EU-Russia trade continues to slide as LNG, fertilisers curb Europe’s need for pipeline gas

9 months ago 32

Trade between the European Union and Russia kept sliding in the final quarter of 2023, as Brussels continues efforts to decouple itself from Moscow in the lead-up to the second anniversary of the full-scale war in Ukraine.

A day after the EU unveiled its 13th sanctions package against Russia, a report posted by the EU’s official statistics office highlighted an ongoing decline in Europe’s trade and trade deficit with Russia since the beginning of the conflict – with two important exceptions, imports of liquified natural gas (LNG) and fertilisers.

The latest Eurostat report showed that total EU-Russia trade fell to €6.69 billion in December last year, down from €6.87 billion in September and €28.80 billion in February 2022 — the month the Kremlin launched its full-scale invasion, bringing the total drop to almost 77%.

“I think what we’re seeing is the gradual untangling, or the gradual decoupling, [of] the Russian and the EU economy,” said Janis Kluge, a senior associate at the German Institute for International and Security Affairs (SWP).

Kluge explained that the trade decrease is largely a consequence of the steep decline in European imports of Russian energy as the 27-nation bloc accelerated its pre-existing efforts to curb its energy dependency on the Eastern country.

At a practical level, this was enacted through EU sanctions on Russian fossil fuels (especially oil exports). On its part, Russia cut the supply of pipeline gas to Europe.

“Exports to Russia…declined right after sanctions were introduced and then sort of remained at the same level,” Kluge said. “Most of the change actually concerns imports from Russia.”

Falling imports of Russian energy have also helped rebalance the EU’s previously vast trade deficit with the Kremlin, which fell by nearly a quarter from September to December to €0.78 billion. In February 2022, its trade deficit stood at €13.64 billion – which translates into an aggregate decline of over 94%.

The rebalancing of the EU’s trade deficit with Russia is also a symptom of the recent years’ broader shift in Europe’s energy reliance away from Russia and towards the United States. Last year, EU imports of Russian gas fell to less than a third of what they were in 2021, while imports of US gas tripled in the same timeframe.

The US was also the EU’s top natural gas supplier in the final three months of last year, and the world’s top exporter of LNG over the whole of 2023.

Meaningful anomalies

Not all EU imports of Russian goods have dropped since the start of the conflict.

Although net European imports of Russian gas (including both pipeline and LNG) have declined, imports of Russian LNG have surged from 13.5 billion cubic metres (bcm) in 2021 to 17.8 bcm in 2023.

Kluge noted that this is largely a result of the fact that, unlike pipeline gas imports, any EU refusal to purchase the super-chilled fuel would fail to significantly impact the Russian economy.

“The reason why LNG imports are not as critical as gas pipeline imports to Europe is that Russia could theoretically rather easily redirect its LNG exports to other countries,” he said.

“If you are looking for measures that really hurt Russia’s coffers, you would have to focus on the remaining pipeline gas imports [because] this is gas Russia cannot direct anywhere else.”

Similarly, the Eurostat report noted that EU imports of Russian fertilisers increased from 2022 to 2023, although they remained lower than in 2021.

Kluge explained that this was due to a variety of factors, including the energy-intensive nature of fertiliser production.

“Gas is a very important ingredient in the production of fertilisers,” he said. “So if you are able to import fertilisers from Russia, you sort of can [avoid] Russia’s own energy blackmail by importing gas in the form of fertiliser.”

A 14th sanctions package is expected to be announced within the next few weeks.

“We must keep degrading Putin’s war machine,” European Commission president Ursula von der Leyen wrote on X on Wednesday.

[Edited by Anna Brunetti/Nathalie Weatherald]