What’s
Wrong Today:
Yes, Russia is guilty
of meddling in Ukraine, but so are the US and the European Union. The Cold War
may be over, but the rivalry rolls on. The rivalry between the West and
Russia is no longer over diverging political philosophies, but is mostly about
resources (and the financial gains) from exporting oil and gas, and controlling
the pipelines that transport them.
Yes, Russia needs
access to the Black Sea for its naval fleet and this is a major issue for
Moscow. But there is a story behind the story.
The other reason for
Putin’s intervention in Ukraine has to do with Russia’s need to control its very lucrative and strategically important “energy corridors.” These
corridors are in danger of being taken over by the West, and that is the likely
reason why Putin would risk going to war with the West over Ukraine. The pipelines
traverse the Caucasus and carry the oil and natural gas westwards to Europe.
Here is a graphic on
the corridors and the choke points they create from Charles
Hugh Smith:
From Oil
Price:
the geography of the region there are only so many lanes where the pipelines
can be laid; and most of them transit through Ukraine. Others travel across
Azerbaijan and Turkey. Most of Western Europe’s gas and much of Eastern Europe’s
gas travels through Ukraine
What is going on
today is a race for control of who will dominate the energy
markets over the next two or three decades. That will be determined by who
controls the energy corridors from Central Asia, the Caucuses and through
Russia and Ukraine. From a report by the Wilson
International Center for Scholars:
strategic location between the main energy producers (Russia and the Caspian
Sea area) and consumers in the Eurasian region, its large transit network, and
its available underground gas storage capacities make the country a potentially
crucial player in European energy transit – a position that will grow as
Western European demands for Russian and Caspian gas and oil continue to
increase
The
factors that are bringing the energy competition in Ukraine to a head are:
- The natural gas discoveries in eastern Poland and western Ukraine
- The Russian gas pipelines running through the Ukraine to Europe are
less important than they were in 2009. There are two new gas lines built since then,
the Nordstream and the South
Stream. Both are controlled by Russia. The
Nordstream is operating. It runs through the Baltic Sea to Germany. The South Stream is under construction, and first
gas supplies via the South Stream gas pipeline are scheduled for late 2015.
Here is a map of the South Stream:
Events
in Libya, Mali and Algeria are not isolated from this competition. They are
a part of simultaneous equations of energy supply that the leaders
in the West and Russia are trying to solve.
It
increasingly looks like a series of peripheral energy wars are being fought for
control of the energy supply to Europe.
This
highlights another problem for Russia and its state energy firm, Gazprom.
Its present natural gas advantage in Europe rests mainly on its current pipeline
infrastructure. This advantage could fade. There are current and proposed competitive
pipeline projects running through Turkey to Europe, new LPG terminal and
shipping support via the Bosporus, plus the five trans-Mediterranean pipelines
from Libya, Algeria and Morocco to southern Europe. Add to that, Chevron is
working on developing local shale gas in Ukraine.
Nearly 30% of Europe’s
gas comes from Russia. Moscow wants to keep that dependency for both geopolitical
influence and income, while Washington and Brussels want to alter it by
creating multiple channels for central Asian and Caspian oil to flow westwards.
Ukraine today finds itself in the center of this East-West dispute.
Finally, the Fiscal Times reported
that one of entities
included in Mr. Obama’s sanctions in response to Russia’s takeover of Ukraine’s
Crimean peninsula was Bank
Rossiya. This takes the energy war to a new level since: (brackets and emphasis
by the Wrongologist)
is a credit union for oligarchs, with a
side business in financing the Russian energy industry. Its customers include
many more high-profile Russians than just those named in the [sanctions]. As of
Thursday it is, for all intents and purposes, out of business
Subsequently,
Reuters reported:
Bank Rossiya said it had asked its clients to refrain from making foreign
currency payments to accounts at the bank due to US sanctions over Crimea
The Fiscal Times quoted Robert Rowe, Senior
Counsel for the American Bankers Association: (brackets by the Wrongologist)
banks] are doing business with [Bank Rossiya], and they are also doing business
in the US, if something slips through, then suddenly they’re facing US
regulatory action. International wire traffic is voluminous and largely
automated, he said, making it easier for an international bank to simply stop
doing business with Bank Rossiya rather than trying to route transactions associated
with it away from the US
Rowe said
this would affect the oil and gas
companies that arrange their trade financing through the bank.
This is what caused
Bank Rossiya to suspend accepting payments in dollars. However, the world will
not be making its payments for energy imports in Rubles.
Almost 100% of the
oil/gas market is transacted in US dollars. And, you cannot
convert most currencies directly into Rubles. Banks and companies use their
local currency to buy US dollars which they then use to buy whichever other
currency they need to acquire. This is because the US dollar is the main
reserve currency for most countries and a key reserve currency everywhere. Only
the Yen, Euro, and UK pound can be directly converted to other currencies.
China’s currency isn’t even convertible outside of its own borders.
So, being locked
out of using the US dollar when the oil/gas market is entirely based upon the dollar
means that this sanction by Mr. Obama has teeth.
It’s game on between
Russia and the US.
Once
again, the story behind the story in an international crisis is the quest to
control sources of energy. In the short term, the way that the West can gain
control over Ukraine and the pipelines, while limiting Russia’s influence with its
oil and gas reserves, is to move to destabilize Putin.
Keep following
this situation. Follow the money. To Big Oil. They still have the clout to move
governments to war, declared or undeclared.
We saw this
before in Operation Iraqi Freedom.
