One cannot conclude with certainty that Vladimir Putin has his fingerprints on what is currently happening in the Middle East and global energy markets. There is a lack of publicly available evidence, at least until the data from the analysis of the drones used by Hamas is communicated (which has certainly already happened). The results of the investigation into the suspected sabotage of the Balticconnector, the gas pipeline between Finland and Estonia, in recent days are also missing.
But what is unfolding after Saturday’s attacks on Israel is a scenario that the Russian dictator certainly finds very useful: it allows him, among other advantages, to pursue what has the objective effects of a second gas war against the European Union.
The first gas war
Putin fought and lost the first gas war in the summer and fall of 2022. He tried to put pressure on European governments by almost completely stopping Gazprom’s deliveries through the most traditional channels: Nordstream 1 through the Baltic Sea, but especially Yamal through Belarus and Poland and the infrastructure further south crossing Ukraine to serve Austria and Italy. This was the most open year in a first gas war that Russia had actually started secretly many months before the aggression against Ukraine.
Things didn’t go as Putin had hoped: European governments relatively quickly turned to other suppliers and other technologies, especially liquefied natural gas. Ben McWilliams, Giovanni Sgaravatti, Simone Tagliapietra and Georg Zachmann estimate for the Bruegel Study Center that the European Union achieved two strategic goals in the first half of 2023: reducing gas consumption by 15% on the historical average and increasing the import capacity of liquefied gas by shipping by 20%. This ended the first gas war.
The second gas war
But now there is a risk that a second one will be opened. The fact is that, contrary to the expectations of many, the price of methane in Europe rose more than any other raw material after the Hamas attacks: +36% in a few days, while oil (Brent) rose by 3.6%. , while the price of natural gas outside Europe rose by around 10%.
According to Bruegel’s Simone Tagliapietra, there are three factors that have driven up the price of gas in Europe (the one traded on the TTF in Amsterdam).
The first is a market that is already tight due to strikes in the Australian mining sector. But then a double effect of the last few days contributed to this: the suspension of production in the Tamar field between Israel itself and Egypt, which Israel decided for security reasons, which could reduce the supply of liquid gas in Europe; and precisely the mysterious sabotage of infrastructure between Finland and Estonia, which came at the perfect time to create even more tension in this very strategic market for European countries, with downstream effects on families, businesses, inflation, interest rates and national debt.
If there is no Putin’s handwriting – we have no evidence (yet?) – then he certainly doesn’t mind what happens.
However, oil is more stable for one fundamental reason: the Israeli authorities themselves are implicitly signaling that they will try not to extend the ongoing crisis to Iran.
This appears to be the only major red line that the US government has signaled to its Israeli partners. US Secretary of State Antony Blinken himself stated in recent days: “So far we have seen no evidence that Iran is directly behind this particular attack.” The White House does not want the conflict to affect an oil-producing country with one production of three million barrels per day like Iran. The impact on the price of a gallon of gasoline in the United States at this point would anger public opinion and cause President Joe Biden to lose the 2024 election. It is no coincidence that in recent years the Americans have allowed Iran to increase its production by two to three million barrels per day. The only thing the Americans have asked of the Israelis is not to upset this fragile balance.
It is no coincidence that the newspaper that has reported the most on Iran’s involvement in Hamas attacks is also the one most hostile to Biden: Rupert Murdoch’s Wall Street Journal.