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March 14, 2022

Master and Servant

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At least two storylines have formed around Russia, Ukraine and world energy supplies and prices.

The first warns of the potential consequences of countries taking a principled stand on the war and violence in Ukraine and rejecting Russian oil outright without adequate replacement stocks.

With Russian oil cut off, world supplies will drop and prices will go up accordingly. “Will efforts to cut Russian energy imports cause oil price shock?” was the headline of an Al Jazeera video recounting how the US and Britain have banned Russian oil while others were reducing their consumption.

EU leaders recently pledged to eliminate their dependency on Russian energy imports in the next five years, reported CNN. But the news network noted that European officials have made such pledges before but have not made moves to extend the lifetimes of coal and nuclear plants as some transition to green energy production.

Russia supplies Europe with 40 percent of its natural gas, more than a quarter of its oil and almost half of its coal. Those ratios have always given Moscow power in Europe. The country supplies the US with only 7 percent of its oil, explained Axios. Still, Russian officials warned recently that Europeans’ energy bills could be three times larger due to the sanctions they placed on Russia for invading Ukraine, Reuters wrote.

Calls in the New York Times opinion page to wean the world off Russia’s oil are the logical conclusion of this first storyline.

The European energy trade is worth tens of billions of dollars to Russia, too, however, giving rise to a second storyline. Russia is dependent on revenues from energy exports, the Economist wrote. Their customers – Germany, Italy, etc. – are angry at their actions in Ukraine. While they need Russian energy, Russia needs their cash.

“For all that Europe needs Russian petroleum, Russia is far more dependent on European petroleum customers,” argued Bloomberg Opinion columnist David Fickling.

Fewer energy exports will hurt all the more due to the other sanctions that are erecting what National Public Radio dubbed an “economic iron curtain,” between Western Europe and Russia.

Meanwhile, China continues to import Russian energy, an economic lifeline to the country, Newsweek reported. But since the Russian invasion of Ukraine, the value of the country’s currency, the ruble, has dropped by more than 40 percent against the US dollar as foreign investors and companies have pulled out of the country in protest.

Russian President Vladimir Putin might use oil to appear like a master. But it is oil that also makes him a servant.

This story originally appeared in the March 14, 2022 newsletter, Master and Servant.