Thursday, July 12, 2007

 

Russian Roulette

The oil policy of Vladimir Vladimirovich Putin, President of the Russian Federation.
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"The world is leaving one epoch, the 'Cold War,' and entering a new one. We have buried the Cold War at the bottom of the Mediterranean Sea" [Mikhail Sergeyevich Gorbachev, Malta, December 1989].

Who stands to gain the most from the destabilization of oil prices?

Ten years ago Russia was in a state of disarray reminiscent of the Seventeenth Century. Putin's predecessor, Boris Yeltsin, had secured re-election in 1996 only by turning the privatization of the Russian energy sector into a sleazy scam, trading oil and gas fields for campaign contributions. Meanwhile, ordinary Russians had to endure rampant inflation and unemployment. As former Soviet republics and Warsaw Pact allies queued up to join NATO, the superpower seemed really to have become – as the Cold War joke had it – Upper Volta with missiles.

Then, at the end of 1999 Vladimir Putin took over, and since then he has ruthlessly reasserted the Kremlin's control over the energy sector – in fact over the entire country. When it comes to energy, Putin's Russia seems prone to loutish behaviour, despite constant claims that Russia is a reliable partner. Russian officials have made no secret of wanting to keep big oil projects in the family, and thus have pushed out of the country pretty much all major oil players, from Royal Dutch Shell to Mitsubishi. And the Kremlin has often intimidated neighbours with threats to cut off their oil or gas supplies. Last winter, for example, Russia appeared to blackmail the Ukraine's new pro-western government by cutting off the country's gas amid a dispute over prices. Early this year, when Lithuania had the temerity to sell an oil refinery to a Polish firm instead of a Russian one, the pipeline that supplies the refinery with Russian oil suddenly succumbed to a mysterious technical fault.

Through these bullying methods Russia's economy has bounced back, with growth averaging almost 7 percent and inflation coming down into single digits, and has enabled the country to once again re-establish its former political clout throughout the world. So much so, in fact, that at the recent international conference on Security Policy in Munich the Russian President declared that a "unipolar world", meaning a world dominated by the United States, would "plunge into an abyss of permanent conflicts".

Maybe so, but what would happen to a world dominated by Putin's Russian Federation?

His Russia is an energy empire, sitting on more than a quarter of the world's proven reserves of natural gas, 17 percent of its coal and 7 percent of its oil. America, for geographical and political reasons is not one of Russia's main customers, but three-fifths of Europe's natural-gas imports and one-fifth of its oil come from Russia. Energy is a weapon with which Vladimir Putin seems to be intent at restoring the lost greatness of the Soviet Empire. No longer needs Russia to go beg the West for money cap in hand, as it did in Boris Yeltsin's days. Now it can stand tall once more, not the least among the neighbouring former Soviet countries that many in Moscow have never reconciled themselves to losing.

Mr. Putin's use of energy as a weapon is only one instance of a newly-found Russian assertiveness that nowadays seems to border on gangsterism, as clearly pointed out by the assassination of former Russian Agent Alexander Litvinenko in London in December, 2006. Polonium has its merits.

Russia's geopolitical power has become a function of its energy exports. As history teaches us, the energy crisis of the 1970's helped the Soviet economy very much even has it hurt the West, by bathing the ailing Soviet system in petrodollars. But as oil prices slid below an average price of USD 20 per bbl. from 1986 through 1996, Russian power and prestige slid too. It is no coincidence that the price of oil touched USD 11 per bbl. in Yeltsin's miserable last year.

As the renaissance of Russia is now well under way, one can't avoid wondering the political implications of today's very expensive oil, for which we all pay out of our own pockets. Quite simply Russia is, after all, the only major power that has an interest in high oil prices, both economic and political. Which then conversely means that Russia is the only major power with no interest whatsoever in the stability of the Middle East. And it shows.

Russia poses America's biggest problem when it comes to stopping Iran from acquiring nuclear weapons capability. Russia is the one supplying Iran with more than 3000 centrifuges for the enrichment of uranium. Russia is fomenting anti-Americanism throughout the region as well as sowing the seeds of discord among Arabs. Russia's condemnation of President Ahmadinejad's repeated calls for Israel to be wiped off the map was lukewarm, at best. Russia is building the Iranian nuclear reactor at Busher, and the Russians have recently been awarded the contract to build an additional six such plants.

So, would this be the world with the Russian Federation at the helm? A world where destabilization of the Middle East would guarantee high energy prices on which Russian power has come to depend?

Some things never seem to change.

Luigi Frascati

luigi@dccnet.com

http://www.luigifrascati.com/


Real Estate Chronicle

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Comments:
Would high oil prices not help Canada as well? Alberta most of all.
 
Certainly, as a rule of free market - not as a rule of forced political destabilization. I do not know of any Canadian politician who is fomenting discord in the Middle East. Free market, as it is commonly understood, is based among other things on political freedom, not on forced machination at the expenses of some nations. Personally I would no longer feel as a proud Canadian if I knew that my country was transfering nuclear capability to some psychopatic president in the Middle East. Money is good, sure - but there is a limit to everything. I still hold my own self respect over and above money. Call me old-fashined conservative ....
 
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