The Balance of Power in Energy or Energy and the Balance of Power

At the turn of the Millenium when Vladimir Putin displaced Boris Yeltsin as President, the world was a very different place economically. A new cycle in commodities had begun to revolve which, it appears, very few other than Putin and George Soros’ old partner, raw materials analyst Jim Rogers, fully anticipated.

Oil in 1998 cost next to nothing at $12 a barrel. A decade later, however, it peaked at $98. The ever expanding EU and its heartland, Germany, in particular, was heavily and increasingly dependent upon Russia’s state dominated gas company Gazprom. A dependancy much enhanced when Chancellor Merkel succumbed to pressure from the Greens to curtail Germany’s nuclear power industry.

Putin had privately outlined his view that, lacking the ability to counter-balance NATO militarily, Russia should use its massive raw material resources, notably in energy, as leverage to enhance its security and to push back steadily encroaching Western influence.

But that commodity cycle, largely driven by China’s insatiable needs, ended a while ago. And in the meantime the extravagant hopes built upon double digit economic growth and political leverage from hegemonic control of Europe’s energy supply have turned to dust. Moreover Russian military reforms have considerably further to go on less money before Moscow is anything like on a par with the United States. Added to this, the shortsighted  attack on Ukraine and the brazen seizure of the Crimea have disrupted the military-industrial sector (Antonov heavy airlift production, for instance) without bringing Kiev to heel.

What is worse for Moscow, Washington has now entered the international oil market with intensive exploitation of the Permian Basin (Texas). It is simultaneously becoming a major player in the other half of the international energy market with the exportation of liquified natural gas.

An article in the Russian press today focuses on the Kremlin’s dilemma at this growing displacement of Russian energy predominance. It argues that in imposing new sanctions on involvement in the Russian energy sector, the United States is curtailing once and for all EU dependence on gas from the East by driving up the price to a point where US exports of liquefied natural gas can corner the European market (E. Akhmadiev, “Sanktsii protiv Rossii, a stradaet Evropa. Novoe energeticheskoe oruzhie SShA”, Life.ru).

Although Russian commentary aims at driving a wedge between the EU and the United States – emphasising how much Europe will be harmed by sanctions – the implications of this sudden and dramatic shift in the balance of power in energy are obviously not lost on the Kremlin and they have much further to go.