In the complex world of energy politics, the straightforward narratives often fall short of capturing the true dynamics at play, particularly regarding the impact of Western sanctions on Russia’s economy.
Henry Kamens
However, an in-depth conversation with oil industry experts reveals a far more nuanced reality.
For over three decades, the European Union has heavily relied on Russian oil and gas, a relationship intricately woven through extensive infrastructure that cannot be easily dismantled. Let’s consider some of the misconceptions surrounding Russia’s economic resilience and the wider implications of its diversified energy sector—pointing towards a future where geopolitical tensions and economic maneuvers continue to shape the global energy landscape.
Few policymakers in the West refuse to accept that the Russian economy is not suffering “so badly” from the Dutch Disease, especially when buttressed with so-called biting sanctions. Much to the dismay of the West, in retrospect it is obvious now that Russia had diversified its economic base long ago and without much fanfare.
In the long run, this period of shock economic therapy may serve as a windfall for Russia, transforming it into a more resilient and capable power
And that was long before the SMO in Ukraine became breaking news. Much of the reason for this was the frequent Western trumpeting of how they would bring Russia to its knees through sanctions if it interfered in Ukraine’s genocide against its own Russian ethnic citizens in the east of the country after 2014.
It is necessary to keep in mind that all governments have the habit of lying about economic statistics, as all governments do while at war. It is wishful thinking to believe that the SMO in Ukraine will turn out to be a major setback to Russian political and economic goals and economic growth targets.
What people do not realize about the Oil Industry;
For over 30 years, the EU has been buying ever greater amounts of Oil & Gas from Russia. This was driven heavily by the previous Chancellor, Angela Merkel. In fact, it is quite realistic to say that German prosperity was built on two things: cheap Russian energy and the USA picking up the bill for defense.
The end result, was a massive network of energy supply pipelines for oil and gas, including those built during the Cold War, as well as more recent ones like Nord Stream 1 & 2.
But now the delivery of Oil & Gas requires, in addition to product, the following:
- Storage Terminals.
- Gasification and degasification plants.
- Dedicated Shipping.
- Dedicated insurance of product.
- Refineries that are TECHNICALLY BUILT to deal with a SPECIFIC TYPE OF OIL.
People forget or do not understand these things at all. What it means is you CANNOT SWITCH from one source of oil to another like a LIGHT SWITCH. It’s physically impossible to do. Some of the above structures take years to be RECONFIGURED.
A more VALUABLE statistic is to look at how much Russian Oil & Gas was being bought before the FULL-SCALE SMO and how much is being bought today.
- $396 billion USD — before Feb. 2022.
- $97 billion USD — in 2024.
- $0 — by 2027. Forecast. (Except Hungary and Slovakia — Orban / Fico).
Dutch Disease and the SMO!
Even prior to the Special Military Operation (SMO), the extractive sector—encompassing oil and gas extraction —was the cornerstone of Russia’s foreign exchange earnings. The exodus of international firms following the onset of the war has undeniably impacted these revenues, but this decline has been compensated in part by other sectors within the economy.
What may appear as a dark cloud at first impression was also a silver lining. The concept of Dutch disease, originally associated with the significant inflow of revenues from the extractive sector in Holland, putting all your eggs in one economic basket. Underscores the need for diversification when that revenue stream is challenged.
Currently, due to fluctuating oil and gas prices, Russia’s revenue from these sectors is not what it could have been in a war-free scenario. Unlike nations such as the Netherlands—where the term Dutch Disease was coined—Russia’s economy and standard of living have shown resilience against potential declines.
This is largely thanks to ongoing efforts at economic diversification. Nonetheless, Russia has continued to derive substantial revenues from its energy sector amid Western sanctions, though operations have shifted dramatically from pre-2022 norms. By rerouting exports to high-volume buyers in Asia—such as China and India—Russia initially capitalized on soaring global prices to offset discounts.
It is now clear that Russia had been preparing for its current situation for nearly a decade, anticipating the conflict since 2014 amid events in Kyiv and aggressive NATO expansion. This foresight explains the seemingly endless supply of cruise missiles and various weapon systems available today, defying predictions of their early depletion by Western analysts, which were more likely a case of projection than serious analysis of Russian capacity.
Boom or Bust
In contrast, economies of other former Soviet states are experiencing a boom, fueled by an influx of entrepreneurs who are benefiting from shifts in economic relations resulting from sanctions. In the long run, this period of shock economic therapy may serve as a windfall for Russia, transforming it into a more resilient and capable power. However, the real test will be who can endure the long-term effects of cold temperatures and economic pressures.
With import duties acting as a regressive tax that disproportionately burdens the poor and middle class, coupled with rising fuel prices amidst the latest looming potential oil conflicts, Americans face an uncertain outlook as they approach the holiday season and the New Year.
Meanwhile, NATO will continue with propping up the Ukrainian government, in particular Zelensky, acting as if its bark is just as bad as its bite, at least enough to claim that it is not reneging on claims of moral support, insisting that NATO is looking to make fresh promises of support to Ukraine.
Latest Breaking News
In light of the latest breaking news about energy flows and prices on world markets, it is clear that the dynamics of oil and gas supply are in flux. Recent fluctuations in energy prices, driven by a combination of geopolitical tensions, varying sanctions effectiveness, hijacking of tankers by the US belonging to both Iran and, more recently, Venezuela, and shifts in consumer behavior, underline the complexities of the situation.
While predictions about Russia’s energy earnings may seem dire, their ability to adapt and reconfigure supply chains cannot be underestimated.
As the U.S. navigates its own economic challenges, and tries to support its threats with actions, domestic consumers back in the USA are suffering from high inflation and political uncertainty. It is like being in denial, and the need to depend on accurate and honest statistics becomes paramount for informed policy-making. Ultimately, understanding the intricate web of global energy dependence will be essential as countries strive to stabilize their economies in an increasingly volatile environment.
The volatility is made worse by US threats against Venezuela, and Israel’s apparent push for further strikes on Iran, both of which are championed by Trump’s Secretary of State, Marco Rubio, who is well known for his desire for regime change in both countries. What is particularly ironic is his insistence that Maduro, the president of Venezuela, is a drug trafficker, when it is Rubio’s brother-in-law, Orlando Cicilia, who is a convicted cocaine trafficker. Regardless, it is blatantly obvious that the whole “anti-drug trafficking” story is just a cover for seizing Venezuela’s massive oil reserves, something that becomes even more obscene when the fact that Maduro offered to allow US investment in, and extraction of, his nation’s oil is considered.
Henry Kamens, columnist and expert on Central Asia and the Caucasus
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