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Saturday, January 29, 2022

Putin’s control of Russia’s oil and gas may bring the West to its knees

By Philip Delves Broughton

 In a world concerned with terrorism, genocide and nuclear-powered despots, Vladimir Putin’s Russia is assembling an economic machine powerful enough to force Europe, the US and Asia to their knees.It does not involve uranium, explosives or suicide bombers, but the natural resources that power the global economy. Russia will soon exert such sway over the supply of oil and natural gas that the OPEC crisis of the mid-1970s could seem trivial. Its pipelines will flow east into Asia and west into Europe and tankers will sail from Siberia to California.Russia will soon have such control over energy supply and pricing that it will be able to do anything it wants politically.Imagine this scenario. Europe is importing around one-third of its natural gas from Russia. Putin, or his successor, has an argument with the EU over democratic reform in a former Soviet state. Meanwhile, China is hungry for more natural gas. Russia changes the flow of its pipelines, channeling more to China and less to Europe, without any drop in its own revenue. Europe’s industrial costs rocket, home heating becomes exorbitant and the EU economy collapses.It was scarcely noticed during the dog days of August, but Russia has now overtaken Saudi Arabia as the world’s largest producer of oil. It already dominates natural gas. Around £210m a day in oil and gas tax revenues now pour into the Russian treasury. Russia is now an oil and gas economy, with 52 per cent of all its state revenues and 35 per cent of its exports coming from the energy industry.Then there are the two state-controlled energy giants, Gazprom – which this year surpassed BP and Shell to become the second largest energy company in the world after Exxon Mobil – and Rosneft. Both are tightly controlled, though sloppily managed, from the Kremlin.Piecing together the various elements of Putin’s ‘resource nationalism’ strategy is the work of oil industry analysts, the modern day Kremlinologists. One of their party pieces is to chart Russia’s recent history in terms of oil prices. In 1979, with oil prices at historic highs, the Soviet Union swaggered into Afghanistan. In 1991, with oil prices at record lows, the Soviet empire disintegrated. With oil now in a sustained boom, Russia is once more showing its claws.The latest plot twists are occurring in the Sakhalin Island oil and natural gas fields. In the mid-1990s, as Russia emerged from the Soviet era and oil was down at $15 a barrel, the exploitation rights to this island off the east coast of Siberia were sold to foreign companies who have since discovered vast, untapped resources. As Asia’s economies have exploded, the potential of pipelines running from Siberia into China and beyond has become apparent.Gazprom, which is already the monopoly supplier of Russian natural gas to Europe, now wants a similar monopoly over exports to Asia. In recent days, Russia has held up fully-loaded Exxon tankers trying to leave Sakhalin Island. It is also attempting to wrest control of Shell’s £12bn operations on the island by citing obscure environmental regulations. It has threatened Siberian operations belonging to Total of France and is trying to buy out a large natural gas field jointly operated by BP.Earlier this year, Putin threatened to shift pipeline capacity from west to east if European companies continued their hostility to Gazprom.The frosty Putin and the effusive Hugo Chavez of Venezuela may look and sound different, but when it comes to using natural resources for political ends, they are singing variations on the same theme.While the rulers of the Middle East have required simply that the West turned a blind eye to their domestic habits in return for a steady energy supply, the Russians are likely to demand a far steeper price. The cost of not developing realistic alternatives to oil and gas within a few years will be taking orders from Moscow.Notethis article was first published on the First Post.

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