player’s loss is felt across the board. Witnessing the Western sanctions’ effect on rising energy prices, the U.S. and Qatar need Russian oil and gas to continue to flow to decrease the repercussions felt by their citizens.

The year 1996 saw the publication of Roger Bootle’s provocatively titled book The Death of Inflation, which argued that inflation was no more the threat it used to be and fixation with keeping prices low can hamper growth unnecessarily. The book is a compelling read. Yet, the challenges brought about by the pandemic may be in conflict with the optimism in it, as reflected in Bootle’s own columns and interview.

COVID19 did not just catch the global health infrastructure off guard, but wreaked havoc on the world economy as well, particularly in terms of ushering in an era of intractable inflation. Here’s a look at how the infection jumped from person to person, eventually subduing the economy, and throwing demand and supply into a nagging imbalance.

The demand side: The virus and the price of your groceries

Faced with sudden outbreaks, panicking governments the world over were left with no choice but to swallow the bitter pill of lockdowns. It was clear that there was no alternative, at least in the short run. The policy helped control the contagion, but not without business closures and job losses. This, in turn, raised a natural question: how to help the common person muddle through the crisis with the economy at a standstill?

Almost all economists favored economic stimulus—financial help from the government channelled through the fiscal and/or monetary policies—but answers to how, how much, when, and where varied drastically.

Most governments around the world offered one kind of stimulus or another. Yet some countries with the highest stimuli—say, Canada, Germany, Spain, or the United Kingdom—are now experiencing record inflation.

Inflation in the United States, the country with perhaps the largest stimulus packages, has hit a 40-year high, with prices this March being 8.5% higher than March last year. This has meant the average household having to spend nearly $327 more per month than they used to, a year ago.

One of the reasons the oil price fell is that oil supply is relatively “inelastic” in the short run. That is to say, oil companies cannot cut down on oil production suddenly. These are giant enterprises with fixed, long-term costs. As demand vanished due to the virus—and supply could not suddenly be scaled back immediately—oil flushed markets, and oil price fell drastically.

This should have made everything cheaper. But as economies recovered, often with a sharp, V-shaped recovery, thanks to the vaccines, the demand for oil rebounded phenomenally. So much so that even though the world economy still has not fully recovered from the pandemic, oil demand may have already surpassed its pre-pandemic levels.

The resurgence in oil demand—with limited supply available—made the prices skyrocket, from a record low of minus $40 per barrel at the start of the pandemic to around $120 per barrel now.

Yet of course, this rise is not without the added conundrum of Putin’s war on Ukraine. Supply disruptions due to the war, with the added effect of sanctions, and now an embargo, have worsened the spike in energy, both oil and gas, prices, given the fact that Russia is among the top three producers of crude oil, and the second largest producer of natural gas in the world.

In addition, uncertainty brought by the war has affected investment and financial markets the world over. Stock markets have been bearish. Businesses are having to look for alternative trading partners. These factors, along with higher oil prices, are making costs of businesses soar, leading to “cost-push inflation”—higher prices arising from higher costs of production.

The outlook is not good as yet, and the distressed need help

Together, resurgence in demand after quick initial recovery, and a fall in global supply due to higher costs of production, have translated into an indomitable surge in prices the world over. Turkey has seen prices rise by 70% between April 2022 and April last year.

The corresponding figure for Argentina stands at 58%, and for Venezuela, Sudan, and Lebanon, at over 200%. While inflation in these countries may not be attributable exclusively to the above stated factors, as these economies were already stuck in macroeconomic blues—sometimes trying their luck with unorthodox policies—the pandemic and war have complicated things considerably. Even in advanced economies, the IMF estimates a 38-year high record inflation for the current year.

Average incomes, in turn, will grow only modestly this year, as reflected in the world GDP forecasts being revised over and over again. While growth in the oil-exporting Gulf economies forms an exception, as they are benefiting from higher energy prices, even those will not be immune to food inflation, considering 85% of their food comes from imports.

But the outlook for the developing economies is particularly concerning. They are facing capital flight as investors opt for higher return in the advanced economies, where interest rates are rising, pushing the indebted countries closer to default. This will further pressure stressed currencies, worsening inflation, with more countries having to knock the IMF’s door, sooner or later. Calls for international financial institutions to take a more helpful role to help the distressed countries are, understandably, increasing.

Likewise, devising a careful policy at the national level may be crucial to people’s livelihoods. It may be argued that governments need to prioritize fighting inflation over showcasing economic growth. A blind pursuit of growth would lead to higher demand and translate almost inevitably into more inflation.

As for the micro level of managing a household, it may be just prudent to adapt our spending patterns to the disheartening reality of deep-seated inflation, and perhaps spare a few bucks to help those in distress. Inflation isn’t dead, as yet. But the world needs a healing touch, now perhaps, more than ever.

Many policy-makers had warned of the potential Russian aggression against Ukraine, but with few exceptions nobody had expected Putin’s war jets to bomb the capital of Ukraine or the Russian army to invade Ukrainian territory. Vladimir Putin shocked the world and expectedly, this created turbulence in international politics as countries are economically interdependent. Meanwhile, Europe was faced with the tough reality of its dependency on Russian energy, slowing down its reaction time with sanctions.

For days now Russia has been bombing and trying to invade Ukrainian cities. Not only soldiers but also hundreds of civilians have been killed or injured, while hundreds of thousands have been displaced. The initial American and European reaction to the Russian invasion was weak and limited, and Ukraine’s President Volodymyr Zelensky and Ukrainians felt abandoned by their allies. European allies had hoped to deter Putin with sanctions.

Even though Biden and European leaders bragged about severe economic sanctions, this didn’t stop Russia’s invasion of Ukraine. Energy export is the backbone of the Russian economy and sanctions against this sector would perhaps be the most devastating tool. However, it is unrealistic to expect the West to sanction the Russian energy trade, meaning oil and gas. Here is why.

Russian dominance over Western energy markets

In the 1960s, when Western Europe had begun to import gas from the Soviet Union, it was Western Germany that imported Soviet gas first. Over the years, as European demand for gas increased, European gas imports from the USSR increased as well. Things changed in the 1990s as states in Europe started diversifying their gas supplies and the Russian share in gas imports declined.

During that time, domestic gas production also increased in countries producing gas in Europe, notably the Netherlands, Norway, and the UK. But the amount they produced did not entirely replace Russian gas supplies; European countries’ dependence just decreased from about 90 percent to 75 percent in the late 1990s.

In the 2000s, liquified natural gas (LNG) became an alternative way to import gas. Europe started to construct regasification terminals. Today, led by Spain, more than 10 European countries have a total of about 210 billion cubic meters of LNG import capacity. This, however, does not mean that the EU does not import Russian gas anymore. In the first half of 2021, Russia was the main natural gas supplier of the EU with a share of 47 percent, followed by Norway with 20.5 percent.

The degree of the EU’s dependency on Russian gas differs from country to country. Eastern Europe is the most dependent on Russian gas, whereas Germany imports the most Russian gas by far. Overall, more than one third of the total of imported gas in Europe comes from Russia.

Most people confuse energy security with the security of natural gas supplies. This is a common mistake by the EU policy-makers, who focus exclusively on the gas supplies. Energy security means more: it is also about oil and coal imports. Both crude oil and petroleum products as well as coal imports by the EU are also dominated by Russia – 25 percent and 46 percent respectively.

Moreover, Europe is not the sole market that imports Russian energy products. China, along with other major Asian economies, and even the U.S., import oil and gas from Russia. Asian countries’ limited indigenous hydrocarbon resources have pushed them to turn to their energy-rich neighbor, Russia.

But due to infrastructure constraints caused by the rough geography of the U.S. that does not facilitate the construction of pipelines, the United States, the world’s number one oil and gas producer, is forced to buy both oil and gas from its ultimate rival, Russia.

Can sanctions deter Russia?

Russia is now facing critical sanctions over the invasion of Ukraine. The EU, the UK, the U.S., and Canada with many of their allies limited the Central Bank of Russia’s access to its $630 billion reserve. They also froze Putin’s and Foreign Minister Sergei Lavrov’s assets in their respective countries. But putting sanctions has its limits.

The circumstances were different when the U.S. led the international community-imposed sanctions on Iran, Venezuela, or Libya – all three are members of OPEC (Organization of the Petroleum Exporting Countries), and Iran is the second-largest producer of crude oil in the organization. But Russia is not Iran. Russia is the second-biggest producer of global oil and gas, and its supply is desperately needed to heat homes, run factories, and generate electricity in Europe.

Since the last quarter of 2021, the world has been facing severe energy shortages which pushed the gas and electricity prices to levels that have never been seen before. As part of the sanctions against Russia, the EU just targeted the oil refineries of the Russian energy sector aiming to prevent their modernization. On February 27, the EU, the UK, Canada, and the U.S. decided to remove a number of Russian banks from the SWIFT system in order to restrict their ability to do business across borders.

This is expected to bring tremendous damage to the Russian economy. But then, European capitals began to import more Russian gas via Ukraine since the sanctions still do not target energy payments.

Time to rethink energy security in Europe

The Russian aggression in Ukraine once again has shown that the European Union deeply needs alternative energy suppliers. The fact that LNG is not a substitute for pipeline gas ties the hands of European states.

Neither Qatar, the second-biggest LNG exporter, nor the U.S., the number one natural gas producer, can replace Russian gas. It is not just about the capacity that they can supply, it is also about the European gas market structure. Many energy analysts seem unaware that the EU does not have a continent-wide natural gas transmission system. This means that we cannot talk about a single European gas market.

For instance, Spain, Europe’s largest gas liquefaction capacity holder, cannot transmit its gas to Germany or to Poland since it is disconnected from the rest of European gas infrastructure. Therefore, at the moment, LNG cannot offset the Russian pipelines’ gas. Most states with LNG facilities also import Russian LNG because it is cost-efficient.

Ever since the Greek Cypriot Administration (GCA) signed an agreement with Egypt in 2003 on the delimitation of an exclusive economic zone (EEZ) in the Eastern Mediterranean and declared concession areas for the purpose of oil and gas exploration in 2007, a high tension has grown over the possible maritime boundaries and related activities.

The tension has primarily been between Turkey, Greece, and the GCA, and escalated with further delimitation agreements such as those between Lebanon and the GCA (2007), Israel and the GCA (2010), Turkey and the Turkish Republic of Northern Cyprus (TRNC) (2011), Turkey and Libya (2019), and Greece and Egypt (2020).

Some of the actual tension has always been associated with the resource-related activities considering that there are not fully agreed maritime boundaries by all sides in the Eastern Mediterranean. The regional states have therefore confronted each other not only over the possible maritime boundaries but also other related activities.

The Eastern Mediterranean Pipeline Project, known as the EastMed Project, has been one of these activities ever since it was initiated. First pronounced in 2016 by Greece with the EU’s encouragement and funds to finance the preliminary works (the EU pledged 36.5 million euros for research and technical planning), the project gained an official status with an intergovernmental agreement signed between Greece, Israel, and Cyprus (GCA) on January 2, 2020 in Athens, Greece.

The pipeline was planned to run for about 1,900 km, starting from a midpoint between Israel and the island of Cyprus in the sea,  in the Israeli section of the Levantine Basin, and eventually reaching Italy via the island of Crete and Greece with the Poseidon and IGB pipelines, a gas interconnector pipeline which connects gas supplies coming from both Bulgaria and Greece.

It was said that it would carry at least 11 billion cubic meters of gas per year and cost around 6 billion euros to construct. It is being developed by IGI Poseidon S.A., a 50/50 joint venture between the Greek gas company Public Gas Corporation of Greece (DEPA) and the Italian gas company Edison. The project is aimed to be completed by 2025.

The IGB pipeline project was regarded by the related or supporting states as not only a means of transporting the extracted gas from the Eastern Mediterranean to Europe but also a means of achieving strategic goals.

These strategic goals belong to Greece for a couple of reasons. Firstly, the IGB Pipeline Project is a means of establishing a partnership with regional states such as Israel and Egypt as well as non-regional states such as the United States and EU countries over the resources of the Eastern Mediterranean. The Greek Prime Minister Kyriakos Mitsotakis made a statement upon signing the agreement saying, “Today we did not simply sign a beneficial agreement. We sealed our resolve for a strategic connection between our countries in a region that now more than ever needs growth and security.”

Despite Turkey’s objections, Greek efforts seem well approved as the project has been supported by regional states such as Israel, Egypt, Jordon, and the Palestinian Authority, and by some non-regional states such as the U.S. and France.

Egypt had already worked for the creation of the East Mediterranean Gas Forum on July 25, 2019 with the participation of seven countries, namely Egypt, Jordan, the GCA, Greece, Italy, Israel, and the Palestinian Authority, and further signed an agreement with the GCA on September 19, 2018 to construct a line linking Egypt and Cyprus’s Aphrodite gas field to Egypt’s gas liquefaction stations.

The Israeli reason for joining the forum seems to be commercial. On the signing of the agreement, former Israeli prime minister Benjamin Netanyahu said, “This is a historic day for Israel… Just days ago, we started pumping [the] Leviathan [gas field]… We have huge quantities there. This means a lot of money will come into the economy. That is good for peace because we have agreements with our Arab neighbors.”

For the EU, the reason for joining the East Mediterranean Gas Forum was also commercial alongside the aim not to depend heavily on Russian gas. Competition to provide gas to Europe is fierce, as the continent seeks to rid itself of coal and high greenhouse gas emissions. Despite the various pipelines coming to Europe such as the Trans Adriatic Pipeline (TAP) or the shipments of liquefied natural gas (LNG) from the U.S., there is still a gap in the market.

The U.S. had been supportive of the East Mediterranean Gas Forum from the very beginning. Frank Fannon, then assistant secretary for the Bureau of Energy Resources (ENR), was present at a meeting in Athens in August 2019 when the project was agreed upon. The primary reason for the U.S. supporting the forum seems to have been to diminish the European countries’ dependency on Russian gas. It is also alleged that the U.S. has used the EastMed project to counter Turkey for some “unproved acts” such as its relations with Russia.

The U.S. withdrawal of support from the EastMed project

Despite the above-mentioned compelling reasons for supporting the project, recently, the U.S. has officially withdrawn its support from the project. In a statement by the U.S. Embassy and Consulate in Greece, it announced, “The United States continues to strongly support regional efforts that enhance and promote cooperation and regional stability, including the 3+1 mechanism in which the Republic of Cyprus (ROC), Greece, Israel, + the United States participate… We are shifting our focus to electricity interconnectors that can support both gas and renewable energy sources. We support projects such as the planned EuroAfrica interconnector from Egypt to Crete and the Greek mainland, and the proposed EuroAsia interconnector to link the Israeli, Cypriot and European electricity grids.”

The U.S. State Department sources have been cited as saying that the EastMed pipeline project should be abandoned altogether. The inevitable question is why the U.S. decided to shift its focus away from the EastMed Project. To answer this, it is possible to identify a number of reasons.

The EU aims to reduce the use of natural gas in Europe by 25% by 2030 and for it to be abandoned completely by 2050.

One of the most frequently stated reasons is the fast-growing focus on green energy. Due to the universal trend towards green energy to meet the Paris Agreement on Climate Change targets (COP21), the future of fossil resources seems blurred beyond 2030. The abovementioned statement by the U.S. notes that “at a time when Europe’s energy security is–more than ever–a question of national security, we are committed to deepen our regional relationships and promote clean energy technologies. We are shifting our focus to electricity interconnectors that can support both gas and renewable energy sources.” The Biden administration is looking “critically at new fossil fuel infrastructure projects to ensure U.S. support is not directed to carbon-intensive sources and does not result in future stranded assets as we accelerate the clean energy transition.”

Similarly, the EU aims to reduce the use of natural gas in Europe by 25% by 2030 and for it to be abandoned completely by 2050. It is noted that even Israel announced that it will stop searching for natural gas and will focus on greater use of renewable energy sources (RES). In fact, Greece is doing the same, setting the production of 61% of its electricity from RES as a goal.

Recently, Turkey has made significant progress in the energy field. Turkey’s gas discoveries in the Black Sea region are regarded as a major achievement for the country’s energy security in the near future. Including the latest announcement, herein Turkey’s President Erdoğan declared the new discovery “good news” (müjde) as has become a tradition after every new discovery, the total quantity of the discovered reserves in the Black Sea reached 540 billion cubic meters (bcm).

According to the latest estimates in 2020, the total amount of the ten biggest gas discoveries in the world amounted to approximately 3.2 trillion cubic meters. Turkey’s gas discovery last year was the largest deep-sea discovery in the world and the second-largest of all gas discoveries. These discoveries and ones that might follow in the coming months can make Turkey a game changer in the regional and global energy markets, adding a further geopolitical importance to the country’s growing foreign policy capacity.

Opportunities Offered by the Gas Discoveries

Turkey’s gas discoveries will have effects on the country along two axes: economic and strategic. The economic value of these discoveries is estimated at $130 billion based on the current gas prices. In this respect, Turkey will gain a huge financial benefit. Moreover, Turkey is almost completely dependent on foreign gas resources and due to this dependency, it has to pay a significant amount for its energy imports annually.

Turkey’s annual gas expenditure is approximately $12.5 billion. With these discoveries, it is predicted that Turkey will save $5-6 billion and the total amount of the energy expenditure will be reduced by half. No doubt, the gas discovery and possible other discoveries are economically important for Turkey insofar as they will reduce the current account deficit due to energy imports and strengthen its energy supply security.

Gas discoveries in the Black Sea have broken a common conviction that there are no fossil fuel reserves in Turkey and that the existing ones are not economically profitable.

Gas discoveries in the Black Sea have broken a common conviction that there are no fossil fuel reserves in Turkey and that the existing ones are not economically profitable. Therefore, the natural gas discoveries in the Black Sea will provide an important motivation for Turkey’s future explorations and drilling activities.

On the other hand, Turkey will increase its bargaining power in the global gas markets. As is known, Turkey had made some long-term contracts with its current gas suppliers. With the expiry of the gas contracts amounting to approximately 18 bcm in 2021 and 38 bcm in 2025, Turkey will have an important chance to negotiate on more competitive gas prices and flexible terms – especially with Russia. As a result, Turkey will have an opportunity to reduce its energy import bill.

With Turkey gradually becoming self-sufficient in energy in the medium and long terms, the country’s foreign policy can also be expected to be more independent as Turkey seeks further self-reliance and multiple engagements in a world of multipolar politics.

Looking at different examples in the world, these dates are reasonable. For instance, in Egypt’s Zohr field, which was discovered in mid-2015, production started at the end of 2017, approximately 28 months after the discovery. Also, in Israel’s Tamar field, one of the most important natural gas discoveries in the Eastern Mediterranean, the production process began 3.5 years following the discovery.

Therefore, Turkey can reasonably install the floating platforms, pipelines, and production facilities within three years. At the same time, Turkey should definitely increase its technological capacity and know-how within this period in order to accelerate the efficiency of the process.

The global energy equation will be shaped around three issues: ownership of energy resources, controlling the energy resources, and transferring them to the international markets.

Future Energy Equation and Turkey’s Position

The global energy equation will be shaped around three issues: ownership of energy resources, controlling the energy resources, and transferring them to the international markets. Turkey carries out extremely important energy projects so that it can play an essential role in the above equation such as the Trans-Anatolian Natural Gas Pipeline (TANAP) from Azerbaijan through Georgia and Turkey to Europe, and TurkStream from Russia to Turkey and Europe. Via these pipelines, while Turkey receives 22.75 bcm of gas annually, an additional 25.75 bcm will be transferred to the European gas network via Turkey. Therefore, these two pipeline projects strengthen Turkey’s claim as an energy hub.

In addition to this, Turkey’s underground gas storage capacity is currently 4.5 bcm and this capacity is planned to reach 11 bcm – approximately 20 percent of the country’s annual gas consumption – in 2023.

Another dimension of Turkey’s recent natural gas discoveries in the Black Sea is that Turkey now has a substantial relief from its dependency on imported fossil fuels. Moreover, as a net importer of fossil fuels, the possibility of finding new hydrocarbon resources in the region provides an important motivation for Turkey.

Currently, the local and international gas infrastructure of Turkey is sufficient. Natural gas is delivered to all cities of Turkey. In addition, nearly 100 bcm of gas can potentially be transferred to Europe via Turkey in the long run which corresponds to almost 20 percent of the European annual natural gas demand.

Furthermore, Turkey is becoming a prominent market player with its liquified natural gas (LNG) facilities. With two LNG plants (Marmara Ereğli and Ege-Gaz Aliağa) and two floating storage and regasification units (FSRU) (Etki Liman and Hatay-Dörtyol), Turkey is the top country in the region in terms of LNG facility capacity.

Turkey has a total of 133 billion cubic meters of gasification potential in the national gas network per day through these plants. By creating a domestic seismic and drilling fleet and by virtue of the new natural gas discoveries and infrastructure investments in the Black Sea, the country has a crucial advantage in the independent pursuit of exploration activities in both the Black Sea and the Eastern Mediterranean.

The dream of natural gas bonanza in the Eastern Mediterranean naturally boosted littoral states’ expectations of economic benefit from ownership, exploration, exploitation, and transportation of natural gas reserves discovered in the region. Accordingly the international community – at the beginning – hoped that exportation of Israeli gas to Europe (possibly via a sub-sea pipeline to Turkey) could advance cooperation among regional states, make a political solution easy for already existing disputes like the Cyprus Question, and strengthen interdependence between Europe and the region.

These positive expectations led the Obama Administration to believe that the interested parties, which were potential stakeholders as buyers and sellers of natural gas as well as beneficiaries of energy firms, could be convinced to invest in a new Mediterranean cooperation. However, after 2011, neither did the USA show its willingness to support regional economic cooperation on the Eastern Mediterranean gas basin, nor did they support the newly found gas reserves by Israel. The Greek Cypriot Administration (GCA) and Egypt led the reinvigoration of an inclusive gas partnership. Geopolitical conditions radically changed after the Arab Spring and stakeholders of Eastern Mediterranean gas basins adopted competitive agendas in the ongoing conflicts. Since then geopolitical rivalry, not economic rationality, has become the main determinant of the limits of Eastern Mediterranean energy cooperation.

This competitive geopolitical atmosphere was first used by the GCA to violate the legitimate rights of the Turkish Republic of Northern Cyprus (TRNC). On one hand, the GCA signed so-called EEZ agreements with Israel, Egypt, and Libya without taking the consent of the TRNC therefore, ignoring the economic, political, and legal rights of Turkish Cypriots, and also unilaterally dividing its so-called EEZ into blocks and inviting energy companies like ENI and Total to explore and drill offshore reserves around Cyprus. This is a violation against a part of Turkey’s continental shelf in so-called blocks 1,4,5,6, and 7. On the other hand, Tel Aviv exploited geopolitical faultlines in the region to marginalize the rights of Lebanon, Syria, Turkey, and TRNC in the maritime zones of the Eastern Mediterranean and to exclude them from the institutionalized attempt of regional energy cooperation (the East Mediterranean Gas Forum).

Energy firms are reminding us of the economic rationale behind the drillings

Within this framework of geopolitical rivalry, the economic side of the story, the expectation of benefits as well as the feasibility of the cost of investing in East-Mediterranean natural gas dreams, are forgotten. As is known until now, the projects excluding Turkey and the TRNC from the energy deals have not produced any tangible economic results. Therefore it is not wrong to assume that East-Med-like projects have turned out to be an illusion that was shattered recently when energy companies like Exxon-Mobile, ENI, and Total stopped their drilling operations in blocks 6 and 10 and postponed them till March/April 2021 because of the current energy landscape.

The most remarkable feature of the current energy outlook is falling oil prices. At the time of writing, the Brent crude is 42.30 USD which is not enough to motivate key energy companies to take high financial burdens and even higher political risks of investing in East-Med partners’ pipeline dreams. As one can remember oil prices began dropping in January because of the fall of demand to hydrocarbons in Asian markets affected by the coronavirus outbreak. Before European markets were hit by Covid-19, a price war begun between Russia and Saudi Arabia. The USA, feeling the negative impact of dropping oil prices on its national oil industry, had to pressure Riyadh to reach a deal with Moscow on production cuts.  Since then oil prices have gradually risen. However, this sign of improvement is not expected to change market conditions in the Eastern Mediterranean energy game because of two reasons:

The first reason is related to the current hydrocarbon surplus in the energy markets. Even before the coronavirus crisis there was more supply than demand for oil and gas and Covid-19 is just amplifying this problem. The Asianization of energy markets (reversing the route of East-West energy trade) has been proposed as a remedy but there is no such aspect of Asianization in trilateral Eastern Mediterranean energy partnership plans yet. Indeed, energy experts from the stake-holding firms, like ENI, have already announced their doubts about the economic and technical feasibility of the East-Med pipeline (1200 km off-shore, 500 km onshore length connecting Greece to Italy as well as 1550 km off-shore, 20 km on-shore pipeline connecting Greece to Bulgaria).

Moreover, some actors like France that are eager to take part in East Mediterranean geopolitics by providing security support to stakeholders in dealing with risks against critical infrastructure, are faced with the problem of maritime sustainability when the Covid-19 pandemic hit their naval deployments in the region. Hence security costs associated with the longest and expensive East-Med pipeline project become more apparent under the coronavirus pandemic. Therefore, it can be expected that international energy companies will lose their incentives to continue drilling activities in the Mediterranean. While energy companies are postponing drilling operations, Greek Cypriot and Egyptian authorities keep talking about the expansion of natural gas production from the East Mediterranean reserves. Thinking about the capabilities of planned pipelines like East-Med, expanding national gas production can be counterproductive even if it will be realized. Besides, WHO voiced the possibility of a second wave of Covid-19 which may further restrain global hydrocarbon demand.