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Very Serious with Josh Barro
A Cold Winter Is Coming for Europe

A Cold Winter Is Coming for Europe

Western governments are looking for a way to end Putin's oil price windfall without plunging Europe into energy crisis and recession. It's not clear that's possible.

Dear readers,

Let me pull back the curtain as I introduce this week’s podcast episode.

Many of you were (are?) Left, Right & Center listeners and you might remember that from time to time, we would discuss a newsy development or political fight about Nord Stream 2: the brand new pipeline running under the Baltic Sea, which was supposed to be transporting natural gas from Russia to Germany — and which was controversial because of its potential to increase German dependence on Russian gas, and to make it easier for Russia to cut off gas to intermediate states like Ukraine.

Sara and I had (have?) a bit of a joke about that. We both agree that Nord Stream 2 is a very important topic that has a lot of weight in Euro-Russian politics and our global energy future. I was always more in favor of doing the segment, but Sara almost always cautioned against it.

Sara here: That’s because this wasn’t usually a major topic in American news and Americans weren’t following it super closely, and thus it’s a topic that requires quite a bit of explanation and background, and the right guest(s) with the right expertise, and very often on Left, Right & Center, we’d get to this topic with about 13 minutes left in the show. Not enough time! Broadcast problems.

But now is the time to understand not just Nord Stream 21 — which likely will never carry gas to Germany; the better question now is whether its older cousin, Nord Stream 1, will continue to operate — but the reliance of the world (especially Europe) on Russian energy, and Russia’s reliance on energy revenues for sustaining its invasion of Ukraine.

Much of the coverage of Russia’s invasion of Ukraine here has been about the invasion itself, the humanitarian crisis, gas prices and inflation. In Europe, though, my guest on this episode says the issue of Russian energy — oil and natural gas — is a daily conversation.

Let’s start with gas prices. If you think we have it bad here in the US, it’s even worse in Europe, which relies (or has relied) so heavily on Russian exports. The war in Ukraine, and the surprising level of European resolve in responding with sanctions, has driven energy prices up even more sharply there than here — and has had the perverse effect of increasing Russia’s hydrocarbon-driven profits and tax receipts.

In response, Europe has announced it will impose an embargo on Russian oil by the end of the year — a move that would significantly impede Russia’s ability to benefit from high oil prices, but would also further constrict Europe’s energy supplies going into what could be a cold winter. If actually implemented as described, the embargo is also likely to drive the global price of oil far higher, triggering recessions around the world. Because of those… problems… world leaders from the G7 have been discussing what sounds like an elegant solution: Let Russia keep selling and shipping oil, but set a low cap on the price they’re allowed to sell it at, so they barely make any profit and global prices do not soar any further.

The obvious question is: Can that work? Why would that work? Why would Russia keep selling oil at the capped price? This is one of the questions I had for Margarita Balmaceda, a professor of diplomacy and international relations at Seton Hall University and an expert on the energy trade in Eastern Europe. And her answer is: it probably won’t work.

There are non-absurd arguments that the cap could work, and not all experts agree with Margarita. Advocates of the cap have responses to the obvious questions. Wouldn’t the many large countries that haven’t been cooperative with our efforts to isolate Russia, such as India and China, just agree to buy the oil at a price above the cap? Well, there would be some of that, but Russia sells half its oil exports to Europe, most of that by pipeline, and it doesn’t have the infrastructure to divert that much more of that flow to places like China and India. Western control over much of the shipping and insurance apparatus for oil would also interfere with the volume of diversion by sea. Couldn’t Russia just cut its oil production? It could, but there’s a problem with that — shutting off oil wells is not a simple process, and many of Russia’s wells couldn’t be restarted in an economical manner if they were shut off. In other words, the oil will keep coming out of the ground, and Russia won’t have a lot of appealing options other than to keep sending it to Europe, even at a low, capped price.

The main problem with that analysis, as Margarita notes, is that Putin has already done a lot of apparently irrational things that are very economically costly to Russia, because of the harm they impose upon his adversaries. Just because there’s a rational case for Putin to swallow his pride and comply with a price cap doesn’t mean he’d actually do so.

So, what options does that leave us with? Not a lot of good ones — not for us, and especially not for Europe.

In the podcast, Margarita walks me through the history — how Europe allowed itself to get so economically in bed with Russia, despite manifest signs of Russia’s unreliability as an energy partner; and what will have to be done to extricate the continent economically from dependence on Russian oil and gas. The near-term story is likely to entail a lot of pain, but in the long run, this may be the shock Europe needed to find a sustainable path away from Russian hydrocarbons, and so the shock is likely to have significant negative long-run effects on Russia’s oil-dependent economy. And along the way, there’s a major role for the US to play as an increasingly large exporter of Liquified Natural Gas to Europe.

I hope you find the conversation very interesting and informative — I certainly did. I’ll be back in your inbox tomorrow with another edition of the Mayonnaise Clinic.

Very seriously,


Click here to see a transcript of this episode.


And to give it its due: a 30-minute episode with an expert in exactly this topic.

Very Serious
Very Serious with Josh Barro
Very Serious is a weekly conversation with top political commentators, columnists and policymakers, focused on how events in the news relate to major, long-standing controversies in politics, economics and culture. Host Josh Barro is joined by a rotating set of regular guests to work out the ideas behind the arguments on topics serious and not-so-serious. It’s a great conversation across ideological lines that will leave you entertained, enlightened, and maybe even persuaded.