Russia’s energy clout is waning, weakening its global influence – The rebalancing is stoking Moscow’s fear of becoming a junior partner to Beijing

4 comments

  1. >1/2
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    >Russian President Vladimir Putin ‘s use of energy as a weapon of financial war is increasingly backfiring, threatening the core of Russia’s beleaguered economy and curtailing its geopolitical influence.
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    >Western sanctions, falling prices for Russian fossil fuels and strategic miscalculations are hurting the country’s oil-and-gas industry while the war in Ukraine is poised to stretch into a second year. Ultimately, the strain will erode Moscow’s status as an energy superpower, according to analysts and former energy officials and executives.
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    >Russia hoped cutting off natural gas would cause Europe to freeze and weaken its support for Kyiv, officials on the continent say. Warm weather and ample supplies from other producers have derailed that effort so far. European gas prices tumbled 15% Monday to levels last experienced in September 2021.
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    >The Russian oil industry, meanwhile, is having trouble adapting to a European Union embargo and a U.S.-led price cap on its crude. A Kremlin threat to cut supplies in response failed to boost prices and hasn’t materialized, showing Russia’s weakened hand.
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    >Russia has diverted much of the oil that went to Europe, but in doing so it has replaced an array of buyers with two big importers: China and India. Refiners there command low prices, in part because delivering farther afield raises shipping rates.
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    >With gas, Russia needs to build huge pipelines eastward to sell all the fuel that used to head to Europe. That would take years. And in the long run, lost access to technology and Western know-how will likely undermine production potential as Soviet-era oil-and-gas fields dwindle.
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    >All these issues will potentially be magnified when a fresh round of sanctions goes into effect next month.
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    >“Because of sanctions, the Russian economy becomes ever more dependent on energy exports,” said Thane Gustafson, professor at Georgetown University and a historian of energy in Russia. “And when those themselves decline, the Russian economy’s ability to invest those…and its ability to modernize its legacy infrastructure [go] down.”
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    >Russia’s earnings from fossil-fuel exports fell 17% in December to the lowest level since the start of the Ukraine invasion, according to the Finland-based research organization Centre for Research on Energy and Clean Air.
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    >Analysts and former Russian energy officials and executives say Russia will remain a major oil-and-gas producer with the ability to swing global prices. But they say Moscow will struggle to maintain output at prewar levels and sell it at international market prices, cutting into its biggest source of tax revenue and capacity to wield commodity exports as a tool of influence.
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    >The reshuffle is making Russia more reliant on China, threatening to realize longtime fears in Moscow that it would become a junior partner to Beijing. Lower output could also weaken Russia’s hand in its relationship with Saudi Arabia, the core of the Organization of the Petroleum Exporting Countries Plus oil cartel.
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    >“Russia is still an energy power but its role has dramatically changed,” said Vladimir Milov, former Russian deputy energy minister and now an opposition politician living abroad. “Russia will have a smaller market share in oil and gas, it will make less profit and it has lost some of its geopolitical leverage as well.”
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    >Evgeny Gribov, who quit as an executive at Lukoil PJSC, Russia’s second-biggest oil producer, shortly after the invasion, said the ban on exports to Europe and loss of Western technology are “going to have a hugely negative impact on the oil-and-gas industry, and then consequently to the Russian budget.”
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    >“Oil-industry taxes will go down substantially,” he said. “Oil companies will reduce investments, which has a huge negative multiplier to the Russian economy.”
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    >The immediate pain is concentrated in gas. State-owned Gazprom PJSC’s output fell to 413 billion cubic meters in 2022 from 515 billion in 2021 after the firm cut off most of its European customers, which used to subsidize barely profitable sales at home.
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    >Production of crude oil and a related hydrocarbon called condensate has held up at about 10.7 million barrels a day, said Livia Gallarati of Energy Aspects, down by 400,000 barrels a day since the eve of the war. Ms. Gallarati expects output to slip starting Feb. 5, when an EU ban on Russian refined fuels could force refiners to slow their own crude consumption.
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    >Analysts don’t expect Russia’s energy industry to buckle quickly as Venezuela’s once-mighty oil sector did under U.S. pressure. One reason: the Biden administration, eager to ward off high gasoline prices, designed the price cap in such a way that Russia has a financial incentive to keep producing.
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    >A steady deterioration of production and revenue is more likely, analysts say.
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    >According to all future scenarios developed by the International Energy Agency, Russian fossil-fuel exports will never return to 2021 levels, “leaving Russia with a much‐diminished position,” the IEA said last year.
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    >Europe’s energy links with Russia initially gave Moscow the upper hand in its economic war with the West. West Germany first traded steel pipes for gas with the Soviet Union in the 1960s, and those ties deepened down the decades. When they frayed last year, energy prices shot up, piling particular pressure on Europe while sending a gusher of revenue to Moscow.
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    >The money helped Russia fund the war in Ukraine and placate its population at home with handouts. Oil and gas are the backbone of the Russian economy and provided 45% of the federal budget in 2021.

  3. Russia has lost influence to China among all the former Soviet states. It talks about America and the EU and nazis in Ukraine because it knows it has already lost to Beijing in the east. Ukraine is an act of desperation. Putin has been leading a dying empire. Worse than becoming a junior partner to China, Russia is becoming a partner on par with all others in the region.

  4. >According to all future scenarios developed by the International Energy Agency, Russian fossil-fuel exports will never return to 2021 levels, “leaving Russia with a much‐diminished position,” the IEA said last year.

    Welp.

    Maybe it’ll encourage political reform inside Russia.

    https://en.wikipedia.org/wiki/Resource_curse

    >The *resource curse*, also known as the paradox of plenty or the poverty paradox, is the phenomenon of countries with an abundance of natural resources (such as fossil fuels and certain minerals) having less economic growth, less democracy, or worse development outcomes than countries with fewer natural resources.[1] There are many theories and much academic debate about the reasons for, and exceptions to, these adverse outcomes. Most experts believe the resource curse is not universal or inevitable, but affects certain types of countries or regions under certain conditions.[2][3]

    –

    >The idea that resources might be more of an economic curse than a blessing emerged in debates in the 1950s and 1960s about the economic problems of low and middle-income countries.

    https://en.wikipedia.org/wiki/Petrostate

    > A petrostate or oil state is a nation whose economy is heavily dependent on the extraction and export of oil or natural gas. The presence alone of large oil and gas industries does not define a petrostate; countries like Norway, Canada, and the United States are major oil producers but also have diversified economies.[1] Petrostates also have highly concentrated political and economic power, resting in the hands of an elite, as well as unaccountable political institutions which are susceptible to corruption.[2]

    –

    > * Algeria
    > * Bahrain
    > * Brunei[4]
    > * Cameroon
    > * Chad
    > * Republic of the Congo
    > * Ecuador
    > * Equatorial Guinea
    > * Indonesia
    > * Iran
    > * Kazakhstan
    > * Kuwait
    > * Libya
    > * Mexico
    > * Nigeria
    > * Oman
    > * Qatar
    > * Russia
    > * Saudi Arabia
    > * United Arab Emirates
    > * Venezuela

    –

    > Petrostates are often operated by autocratic governments. Petrostate citizens are discouraged from developing autonomy by their dependence on the oil revenue of the government. While a majority of wealthy countries (per capita income more than US $25,000) are democracies, some autocratic petrostates have reached the same level of income due to their massive oil revenues. Petrostates may discourage democratization because wealthy autocrats can buy off their citizens via cheap gas and jobs working in state industries. These oil-based states run by autocrats are sometimes called petro-dictatorships.[5]

    Like, basic idea is that if the major source of wealth in an economy is control over the revenue from exporting a natural resource, all you really need is control of that natural resource. Human capital isn’t as important. You don’t need to keep people from leaving or attract people beyond what you need to extract and export that resource.

    But if what matters is building human capital, then your constraints and incentives change.

    I mean, maybe that’s optimistic, but…

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