Inflation isn’t just politically destabilising. It’s also the enemy of the energy transition, explains Joseph Webster at the Atlantic Council’s Global Energy Center. President Putin understands this, which is why he uses Russia’s oil and gas production to stoke global inflation. Hence, to thwart his aims, nations should increase short-term energy production from all sources, including hydrocarbons. Lower energy prices lower inflation and interest rates and improve the economics of capital-intensive clean energy projects. Specifically, Europe and others should accelerate short-term energy production via strategic investments into U.S. natural gas pipelines and other energy infrastructure, says Webster. The Permian oil and gas deposit located across west Texas and New Mexico has been critical in keeping a lid on energy prices and inflation exacerbated by Putin’s invasion of Ukraine. But its pipeline capacity is too low and needs to increase. And the short term goal can be pursued while maintaining the ultimate goal of moving off unabated hydrocarbons, argues Webster.
Natural gas pipeline “takeaway constraints” in Texas’ Permian basin pose a huge problem for Europe’s strategic, economic and climate interests. The Permian’s pipeline constraints directly produce elevated levels of flaring, driving emissions higher. But the indirect costs to climate of insufficient production may be more significant. Higher inflation is prolonging elevated interest rates, harming the economics of capital-intensive clean energy projects.
Vladimir Putin has an interest in weakening the energy transition and is seeking to drive energy prices and inflation higher ahead of elections in Europe and the United States. To counteract Putin’s efforts, Europe should consider undertaking strategic investments into U.S. natural gas pipelines and, wherever possible, accelerating short-term energy production. The alternative – watching fecklessly as Vladimir Putin continues to stimulate inflation – could lead to profound climate, economic, and political consequences.
Vladimir Putin’s opposition to the energy transition
While Vladimir Putin might not care about climate change, or perhaps any long-term problem, he does – correctly – regard the energy transition as a threat to his interests. Hydrocarbons account for between 30 to 50 percent of Russia’s total federal budget revenues, depending on energy prices, while its oil and gas sector comprises about 20 percent of GDP.
Russia’s carbon addiction is unlikely to cease any time soon. Due to sanctions, the wartime restructuring of the Russian economy, and emigration, the Russian economy is falling ever further behind its technological competitors. More fundamentally, Putin does not even necessarily welcome the rise of alternative sectors, as economic disruptions could unsettle elite Russian politics. Putin’s bet on oil and gas is demonstrated in his continued willingness to stake his legitimacy, in part, on the Power of Siberia-2 pipeline, a project with highly dubious economics.
Putin’s use of oil & gas as a weapon
Given these factors, Putin seeks to slow or derail the energy transition via electoral interference campaigns. While the Kremlin’s disinformation operations receive substantial attention, economic levers – especially energy prices – may be his more effective tool. Putin understands that many swing voters are motivated primarily by personal living standards – especially the cost of borrowing, which is tied to inflation.
Putin can use Russia’s energy power to influence elections and has done so frequently. In September 2005, for instance, Putin accelerated a gas pipeline signing ceremony to just 10 days ahead of the German elections, bolstering the candidacy of then-German Chancellor Gerard Schroder.
Similarly, Putin helped facilitate an oil production cut in 2016, raising gasoline prices just ahead of the US elections, potentially thwarting ambitions for the United States to become a “clean energy superpower.” Moscow also was at the vanguard of pushing global oil volumes higher in the fall of 2018, which lowered prices ahead of the U.S. midterms. In 2022, Putin helped lead an oil production cut a month before the U.S. midterm election.
Putin could lift energy prices – especially gasoline – this year via several mechanisms. The Kremlin has previously banned diesel and gasoline exports and recently issued a six-month ban on gasoline exports. Additionally, since 80 percent of Kazakhstani exports must transit Russia’s Novorossiysk terminal before reaching global markets, Putin seems set to disrupt Kazakhstan’s oil exports again. Finally, and most significantly, Putin will pressure OPEC to keep oil prices high by limiting or even cutting production.
Europe can respond
Europe can oppose Putin’s attempt to derail the energy transition in several ways. The first is to be prepared to issue strategic releases of crude oil and crude products in response to production cuts fostered by Putin. The more important step, however, is to bolster near-term energy production – including hydrocarbons – via investment as well as creative proposals.
Perhaps the best way to bolster near-term oil and gas output – which, again, is necessary to counter Putin’s attempts to slow the energy transition – is via the U.S.’ Permian basin. The oil and gas deposit located across west Texas and New Mexico has been critical to keeping a lid on energy prices and inflation exacerbated by Putin’s invasion of Ukraine. U.S. crude oil production rose by about 2 million barrels per day (MMBPD) from February 2022 to December 2023, with the Permian alone accounting for 57 percent of the increase.
![](https://energypost.eu/wp-content/plugins/lazy-load/images/1x1.trans.gif)
The West Texas Permian Basin / IMAGE: Emmanuel Roquette – Own work, CC BY-SA 4.0,
Gas pipeline capacity
But this critical U.S. oil and gas basin faces challenges – namely, natural gas pipeline constraints, according to analysis from the energy consultancy RBN Energy. A March assessment by Housley Carr of RBN notes that gas pipeline capacity is critical to handling natural gas volumes from gas processing plants. Without that natural gas pipeline capacity, “crude oil production growth in the basin will come to a screeching halt,” writes Carr.
That’s because, as Sheela Tobben of RBN writes, crude output requires not only oil pipelines, but also pipelines to handle “the massive volumes of associated gas that emerge with it.” Fortunately, the 2.5 Billion Cubic Feet per day (Bcf/d) – or 26 Billion Cubic Meter/Year (Bcm/yr) – Matterhorn Express natural gas pipeline is expected to come online sometime in the third quarter.
Accelerating short-term oil and gas production
More can be done to accelerate short-term oil and gas production. The injection of strategic capital into Permian oil and gas pipelines and other infrastructure would give producers assurances about medium-term takeaway capacity, incentivising short-term production investment and reducing the risks of an oil market intervention by Moscow later this year.
Still, even leaving aside geopolitics, it’s worth noting that these Permian infrastructure projects are almost certainly bankable on their own merits. Insufficient takeaway capacity is leading to negative prices for natural gas at the Permian’s Waha hub. Accordingly – and importantly – most investments in the U.S. oil and gas ecosystem would be commercially justifiable.
Increased flaring due to pipeline constraints
The construction of Permian natural gas pipelines could also bring short-term environmental benefits. Due to pipeline constraints, producers are undertaking widespread flaring across the Permian basin. Accelerating construction of pipelines could therefore reduce flaring, lowering methane intensity. Perhaps more importantly, lower energy prices would have a disinflationary impact, lowering inflation and interest rates and improving the economics of capital-intensive clean energy projects.
Multiple things can be true at the same time. It’s possible to believe both that climate change is a massive problem and that short-term energy production from all sources, including hydrocarbons, is deeply necessary to sustain the energy transition.
Curbing inflation aids the energy transition
The world should of course move off of unabated hydrocarbons as rapidly as possible. Yet the reality is that short-term hydrocarbon production is critical for curbing inflation, easing interest rates, and improving the economics of capital-intensive clean energy projects. Additionally, lower inflation sustains performance legitimacy for the energy transition – and constitutional democracy more broadly – in the face of aggressive campaigns by Vladimir Putin. To save the energy transition from Putin’s predations, Europe and other actors across the global West should accelerate short-term energy production via strategic investments into U.S. natural gas pipelines and other energy infrastructure.
***
Joseph Webster is a Senior Fellow at the Atlantic Council’s Global Energy Center and editor of the independent China-Russia Report. This article represents his own personal opinions