The Morning Dispatch: ‘Russia is Using Energy as a Weapon’

Happy Tuesday! Four distinctly American institutions are celebrating birthdays today: The U.S. postal system is turning 247, the FBI is turning 114, the Americans with Disabilities Act is turning 32, and former Bachelor host Chris Harrison is turning 50. 

Quick Hits: Today’s Top Stories

• Russian state-owned energy company Gazprom announced Monday it is shutting down another gas turbine engine in its Nord Stream pipeline, reducing daily natural gas flows to Europe from 40 percent of the pipeline’s capacity to 20 percent. European countries accused Russia of weaponizing gas deliveries in retaliation for Ukraine-related sanctions, while Gazprom officials maintain the sanctions have prevented them from repairing necessary equipment.

• Pope Francis traveled to Alberta on Monday to formally apologize on behalf of the Catholic Church for its involvement and participation in Canada’s residential school system, which separated thousands of indigenous children from their families between 1863 and 1996 and forced them to assimilate to Christian, Canadian culture. “I am deeply sorry … for the ways in which, regrettably, many Christians supported the colonizing mentality of the powers that oppressed the indigenous peoples,” he said, acknowledging how the schools suppressed native languages and cultures and inflicted physical, verbal, and psychological abuse on the students.

• Burmese state media reported Monday the country’s ruling military junta has executed four people—including a prominent pro-democracy activist and pro-democracy former lawmaker—on charges of treason and terrorism, marking the southeast Asian nation’s first formal executions since 1988. The United Nations Office of the High Commissioner for Human Rights estimates, however, that Burma’s military regime has committed 2,000 extrajudicial killings since taking power in February 2021. “The regime’s sham trials and these executions are blatant attempts to extinguish democracy,” Secretary of State Antony Blinken said yesterday.

• President Joe Biden’s COVID-19 symptoms have “almost completely resolved,” according to his physician, Dr. Kevin O’Connor, with nasal congestion and hoarseness the last remaining signs of an infection. Biden is continuing to take Paxlovid as a therapeutic, and participated in two virtual meetings on Monday.

• The Department of Health and Human Services announced a proposed rule on Monday that would amend the definition of “sex discrimination” in Section 1557 of the Affordable Care Act to include discrimination on the basis of sexual orientation and gender identity, as well as “pregnancy termination.” The rule—which reverses Trump administration policy and is expected to face legal challenges—would apply to all hospitals and health care providers receiving federal funding, and extend anti-discrimination protections to patients with Medicare Part B for the first time.

• Two major poultry companies—Cargill Inc. and the newly merged Wayne-Sanderson farms, which together account for about 90 percent of U.S. chicken processing jobs—have agreed to pay $84.8 million in restitution to plant workers and change pay practices to settle a Justice Department lawsuit alleging they violated antitrust laws by conspiring to suppress wages for at least two decades.

• Bahamian Prime Minister Philip Davis announced yesterday that at least 17 Haitian migrants are dead after a boat—believed to be headed to Miami as part of human-smuggling operation—capsized off the coast of the Bahamas over the weekend. About 25 people were rescued—three of whom were hospitalized—and several more remain missing.

• Danish cyclist Jonas Vingegaard—a 25-year-old former fish factory worker—won his first Tour de France title over the weekend, defeating defending champion Tadej Pogacar after finishing in second place last year. 

Europe Moves to Ease the Energy Squeeze

When the Nord Stream pipeline began pumping fuel again last week after 10 days of scheduled maintenance, European countries breathed a sigh of relief: They wouldn’t be plunged into a full-on energy crisis quite yet.

But the other shoe dropped swiftly: Gazprom—the Russian state-owned energy company—had already reduced the Nord Stream flow to about 40 percent capacity in June, blaming a missing turbine sent to Canada for repair. And on Monday, it said that number will drop to about 20 percent. Gazprom once again blamed sanctions-related repair complications for the move, prompting Germany’s economic ministry to react with the governmental equivalent of “Sure, Jan.” 

“According to our information,” the ministry said in a statement, “there is no technical reason for a reduction in deliveries.” European gas futures jumped as much as 10 percent on the news.

European Union officials have been pretty clear about what they think Russia is up to as it throttles energy sales after the bloc implemented strict sanctions over Vladimir Putin’s invasion of Ukraine. “Russia is blackmailing us,” European Commission President Ursula von der Leyen said at a news conference last week. “Russia is using energy as a weapon. And therefore in any event, whether a partial major cutoff of Russian gas or a total cutoff of Russian gas, Europe needs to be ready.”

Russia has potent blackmail material—it supplied about 40 percent of the EU’s gas in 2021. That’s fallen in recent months amid sanctions and cutoffs, but according to the International Energy Agency, skyrocketing energy prices have resulted in Russian oil and gas exports to Europe generating $95 billion in revenue for Moscow since February—twice as much as the country brings in in an average year. Kremlin spokesman Dmitry Peskov claimed Monday the missing turbine will be reinstalled “after all the technological formalities have been completed,” but did not specify when that would be.

“Russia is playing a strategic game here,” Simone Tagliapietra—a senior fellow at Brussels-based economic think tank Bruegel—told the Wall Street Journal yesterday. “Fluctuating already low flows is better than a full cutoff as it manipulates the market and optimizes geopolitical impact.”

Further cuts from Russia would mean more economic pain for the EU—already struggling with high inflation—with buyers forced to compete for alternative sources and import fuel from new locations that would stretch infrastructure unprepared for heavier flow. If Russia cut off fuel sales to Europe entirely, the International Monetary Fund estimates Hungary’s economic output could drop as much as 6.5 percent year-over-year, Italy’s by 6 percent, and Austria and Germany’s by 3 percent. Germany is already feeling the squeeze, announcing last week a $15 billion bailout for Uniper, its biggest company importing Russian gas. 

Russia has yet to exercise its nuclear option—cutting off gas flows entirely—but it could do so at any moment. “For now, Russia has stopped short of a complete shutdown of Nord Stream, since doing so would deprive Russia of export revenues, remove its strategic threat, and give EU policymakers several more months to adjust,” Ben Cahill and Isabelle Huber, energy security fellows at the Center for Strategic and International Studies, wrote this week. “But it is hard to imagine that Russia will enable an easier glide path for Europe ahead of this winter.”

Initially caught flat-footed by their reliance on Russian energy, European countries are now assuming the worst—and planning ahead to soften the blow, starting with storing enough gas to last the winter even if Russia cuts off supply. To reach that goal, the bloc has tasked its members to fill their underground gas storage facilities to at least 80 percent of capacity by November 1. Germany wants to hit 95 percent, and said it was on track before Gazprom announced the latest cut. The EU as a whole has currently filled its collective storage facilities only to 66 percent capacity, according to Gas Infrastructure Europe. And if Nord Stream flow drops to zero by August, Wood Mackenzie energy consultancy predicted Monday, the EU will only manage to refill its storage to 70-75 percent by winter.

European countries have raced to secure alternative energy sources, pushing projects that will expand alternative liquid natural gas sources. Those will take years to fully come online, so they’ve also struck import deals in recent days with Algeria, Azerbaijan, and the United Arab Emirates. Still, “it is categorically not enough to just rely on gas from non-Russian sources,” International Energy Agency executive director Fatih Birol wrote last week. “These supplies are simply not available in the volumes required to substitute for missing deliveries from Russia.” The IEA and the European Commission have urged countries to quickly expand renewable energy sources and, where necessary, increase the use of nuclear energy and coal. Belgium’s government, for example, has agreed to extend the life of two nuclear power plants by a decade.

In the meantime, the bloc is looking to cut consumption. Germany announced new energy saving measures last week, including banning the heating of home swimming pools in the winter, encouraging working from home, and pausing minimum temperature requirements for apartments. Local officials have dimmed street lights and shut off public fountains.

And the European Commission released a framework last week that, if agreed to by member states, would ask them to voluntarily cut gas consumption 15 percent by the end of next March—a cut that would become mandatory if the Commission declared a supply emergency.

Several countries have balked at EU-wide restrictions that don’t differentiate between various levels of dependency on Russian fuel. “Unlike other countries, we Spaniards have not lived beyond our means from an energy point of view,” Spanish Deputy Prime Minister Teresa Ribera said. Others are concerned about the provision giving the European Commission power to unilaterally declare an emergency and make the cuts mandatory. Officials from Portugal, Poland, France, Italy, Denmark, and the Netherlands have all expressed reservations.

Regardless, countries are already considering changes that the EU plan suggests, including incentivizing businesses to cut consumption and lowering heating levels in public buildings. The proposal emphasizes that critical infrastructure like hospitals should remain untouched, and many European countries have chosen to limit how much wholesale energy prices are passed on to households, according to the IMF. “A better alternative would be to allow greater passthrough to incentivize conservation while offering targeted compensation to households that can’t afford higher prices,” IMF analysts suggested last week. For now, the EU has urged countries to run informational campaigns urging households to voluntarily cut consumption.

EU energy ministers will consider the 15 percent demand reduction at a meeting today. Whatever the bloc decides, leaders and analysts agree the EU must brace for a potentially cold winter and more capricious cutoffs from Russia. “European leaders need to be preparing for this possibility now to avoid the potential damage that would result from a disjointed and destabilizing response,” Birol wrote. “This winter could become a historic test of European solidarity—one it cannot afford to fail.”

Worth Your Time

• This has not been a good year for Donald Trump’s 2024 prospects, Ross Douthat argues in his latest column—primarily because the former president overplayed his “Stop the Steal” hand. “While Ron DeSantis, his strongest potential rival, has been throwing himself in front of almost every issue that Republican primary voters care about, Trump has marinated in grievance, narrowed his inner circle, and continued to badger Republican officials about undoing the last election,” Douthat writes. “While DeSantis has been selling himself as the scourge of liberalism, the former president has been selling himself mostly as the scourge of Brian Kemp, Liz Cheney and Mike Pence. … If his case for 2024 is only that he was robbed in 2020, it won’t be enough to achieve a restoration. This is not because the majority of Republicans have had their minds changed by the Jan. 6 committee, or suddenly decided that actually Joe Biden won fair and square. But the committee has probably played some role in bleeding Trump’s strength, by keeping him pinned to the 2020 election and its aftermath, giving him an extra reason to obsess about enemies and traitors and giving his more lukewarm Republican supporters a constant reminder of where the Trump experience ended up.”

• The pandemic fundamentally altered many Americans’ relationships with their jobs, leading more people to work from home than ever before. How has that affected productivity? To find out, Stanford University researchers Nicholas Bloom and Ruobing Han evaluated a randomized control trial of 1,600 employees at a large technology firm. About half were allowed to work from home (WFH) two days a week, and half were in the office full time. “WFH reduced attrition rates by 35% and improved self-reported work satisfaction scores, highlighting how employees place a considerable value on this amenity,” they found, in a study published by the National Bureau of Economic Research. “WFH reduced hours worked on home days but increased it on other work days and the weekend, highlighting how home-working alters the structure of the working week. Third, WFH employees increased individual messaging and group video call communication, even when in the office, reflecting the impact of remote work on working patterns. Finally, while there was no significant impact of WFH on performance ratings or promotions, lines of code written increased by 8%, and employees’ self-assessed productivity was up 1.8%, suggesting a small positive impact.”

Something Mischievous

Presented Without Comment 

Toeing the Company Line

• On today’s episode of Advisory Opinions, David and Sarah are joined by former federal appeals court judge J. Michael Luttig to discuss all things January 6. What does he see as the biggest problems with the Electoral Count Act of 1887? Why does he believe conservatives can be sure the 2020 election wasn’t rife with fraud? And how did one of his tweet threads end up on the front page of the New York Times? 

• On the site today, Andrew has a report from Missouri on the three GOP frontrunners vying to replace retiring Sen. Roy Blount, Harvest details the state of the pro-life movement—specifically crisis pregnancy centers—following the Dobbs Supreme Court decision, Ryan Streeter examines why progressives get out over their skis on culture-war issues, and Matthew Zweig explains what Congress should watch for as the Biden administrations continues nuclear talks with Iran. 

Let Us Know

Have you switched to remote work since the pandemic, either partially or entirely? Do you agree with Bloom and Han’s study finding hybrid work-from-home plans boost productivity and employee retention?