Can the EU Afford to Refuse Russia's Business?
By Fernando Napolitano, President & CEO of NEWEST
Russia: it’s a Regime, Though a Good Business
On 22.02.22, what the Classical Romans would no doubt consider a very auspicious date, the world was hopeful that the recent Russian move to recognize two Moscow-backed separatist states in eastern Ukraine on Monday evening, would not lead to outright war.
Europe is militarily toothless. While German Chancellor Olaf Scholz announced a slate of economic sanctions including Germany’s halt to Nord Stream 2 gas pipeline and its resolve in sending a “clear signal to Moscow that such actions have consequences”, the general mood in Europe is one of dismay. Although few believe it will lead to an actual war, many are disappointed at Europe’s response and preparedness (or lack thereof). Putin is the longest serving head of state among the contenders. He is more experienced, has with some success focused on dividing Europe, knows that – for different reasons—the other heads of state are not in shape to exercise full authority. In a sentence: democracies today are weak.
Europe, in fact, is experiencing the flip side of the “dividends of peace”. In the first half of the 1900s, Europe gave the worst of itself despite centuries of “civilization”. Ever since and understandably, Europeans have preferred to increase the welfare of its citizens, outsource to NATO (read: “the US”) its military options, and concentrate on business while preserving the peace.
As remarked in last week’s newsletter, Europe is highly dependent on Russia’s natural gas supply. Alternatives do exist but they are not planned for. This crisis, however, has its silver linings pushing Europe into two critical directions.
First, to achieve a less atomized European energy policy that is more realistic about the possible energy options. France remains the only outspoken supporter of nuclear energy. Germany has a plan to exit nuclear. Spain has nuclear but prefers not to talk about it. Italy has no nuclear plants, yet in South East France there is one of the largest nuclear waste facilities. Notoriously, winds blow from the west to the east. Yet, the much-contested resolution by the European Commission that nuclear and gas could be green, makes a lot more geo-political sense today than it did in early February.
Secondly, clear direction pushes for a short-term plan to diversify energy supply. Italy must extract more natural gas from the Mediterranean as well as source more from Israel. Italy, despite the outstanding strides in renewable energy, still needs gas to produce 50% of its electricity.
This combination could have a positive impact on the energy business and spur the funding required to equip the continent with enough supply to minimize future disruption. In Europe, there is an expectant humanity looking for vision, leadership, guidance and action plans. Where from? The corporate world.
Russia is a difficult client characterized by a dual track and a blind eye. It is a regime, so one must uphold the human rights banner, but it’s good business especially for Germany, Italy or the UK. Italy exported to Russia USD $8.12 billion in 2020, according to UN COMTRADE. Ironically, machinery, nuclear reactors, and boilers accounted for USD $2.36 billion. Russian oligarchs flooded the City of London with cash, pushed up real estate and the fortune of Premier League soccer.
Hard sanctions on Russia? Easier said than done.
NEWEST will be following closely the evolution.