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For months, European Union member states have been busy trying to diversify their energy supplies amid dwindling Russian gas flows and the very real danger of a complete cutoff by Moscow as long as the war in Ukraine continues. But with winter approaching fast, energy prices soaring, and the EU struggling to come up with a coordinated strategy, the scramble for gas may end up leaving a significant mark on the balance of power within the bloc. 

Over at least the past 15 years—as the EU dealt with the 2007 to 2009 financial crisis, multiple government debt crises, and the COVID-19 pandemic—Germany and other self-proclaimed “frugal” EU members negotiated from a position of strength with the more financially fragile Mediterranean countries. But Russia’s gas squeeze is now leaving Germany and other countries in the northern part of Europe particularly exposed, whereas Italy and Spain find themselves, for once, in the role of sensible partners called to the rescue. Italy has lessened its reliance on Russian gas and ramped up imports from North Africa; Spain was always more dependent on African gas and imports, a liability that could now turn into leverage.

“Usually, it’s the south [of Europe] that asks for the north’s solidarity, but this time around, it’s the opposite situation, and this certainly has political implications,” said Simone Tagliapietra, a senior fellow at the Bruegel think tank in Brussels.

For months, European Union member states have been busy trying to diversify their energy supplies amid dwindling Russian gas flows and the very real danger of a complete cutoff by Moscow as long as the war in Ukraine continues. But with winter approaching fast, energy prices soaring, and the EU struggling to come up with a coordinated strategy, the scramble for gas may end up leaving a significant mark on the balance of power within the bloc. 

Over at least the past 15 years—as the EU dealt with the 2007 to 2009 financial crisis, multiple government debt crises, and the COVID-19 pandemic—Germany and other self-proclaimed “frugal” EU members negotiated from a position of strength with the more financially fragile Mediterranean countries. But Russia’s gas squeeze is now leaving Germany and other countries in the northern part of Europe particularly exposed, whereas Italy and Spain find themselves, for once, in the role of sensible partners called to the rescue. Italy has lessened its reliance on Russian gas and ramped up imports from North Africa; Spain was always more dependent on African gas and imports, a liability that could now turn into leverage.

“Usually, it’s the south [of Europe] that asks for the north’s solidarity, but this time around, it’s the opposite situation, and this certainly has political implications,” said Simone Tagliapietra, a senior fellow at the Bruegel think tank in Brussels.

That the classic EU playbook has been upended was made clear last month by Spanish Ecological Transition Minister Teresa Ribera Rodríguez: “Unlike other countries, we Spaniards have not lived beyond our means from an energy point of view,” she said in a not-so-veiled jibe at Berlin. (Spanish gas and electricity prices, while spiking, are still well below the record-setting levels seen in Germany and other northern markets.)

Germany has historically been Europe’s top importer of Russian gas, which used to make up well over half of its total intake. Now, German gas imports are tanking , and households are facing energy surcharges of hundreds of euros per year. Many German factories are already slowing down production, but if Russia was to completely stop its gas supplies, Germany would have to reduce its national gas consumption by an eye-watering 29 percent, according to a study by Bruegel. On Friday, Russian energy giant Gazprom announced that gas deliveries through the original Nord Stream pipeline would be completely halted for a few days beginning Aug. 31 for “maintenance,” which sent European gas prices through the roof. 

Top officials in Berlin have openly admitted that overreliance on Moscow for energy was a mistake, and they are seeking to wean the country off Russian gas—and fast. Germany has fired up mothballed coal power stations and is building its first infrastructure to process liquefied natural gas (LNG) imported by sea. But Germany also needs to diversify its commercial partners, and Southern Europe is high on its list.

With six working LNG terminals in Spain and one in Portugal, accounting for about one-third of Europe’s processing capacity, the Iberian Peninsula has historically been little dependent on Moscow—just over 10 percent of Spain’s total gas imports came from Russia in 2020, according to Eurostat . When Russian gas provided a cheap and abundant alternative to LNG, that was a problem. Now, as Spanish officials note, it’s a plus.

Berlin is now calling for a new pipeline to beef up the weak links between the Iberian Peninsula and the rest of Europe, reviving a project shelved in 2019 amid environmental concerns, funding issues, and lack of support from France; the plan has long been backed by Spain and Portugal. But in a sign that solidarity will come at a price, Madrid is asking for the EU to foot the bill, arguing that the new infrastructure would improve “the security supply in the rest of Europe.” 

German officials have also recently hinted that they are hoping for a stronger energy partnership with Italy, which, despite being historically Europe’s second-largest importer of Russian gas, has moved swiftly to diversify its supplies since the beginning of the Ukraine war. In recent months, as its Russian gas intake dropped by around 50 percent, Italy has increased its LNG imports from various Northern African countries and the United States, expanding an already strong ability to regasify liquefied gas. It has also moved to boost pipeline imports from Azerbaijan and Algeria, which the latter by now has overtaken Russia as Italy’s top gas provider. 

“Italy was starting from a favorable position because it already had the infrastructure in place: regasification plants, smaller regasification ships, and the pipelines connecting it to Algeria, Libya, and Azerbaijan,” Tagliapietra said. Italian energy company Eni’s strong ties with North Africa also helped, he said.

Europe’s South has already profited handsomely from the good hand it put together. In the first six months of the year, Spanish exports of natural gas via existing links with France topped those of 2020 and 2021 combined while Italy’s gas exports ballooned between January and May by a whopping 578 percent compared to the same period last year. 

The big question is to what extent this relative advantage in the energy game will translate into leverage on the many issues that keep dividing the bloc, from fiscal flexibility to immigration. 

“Southern countries have an extra element to play also on other negotiating tables; in the European grand bargain, this is something that matters,” Tagliapietra said. 

This may be particularly tempting for Italy, where a coalition of largely Eurosceptic, hard-right parties is expected to win big in a general election slated for late September. The alliance has vowed to obtain looser public spending rules from Brussels and renegotiate parts of Italy’s EU-funded COVID-19 recovery plan. 

When it comes to immigration, the tough stance adopted by parties like Giorgia Meloni’s Brothers of Italy and Matteo Salvini’s League is also likely to put them on a collision course with EU leaders. Salvini frequently clashed with Paris and Berlin during his stint as interior minister in 2018 and 2019, when he pressed for more burden-sharing—a demand also regularly voiced by Madrid—and refused to let migrant ships dock at Italian ports.

To Claus Vistesen, an economist at Pantheon Macroeconomics, Spain and Italy are more likely to use their newfound clout to push for more EU cooperation on migrants than to seek an increased fiscal flexibility, an issue which they hardly need any significant changes to the status quo on.

“ Budget rules were suspended during COVID, and they are not coming back any time soon,” Vistesen said. On this matter, “if politicians in Italy or Spain use [energy] as a way to claw back power within the EU, I think they will overplay their cards because they are already getting a very, very good deal.”

But with the energy crunch risking a new recession and the cost of public debt rising after the European Central Bank decided to hike interest rates to tackle runaway inflation, tough debates over fiscal consolidation and the appropriate scope of EU bond-buying programs may well make a comeback. And in Europe’s south, there are worries that the so-called frugals in Northern Europe will again give in to their pro-austerity instincts, as the German government teeters between hawkish and more nuanced stances on EU fiscal reform.

Germany might not be as imperiled as it seems, and Southern Europe might not be quite so golden. German industry does not rely heavily on natural gas, and it uses it more efficiently than other large EU economies, said Daniel Gros, a distinguished fellow at the Centre for European Policy Studies, a think tank. The reduction in households’ consumption due to the rise in prices paired with new LNG infrastructure currently being built in the country could allow Germany to weather the crisis, Gros added.

If Russian gas exports continue to dwindle and global competition grows fiercer, Spain and Italy may also struggle to get their hands on enough fuel for their own consumption—let alone to resell it in significant quantities to other EU members. Italy saw its overall gas imports decrease in June for the first time, with suppliers like Azerbaijan, Algeria, and Libya struggling to plug the gap left by Russia.

Southern EU countries’ ability to receive and resell gas will also depend on how quickly the existing infrastructure can be expanded. The new Pyrenees pipeline would take at least eight or nine months to build, according to the Spanish government—and that’s if all political and financial hurdles are cleared. A project currently under evaluation to double the capacity of the pipeline that transports Azerbaijan’s gas to Italy would likely require at least four years to be completed. 

But despite it all, a deep transformation of energy markets triggered by the Russian invasion of Ukraine is underway—and may well be irreversible. “We are really looking at the redrawing of Europe’s energy map, with the center of gravity moving from east to south,” Tagliapietra said. “And this is going to be structural.”

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