Analysis by Dionis Cenușa, published on 27.12.2022 on IPN Press Agency
Russia's war against Ukraine that began in February 2022 has had a number of negative effects on critical regional transportation and energy infrastructure systems. In the almost 11 months of war before the end of 2022, decision makers in Ukraine, the EU and its member states, and Russia and its allies (Belarus, Iran, etc.) have revised their views on the old ways of operating regional infrastructure.
The economic losses registered by state actors affected by the Russian war are due in large part to the “freezing,” cancellation, or destruction of infrastructure servicing transportation or energy (basic critical infrastructure). Infrastructure on Ukrainian territory remains the object of constant military attacks by Russian forces (IPN, November 2022). Under the pressure of EU sanctions, Russia’s infrastructure has been forced to adapt to the reorientation of exports towards non-Western markets. Russia is pivoting to Asia and will increasingly depend on integration with the Eurasian Economic Union. At the same time, the decoupling process initiated by Russia and the EU has also led to the initiation of infrastructure developments in "Wider Europe." The "war of economic attrition" (IPN, July 2022) initiated by Russia has forced the EU and its member states to urgently consider infrastructure that would allow the diversification of natural gas imports from non-Russian sources (IPN, July 2022), either by gas pipeline (North Africa, Caspian Sea) or by sea (LNG). At the same time, the EU is also exploring opportunities to transport energy within the EU (hydrogen) and to import electricity from the South Caucasus.
Rethinking critical infrastructure: the case of Ukraine and its neighbors
In the first half of 2022, Russia’s military attacks and occupation of Ukrainian territories in the Black Sea area caused major disruptions to the functioning of Ukraine's shipping infrastructure. The safety of the transport of agri-food products through the Black Sea depends on the navigability of the ports that remain under Ukrainian control. Thus, three primary ports – Odesa, Chornomorsk, and Pivdenny - needed the security guarantees provided for in the "grain deal" in order to function. These ports account for 80% of Ukraine's total port capacity, which until the 2022 war controlled 13 river and seaports (a capacity 260 million tons in 2019). The "grain deal" entered into force on July 22 thanks to the facilitation of Turkey and the UN. The international supervision mechanism of Ukraine's export and import operations established by this agreement was extended for another 120 days in November (Bloomberg, November 2022). Between July and December 2022, around 12 million tons of agricultural products were exported (corn - 43%, wheat - 29%, sunflower products - 13%, etc.), involving about 500 ships. Even so, the full operation of Ukraine’s ports is hampered by Russian attacks on critical energy infrastructure, which paralyzed the activities of the port of Odesa in early December after a drone attack (with 15 Iranian-made units, of which 10 were destroyed).
In addition to the "grain deal," rapid investments were made in railway infrastructure connecting Ukraine with Moldova and Romania. This replaces part of the previously available export capacity by sea. In this regard, in just two months (July-August), the Ukrainian side renewed the Berezine-Basarabeasca section (21 km), which was dysfunctional for about 20 years. Through this intermediary, certain exports can be more easily redirected from Ukrainian ports to the Moldovan railway and then on to the EU. In 2021-2022, European financial institutions provided financial assistance (loans) for the future modernization of the railway system in Moldova (about €230 million). In addition, the expansion and modernization of the Ukrainian railway system has an added humanitarian significance (about 4 million people evacuated between February and November 2022). This category of effort includes the relaunch of the Kyiv-Chișinău route in November, which has been non-functional for nearly 20 years. In addition, some investments were allocated to restore railway capacities in the direction of Romania. Thus, the railway communication on the Rakhiv - Valea Vișeului route came back to life after about 15 years of technical pause. On this route, Ukrainian passengers can reach Romania in as little as 40 minutes (border control is carried out on board), taking into account the difference in gauge between Ukraine (Soviet type – 1,520 mm) and Romania (European type – 1,434 mm).
In the nearly 11 months of war, Russian forces have launched more than 4,000 missiles at Ukraine. In addition to damage to military and civilian infrastructure (apartment blocks, schools, etc.), a large number of facilities that produced or supplied electricity were destroyed. Around 50% of Ukraine’s critical energy infrastructure was damaged by Russian missiles (including with the use of Iranian drones) in October-December 2022 (IPN, November 2022). By de-electrifying Ukraine, the Russian military intends to trigger a humanitarian crisis - if not in Ukraine, then in the EU - as a result of a new flow of refugees. The geographical proximity and the high degree of interconnection with Ukraine made Moldova a collateral victim (RUSI, December 2022). Due to the synchronization of the electricity transmission systems of Ukraine and Moldova with the EU energy grid, accelerated by the EU, the two countries can import EU electricity from March 16, 2022. This helped Moldova to obtain electricity from Romania to weather the energy crisis, while Ukraine has begun the necessary procedures to test its capacity to import electricity from Slovakia (IPN, November 2022).
Rethinking critical infrastructure: the case of Russia and its allies
The ban on access of Russian ships to EU ports and restrictions on the entry of land freight (the fifth package of sanctions) as well as the embargo on Russian oil transported by sea (from December 5 – for crude oil, followed of that for all petroleum products on February 5, 2023) have forced Russia to rethink its strategic infrastructure. The reorientation of its infrastructure is part of Russia's resilience strategy against EU sanctions.
The situation was made worse by Russia's own restrictions on natural gas supplies to the EU. The use of gas as a tool of geopolitical coercion over EU member states has had a suboptimal result, as Russia has failed to break Western solidarity with Ukraine. The sabotage action against the Nord Stream 1 and 2 pipelines at the end of September (Guardian, September 2022) - of which Russia is suspected (so far without conclusive evidence) - permanently reduced Russian pipeline deliveries to the EU by up to 9% of total gas imports (compared to 45% or 155 billion m3 in 2021).
To replace EU markets, Russia aims to increase its gas exports to China. In 2021, Russian gas supplies amounted to around 15 billion m3: 7.6 billion m3 by pipeline and 6.2 billion cubic meters in the form of LNG. In 2022, Russia sold gas to China at discounted prices - about 50% for the LNG delivered by the operator Sakhalin 2 until the end of 2022. During 2021, the price of Russian pipeline gas was $120-148 per 1000 m3. This price is more than 10 times lower than the maximum price of €2,000 per 1,000 m3 set by the EU as a ceiling under the new correction mechanism against future artificial increases - similar to those implemented by Russia in 2022 (EuroActiv, December 2022). However, the existing gas infrastructure geared towards China is not sufficient to replace the volume of gas previously exported to the EU (155 billion m3 in 2021). Russia has set as a strategic goal to increase the volume of gas delivered through "Power of Siberia" to 38 billion m3 and to start construction of the "Power of Siberia - 2" gas pipeline through Mongolia in 2024, with a capacity of 50 billion m3. As a result of the development of these pipelines, Russia could become the main source of gas imports for China, totaling 88 billion m3 by 2030, if Chinese consumption remains at current levels. The main gas exporters to China in 2021 were Australia (43.6 billion m3 - LNG) and Turkmenistan (31.5 billion m3 - by pipeline). As for the supply of oil, Russia intends to intensify the use of the "Arctic Silk Road." The second Russian tanker in history left for China in November. The Arctic route would allow goods to be transported twice as fast as through Russian ports on the Baltic Sea and then through the Suez Canal, which has been hampered by sanctions.
Russia is losing significant revenue from exporting energy resources to Western markets, including as a result of the $60 per barrel oil price cap imposed by the coalition of Western states (US Treasury, December 2022). Already in November, Russia recorded losses of about €1.2 billion (about 90 billion rubles). That is why Moscow prioritizes the development of alternative routes to new markets, as this would make it possible to seek some compensation for losses in the federal budget, which may have repercussions for the political clientele of Vladimir Putin's regime. The consequences of the Russian aggression against Ukraine are long-term. Therefore, from afar, Russian authorities must ensure political and socio-economic stability at the national level, especially for the Russian enclave of Kaliningrad. The latter is subject to all Western sanctions, which are estimated to affect around 15% of the goods transported from the rest of Russia through Lithuania. Kaliningrad's adaptation to the new regional reality has been supported by the expansion of shipping from St. Petersburg. The number of vessels circulating between the exclave and the rest of Russia reached three in March 2022. In October, it increased 5 times, and it will continue to grow based on subsidies from the federal budget, which implies new expenses for the adjustment of Kaliningrad’s port infrastructure. Other costs that Russia has to bear as a result of its isolation from the EU due to the fifth package of sanctions (EU, April 2022) are related to the increase in taxes on Russian operators applied by transit states to Russian exports to China, Uzbekistan, Kyrgyzstan, and Turkmenistan. Thus, in October, the Kazakh railway operator ("Kazakhstan Temir Zholy" - a network of 16,000 km and 1,720 locomotives) increased the tariff by about 15% for the carriage of wagons for internal use, import, export, or transit. Consequently, the price of transporting a ton of wheat over a distance of around 2,000 km through Kazakhstan is double the taxes applied on Russian territory, or €34 (2,500 rubles). In other words, Western sanctions and Russia's reorientation to the East put pressure on the integration process within the Eurasian Economic Union.
On the other hand, Russia has sought to integrate its allies in its adaptation strategy to the sanctions regime applied by the EU, the G7 states, and their allies (between 30 and 50 states worldwide). Given that Belarus played a key role in the initial phase of the Russian aggression against Ukraine and continues to support the Russian military agenda, the EU extended the anti-Russian sanctions regime against Belarus from April. Russia is supported by Belarus in joint weapons production and military exercises starting in 2023. Moreover, to ensure the survival of Alexander Lukashenko's regime, Russia is facilitating the process of diversifying export routes for Belarusian producers. Already in August, the Belarusian authorities announced that they had developed 40 new export routes to more than 20 countries through Russia. In January-July, the volume of goods transported to Azerbaijan, Georgia, Kazakhstan, Tajikistan, and Uzbekistan increased (to China by 5 times). At the same time, Belarus uses Russian port infrastructure (14 ports) to access global markets. Rail exports to Russian ports doubled compared to 2021, accounting for 34% of the volume rerouted in non-traditional directions. Belarus has also shown an interest in expanding port facilities in Russia to increase the transportation of Belarusian goods (Belta, August 2022).
Concomitantly, Russian authorities are looking for optimal ways to create new export routes by expanding transportation infrastructure to connect the Black Sea with the Caspian Sea region through the Volga-Don Canal and to reach Asian markets through Iran. To stimulate the creation of the Russia-Iran-India route (3,000 km), Russia has announced that it will allow Iranian ships to navigate through its territory. Some $20 billion will be invested to increase the navigation and transit capacities of the Don-Volga canal, including the modernization and expansion of the rail network from Iran to the port of Chabahar (Iran) in the direction of Mumbai (Bloomberg, December 2022). Another ally with which Russia wants to develop new energy infrastructure is Turkey. Russia supports Turkey's ambitions to become a regional gas hub to meet the need to maintain a minimum westbound gas flow and redirect more than 100 billion m3, which in previous years reached Europe via Nord Stream 1 and Yamal-Europe. The realization of such a goal requires the construction of a new gas pipeline through the Black Sea and additional capacities for the storage and processing of Russian gas in Turkey. Currently, Russian gas supplied through Blue Stream and Turkish Stream is consumed in Turkey, which has 7 other gas pipelines running through its territory. In addition, Turkey possesses two LNG terminals, two floating regasification facilities, and 2 gas storage facilities (with storage capacities below 10 billion m3). Turning Turkey into a gas hub would serve Russia's strategic interest to reduce Ukraine's importance for the EU gas market.
Rethinking critical infrastructure: the case of the EU
Russia’s manipulation of gas flows, which has resulted in record prices of almost €4,000 per 1,000 m3 in the spring and summer of 2022, is the main driver for the EU to diversify its gas import infrastructure.
The EU’s priority is to increase gas import capacities outside of Russia. The same objective is pursued by Italy, which in 2022 replaced approximately 50% of the 23 billion m3 that it previously imported from Russia with gas received from other suppliers. Italy plans to completely abandon Russian gas by 2025 and buy gas from Africa (Algeria, Congo, Angola, Egypt, and Mozambique), the South Caucasus (Azerbaijan via the Southern Gas Corridor), the US, and the Middle East. Germany, France, and other EU states have similar strategies, with a few exceptions (Hungary). For reasons of geographic proximity, France, along with Italy, is turning to Algeria, which has signed $4 billion worth of deals with them and the US to increase oil and natural gas production. These initiatives also imply the construction of new energy infrastructure and North-South transport capacity.
The growing strategic role of the South in supplying energy resources to the EU does not reduce the role of Norway, which in the context of the 2022 energy crisis has increased significantly and will remain at high levels. The new gas pipeline that supplies gas from Norway through Denmark to Poland (the Baltic Pipeline) - inaugurated in September - will also contribute here. The interconnection with Lithuania (GIPL) - operational since May 2022 - will bring about 2 billion m3 to Poland annually and will strengthen the Trans-European Energy Networks (TEN-E). Another interconnector launched in 2022 links Greece and Bulgaria (IGB), which will generate a delivery capacity of some 3 billion m3 per year in a South-North direction, transporting gas through the Southern Corridor - from Azerbaijan to the Western Balkans, Ukraine, and Moldova (through reverse flow).
The explosion of the Nord Stream 1 and 2 gas pipelines prompted not only the completion of the construction of the Baltic Pipeline before 2023 but also massive investments from Germany in the development of the infrastructure necessary for LNG imports. For now, Germany has only one floating LNG station (storage and regasification). In total, there are plans to install at least five floating terminals, each with a capacity of 5 billion m3, which will be owned by the state (Guardian, November 2022). Together with LNG capacities in the private sector, Germany wants to secure around 1/3 of its gas needs based on its 2021 consumption (25 billion m3). A debate on the nationalization and reuse of the land segment of the Nord Stream 2 gas pipeline to deliver the gas obtained from the LNG terminals under construction in the Baltic Sea was also opened. This would allow Germany to supply gas to the south (Bavaria) and east of the country without the need to build new infrastructure. A final decision could be made in 2023, although it will face resistance from Russia.
In addition to increasing the import of non-Russian gas, the EU and its member states have been forced to invest in the production and supply of new energy sources. Thus, the construction of the pipeline for the shipment of hydrogen from Spain (and Portugal) to France via Barcelona is planned. This pipeline is scheduled to be completed in 2030 and will require €2.5 billion, of which 50% will be covered by European funds (Euronews, December 2022). Another large-scale project that will ensure the supply of electricity from the South Caucasus is a submarine cable (1,195 km) that will connect the renewable production capacities of Azerbaijan and Georgia with the transmission networks of Romania and the rest of the EU (through Hungary), including the Western Balkans. Serbia is already discussing the possibility of importing electricity from Azerbaijan through this cable.
In addition to developing critical infrastructure to eliminate its energy dependency on Russia, the EU aims to provide connecting routes to Central Asia as alternatives to Russian routes. In this sense, the EU is willing to use the "Global Gateway" initiative (about €300 billion in investments), which aims to build out critical transportation and energy infrastructure. Therefore, the EBRD will provide Kazakhstan with $105 million to modernize and integrate the Kazakh railway into the Trans-Caspian railway route. These investments will reduce the EU’s dependency on the "Northern Corridor," which provides around 95% of rail transport between the EU and China via Russia. Therefore, Kazakhstan could become the centerpiece of the "Middle Corridor" through which the flow of goods from China can reach the EU via Azerbaijan, Georgia, and Turkey, bypassing Russia.
In lieu of conclusions …
The new geopolitical conditions triggered by Russia’s war against Ukraine have initiated a comprehensive process of reshaping critical regional infrastructure. The disruption of the traditional channels through which the flow of goods and investment have moved makes the replacement of infrastructure inevitable.
Given the mutual decoupling taking place between Russia and the EU, connection points between the West and the East are in the process of breaking down. Consequently, both Russia and the EU aim to strengthen or build out new critical infrastructure, creating both new opportunities and new dependencies of the North on the South.
Dionis Cenușa is a political scientist, researcher at the Institute of Political Sciences at Liebig-Justus University in Giessen, Germany, MA degree in Interdisciplinary European Studies from the College of Europe in Warsaw. Areas of research: European Neighborhood Policy, EU-Moldova relationship, EU's foreign policy and Russia, migration and energy security.