Special Correspondent
Almost exactly a year ago, the worst happened. As dawn broke on Feb. 24, Russian President Vladimir Putin ordered his troops into Ukraine. He unleashed bloodshed, an avalanche of sanctions — and arguably the first truly global energy crisis.
The shock has fueled worldwide inflation; rerouted vast oil, gas and coal flows; and irreparably damaged long-standing commercial relationships, bringing about a reconfiguration of the energy map likely to eclipse even the aftermath of the 1970s oil crises. After decades spent building its reputation as a credible supplier, Russia’s decision to invade a neighbor and weaponize its leading export has altered consumption patterns, hobbled future production and dramatically accelerated the global green transition. Moscow will not regain its past clout.
Today, the changes in the energy picture are a crucial measure of just how well the West is doing in efforts to press Putin into suing for peace. Oil and gas fund the Kremlin’s war machine and determine its ability to wreak havoc. So it’s encouraging that, while the bulk of Western oil measures did not begin to come in until late last year, the effect is already being felt: Moscow’s January oil and gas revenues fell 46% compared with a year earlier, a steep drop even if sanctions are not the only cause. And yet, after an initial dip, production has held up. There’s little sign the departure of major Western firms is hitting drilling for now, much less export volumes — a demonstration of Russia’s resilience, and the ongoing strength of demand in emerging countries.
That’s left the world at a crossroads.
A History of Weaponizing Energy
The decision of a major hydrocarbon exporter to weaponize its energy dominance and threaten its neighbors might well be the catalyst the world needs to finally break its carbon addiction. Fossil fuel emissions will peak by 2025, according to Rystad Energy, a Norwegian oil and energy consultancy.
On the other hand, the same move demonstrates how hard it is for the rest of the world to give up on oil and gas, drawing new geopolitical ties between the energy-hungry Global South and authoritarian petroleum exporters keen to find new markets.
EU Imports of Fossil Fuels
Europe has more than made up for the decline in Russian energy imports with increases from other sources
Note: Shows change in flows since base month. Base month for oil is January 2022. Base months for products and gas is 12 months earlier, to account for seasonal changes.
History suggests the first priority for the West must be to implement the long list of sanctions it has imposed, because targets — especially large, porous ones. Putin may be wrong in believing he can outlast Western resolve, but that doesn’t mean time is on his opponents’ side. It’s crucial that enforcement is rapidly tightened.
The past offers a further word of caution. Energy shocks come with unexpected consequences. One of the most worrying today is the growing opacity of Russia’s dealings, as the hydrocarbons flowing out and cash flowing in become ever harder to trace. Oil revenues are also becoming difficult to trace, and shadow fleets rule the waves. The phenomenon isn’t new, but its scale is unprecedented.
For all the trauma of the past year’s events, in some ways they’ve followed a familiar pattern. The energy industry has always evolved fastest in times of crisis. The modern crude oil tanker and the global market it enabled wouldn’t have been developed, for instance, had the Suez Canal not been closed for months in the 1956 Suez Crisis and longer in the aftermath of the 1967 Six-Day War.
The Kremlin is betting that geology is destiny. History supports that wager. If energy reserves are good enough, countries have held onto a world-leading position for a century or more. The US and Russia were the world’s largest oil producers in 1900. After more than 100 years of wars, revolutions, the dissolution of the old tsarist and Soviet empires, and the discovery of the Middle East’s vast oilfields, the US and Russia are still on top.
And yet it’s the periods when one supplying region or country becomes too dominant that often precipitate shocks. The Organization of Petroleum Exporting Countries was only able to pressure the West in 1973, to protest support for Israel in the October War, because the US wasn’t able to step up to fill the gap as it had before. Production had peaked and inflation-control measures were holding back US investment, so there was no “surge capacity.” The rising powers in terms of oil supply were all emerging economies — much as the rising powers in oil demand are these days.
A rich patrimony can easily be squandered, too. Venezuela was a top-three producer from the late 1920s to the late 1960s. These days it pumps fewer barrels than neighboring Colombia, with a 0.7% share of global output. Political meddling and corruption at home, along with sanctions from overseas, help explain that disaster. It’s a similar situation with Iran, which duked it out with Saudi Arabia for decades for the title of the Middle East’s leading producer but these days produces less than Brazil. Russia, with its aging fields, should be wary of that fate.
Share of World Oil Production
The map of the world’s crude output has seen dramatic shifts throughout the petroleum era. But some factors have remained remarkably constant.
In 1900, as more recently, the US and Russia were the biggest producers. When Russian output collapsed after the 1917 revolution, Mexico and then Venezuela took over to feed booming demand from automobiles and shipping.
After World War II, decolonization came to the fore. Iran nationalized its British-dominated oil industry in 1951, sending output almost to zero. A new player helped make up the shortfall: Saudi Arabia.
Saudi Arabia, Iran, Venezuela, Iraq and Kuwait established OPEC in 1960. By the 1973 oil embargo, the declining dominance of the US gave OPEC unprecedented power. Importers responded to reduce its market share.
The USSR took advantage of OPEC’s weakness in the early 1980s to build its own exports. Saudi Arabia got its revenge in 1985, crashing the oil price and precipitating the 1989 fall of the USSR and Iraq’s 1990 invasion of Kuwait.
A flood of cheap money after the 2008 financial crash helped spark the rise of shale oil production, returning the US to the position of top producer. – Sources: BP; Our World in Data
Resilient Markets
One lesson that past oil shocks teach is that the wake-up call they bring is normally heeded. That’s bad news for Russia.
In the run-up to the 1973 Arab oil embargo, there had been warnings about increased US dependence on imports. A 1970 US intelligence report concluded interruptions from the Middle East would “probably occur during the next five years.” But not enough was done by governments lulled into complacency by postwar prosperity, with oil expenditure barely relevant at less than 2% of GDP.
As a result, the Arab nations were shooting at an open goal when they began an embargo, shrinking the US economy and lifting unemployment and inflation — much as Putin was in sowing chaos and volatility over the past year from Europe to Asia. But markets can and do find alternatives. This is a gun with significant recoil, not least at a time when the world is already preparing to move to cleaner energy.
Consider the decade after the first 1970s oil crisis. France and Japan embarked upon bold nuclear power programs as fuel oil, which generated a quarter of the world’s electricity in 1973, fell suddenly from grace. (It now accounts for closer to 2% of the total.) At a time when cars and industry were guzzling fossil fuels, efficiency took center stage. The fuel-conscious Japanese car industry was launched onto the world stage, and the energy intensity of the US economy slumped.
were drastic changes around supply as well. Energy security was suddenly a priority worth splurging on. Expectations of higher global prices made once-marginal fields profitable, opening up reserves in Europe’s North Sea and the Russian Arctic.
In some crises, those supply shifts have been blisteringly fast. Consider 1951, when Britain imposed an embargo that shut down the fourth-biggest producer after Iran’s prime minister, Mohammed Mosaddegh, nationalized its oil industry. The world’s oil output rose faster than it had in any prior year, as rival producers increased output to compensate. Oil prices — negotiated at this point between major producers and refiners, rather than trading on a futures market — didn’t budge.
We’ve seen something similar happen this time around. Substitution, met in the 1970s with nuclear power and coal, has this time happened mostly via renewables. Last year, wind and solar generated a record fifth of EU electricity, according to think tank Ember. Generation from gas and coal will stagnate through 2025, the International Energy Agency reported this month, while renewable output will grow at 9% a year to reach more than a third of the generation mix. Some 90% of the increase in electricity demand over the next three years will be met by renewables and nuclear alone, according to the IEA.
In developed countries, the US Inflation Reduction Act and European Union’s REPowerEU will catalyze these trends, sharply reducing fossil fuel use in power, transport and industry. The more concerning question is what happens in emerging economies, which account for about two-thirds of the world’s emissions and have found an opportunity in the current crisis to take advantage of discounted prices for Russian exports.
Russia, meanwhile, has gone backward. Its prospects of collaborating with its largest market on the transition away from the dirty stuff with solutions like hydrogen, or on reducing methane, a powerful greenhouse gas, have been curtailed. As sanctions expert Maria Shagina of the International Institute for Strategic Studies puts it, Russia did not just cut its energy bridge with Europe — it severed the green energy bridge that might have maintained commercial ties even as Europe pressed ahead in the climate transition.
While new oil provinces did not emerge after February 2022, investment is back, as is government attention on hydrocarbons — a new recognition in the developed world that we’re not done with fossil fuels yet.
Coal has benefited. Yet the impact has been remarkably modest, given its status as a readily available source of indigenous energy in the midst of an energy security crisis. In Europe, coal generation rose by 28 terawatt-hours, according to Ember, compared with 33 TWh for wind and 39 TWh for solar — but fossil generation will fall by 211 TWh this year. The expected winter coal surge hasn’t materialized, with plants standing idle. Even in China, the “dash for coal” equated to thermal electricity generation growing at the slowest pace in seven years. Last year was the first when energy transition investment equaled global investment in fossil fuels. That will only accelerate.
Thanks to a mild winter, constrained consumption and vast liquefied natural gas imports that have filled the Russian pipeline gap, European natural gas prices are now trading below their average levels during the 2010s, perceived at the time as an era of glutted gas markets. European gas consumption in August to November fell by a fifth, compared with its average over the four previous years. Even German industry managed to cut back and pull through — with a cost that nonetheless fell short of a recession. Benchmark oil, which surged above $120 in the spring, is back toward $80.
Natural Gas Consumption
Europeans used less natural gas after Russia invaded Ukraine.
Note: Consumption includes both gaseous (GNG) and liquefied (LNG) forms.
Unintended Consequences
The second lesson from the past is that unsheathing the energy weapon has unexpected outcomes.
Some are painful for bystanders. In Asia, India seized on cheap oil while its energy-hungry neighbor Pakistan was left struggling to keep the lights on as Europe sucked up supplies of the liquefied natural gas that powers its grid.
More often, the pain is for the nation on the firing end. As a Japanese government white paper at the time of the 1973 oil embargo put it, “the passive international response of the 1960s can no longer be permitted.” Today, energy security is once again an official priority, and that increasingly means domestic, usually clean, energy.
Russia still holds important cards. It produces roughly a tenth of the world’s oil. Crude is fungible and plenty of it will continue to move, as Moscow bets on shadow tankers and other circumvention tactics.
Buyers of Russia’s Crude Oil
India has provided the most important lifeline for Moscow’s crude sales.
But even a well-prepared Russia hasn’t proven immune. Costs have risen. Belligerence has already had technological consequences. Russia’s economy has been edging backward toward “primitivization,” as economist Vladislav Inozemtsev puts it.
The Oxford Institute for Energy Studies estimates that Russian gas output in 2022 was down 90.2 billion cubic meters, nearly 12% and the largest drop since 1990. Russia needs to find a way to replace a European market, and that’s proving challenging, with China dragging its feet on a proposed pipe and Russia’s homegrown liquefaction technology unlikely to be up to the job. Novatek PJSC is bringing in a firm from the United Arab Emirates when France’s Technip Energies NV, Italy’s Saipem SpA and Baker Hughes Co. from the US leave its Arctic project, but BP Plc expects the technology restrictions will prevent any increase in LNG exports for the rest of this decade.
The oil cuts that Russia plans — 5% of output in March — may be painful for the market but are not without cost for Moscow. Deeper restrictions would hurt a hydrocarbon-dependent budget, stretch storage capacity and jeopardize future production, given the nature of the country’s aging fields and the costs of restarting them. Oil production fell to below 9 million barrels a day during the Covid nadir in 2020, an indicative limit.
None of these unwanted impacts are changing soon. Hydrocarbons are still a key contributor to Russia’s budget, and the combined effect of military spending and falling hydrocarbon revenues is increasing the strain. As Iikka Korhonen of the Bank of Finland Institute for Emerging Economies points out, the January budget deficit already makes up close to half of the amount projected for the entire year. The pressure on education, health and pension spending will eventually be felt even by households in the largest cities so far shielded from the war’s impact, raising questions about confidence in the economy and the ruble that will take us back to the threat of bank runs early in the war. It will mean, for Putin, dangerous pressure from above and from below that cannot be silenced with repression alone — and for Ukraine’s allies, the prospect of an inflection point.
The timing of all this, as Korhonen argues, is impossible to predict. What’s clearer is that even if the war remains Putin’s priority, vulnerability elsewhere is building.
Greed, Grift and Progress
The third lesson is that shocks displace large flows of cash, bringing with them new forms of corruption and inequality. The US and its allies, but others too, must be prepared to handle this.
In the early oil shocks, there was a boom in highly concentrated wealth among oil producers, creating troubling distortions and prompting economist Richard Auty to coin the idea of a “resource curse.” Economies with high commodities exports grew more slowly from 1971 to 1989, even after controlling for variables such as income and investment rates. A 1997 estimate suggested that in Venezuela alone, as much as $100 billion was wasted or stolen in the previous quarter-century. In Nigeria, that figure rises to $380 billion, according to one 2006 estimate.
The Kremlin’s regime already leans heavily on its ability to distribute hydrocarbon rents. The oil and gas industry has a weight in the economy that official figures do not capture.
But today, as IISS’s Shagina points out, it is grappling with a frenzied reallocation of resources following the departure of Western companies, not unlike the chaos of the wild 1990s. Oil money, meanwhile, is increasingly becoming harder for even the Russian state to track and tax. Oil capital is increasingly flowing into opaque pools; oil companies are taking advantage of the low Urals price (watched by the tax man) to widen refining margins.
Crude Oil Prices
Urals, Russa’s flagship oil, is trading well below the G-7 cap
Cornell University’s Nicholas Mulder, author of The Economic Weapon: The Rise of Sanctions as a Tool of Modern War, argues that economies like Iran and Myanmar have created states within a state. The money will flow — commodities have a way of making it to market — just not necessarily into official coffers. Time allows existing power networks to adapt and new ones to be created. Parallel economies and opaque dealings will flourish.
All of this makes using coalitions of nations in sanctions efforts far more significant — not just in terms of signaling support for Ukraine, but when it comes to enforcement. That means the US and Ukraine’s other supporters must continue to engage with large emerging nations who have so far avoided taking sides, reluctant to break with a major grain, fertilizer, oil and weapons exporter, and wary of Western intentions.
It matters that graft is not a foregone conclusion. On a global scale, the current shock could also bring significant improvements in encouraging wealth distribution — not least with advances in renewable energy, and improved standards around mineral extraction as energy security rises up the agenda and brings those processes closer to home.
Shifting Centers of Power
That brings us to a final lesson. Energy weapons do backfire, but the shifts can take time. In part, that’s because of the geopolitical realignments involved.
Russia has proven more resilient than many expected not because it’s stronger but, as Mulder points out, because non-Western countries are far bigger and their markets more vital than in the past. They’ve largely resisted alignment with the West, leaving far more opportunity for sanctions evasion. That should prompt a rethink in approaches to diplomacy and economic development.
Russian Crude Oil Shipments
The share of Russia’s crude exports carried on European ships has slumped since sanctions were imposed, but not to zero
Notes: Shipments from the Baltic, Black Sea and Arctic as of January; exceeds 100% due to rounding.
Source: Vessel tracking data monitored by Bloomberg
Energy-weapon-wielding dictators do unquestionably have staying power. See Iran, Iraq or — most emblematically — Venezuela. The once-prosperous Latin American nation is in fact the archetype of a failed petrostate. Steel that was once used to build the world’s largest refinery complex is nowadays being turned into scrap to barter for spare parts and earn hard currency from exports. Even the replacement of late populist President Hugo Chavez’s with Nicolas Maduro has failed to spark change.
That’s a sobering thought for anyone hoping that a hollowed-out, enfeebled economy will necessarily lead to Putin’s departure.
But it should be a discouraging notion for the Russian leader, too. Venezuela was once among the world’s top five oil producers and was a founder of OPEC, which still holds the world’s largest oil reserves. It was so prosperous it attracted European migrants, with a GDP per capita in the early 1980s that outstripped Portugal and South Korea.
Today, production has slumped from more than 3 million barrels to less than 700,000. Hyperinflation has risen as high as 54,000,000%, and nearly a quarter of the population goes hungry. Impoverishment and desperation have turned 5.6 million people, equivalent to a fifth of the population, into refugees. Long before Venezuela’s collapse, Chavez had declared that oil was a geopolitical weapon and promised to use it to pursue his foreign-policy ends.
No country suffered more from its deployment.

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