The Ukraine Crisis Is A Wake-Up Call For Energy Security

The world is watching anxiously as the conflict in Ukraine unfolds. While no one knows what the days ahead hold, there will no doubt be many lessons learned from this crisis. While some will take time to fully emerge, there is one that stands out already: Energy security, which has too often been overlooked as a priority for policymakers in Europe and the United States, requires new prioritization and a rethink. Europe’s excessive reliance on Russian natural gas and America’s excessive reliance on stable oil markets have both limited the West’s options in this crisis to the detriment of our collective security.

To address this challenge, the United States and Europe need to get serious about reducing demand for fossil fuels in the medium- and long-term while diversifying fossil fuel supply in the short term. Such an approach requires balancing climate change goals with issues of national and economic security, but over the long run, is the surest path to making progress on all of these issues.

This moment was predictable. European dependence on Russian natural gas supplies has been a recurring problem for decades. Russian-manufactured pricing disputes with Ukraine in 2006, 2008, and 2009 led to winter supply disruptions that left Europeans out in the cold. Still, today, continental Europe relies on Russia for more than 40 percent of its natural gas supply—up from 30 percent in 2005. If anything, until recently, key European nations have been taking steps to deepen this dependence.

Russia’s role in European gas markets pales in comparison to its role in global oil markets, a particular problem for the United States. The U.S. economy is less oil intense than it once was, but American motorists still depend on petroleum for 90 percent of their transportation needs. The shale oil boom, which propelled American oil production to record highs in recent years, means that high oil prices benefit U.S. industry and the overall economy through higher profits, but this is little comfort to drivers—households and businesses—who must weather the short-term pain at the pump. The result is that America’s newfound energy dominance has not ushered in an era of independence. Instead, our economy, recovering from a pandemic shock and already threatened by high fuel prices and rising inflation, can still be derailed by events around the world.

While it’s too late to change this dynamic in the current crisis, we can be better prepared for the next one. History has shown that the most consequential energy reforms of the past 50 years have been born out of conflict and high prices. In the United States, the 1973-1974 OPEC oil embargo triggered a spate of legislation that introduced the nation’s first-ever efficiency standards for cars and trucks, nearly eliminated oil as a fuel in the electric power sector, and led to the investment in research to find alternatives to oil and natural gas. European economies went even further, introducing high fuel taxes that fundamentally reshaped their economies to make them vastly less vulnerable to oil shocks.

The Ukraine crisis similarly presents a historic opportunity to address our current vulnerabilities to the benefit of our economic and national security. Importantly, these steps can and must be consistent with our climate goals. Indeed, the current crisis is a stark reminder that there are myriad reasons to aggressively decarbonize and that fossil fuels come freighted with many external costs.

The good news is that some core elements of a blueprint are well understood. In the United States, the climate provisions of the Build Back Better Act would provide substantial support for electric vehicle purchases, which analysts suggest could be key for accelerating mass adoption. Reformed to be available to all automakers, these incentives deserve broad support. Meanwhile, the Environmental Protection Agency is developing new efficiency regulations for passenger vehicles that are slated to come into effect in 2026. It is vital that these new rules are appropriately ambitious and include innovative mechanisms to cost-effectively slash oil use.

Finally, while our climate goals require a transition away from fossil fuels, policymakers must also balance economic and national security goals in the near term. For at least the next decade, Europe will need natural gas. The United States should ship all that we can.

In recent weeks, U.S. exports of liquefied natural gas have provided much needed flexibility to the European gas market. Now is the time to increase those exports—not limit them. As Europe embarks on a strategy to diversify its gas supplies and improve its security—as some countries, like Germany, have already talked about—it must do so knowing that it will have access to ample supplies of U.S. LNG for the foreseeable future. While U.S. production can and should continue to improve its environmental performance, threats to end hydraulic fracturing only create uncertainty for companies hoping to sign long-term contracts. Industry and investors need a clear signal that the United States is committed to allowing industry to operate.

The world has entered a new era. Geopolitical risk is high and oil and natural gas markets are increasingly tight. This dynamic will likely constrain U.S. and European security decision making for some time, and Russia and other undemocratic regimes with outsized roles in these markets are poised to take advantage. The tragic events unfolding in Ukraine offer a stark wakeup call. Now is the time to take concrete steps to ensure that energy security concerns do not constrain our options next time.