I do not know (of course) what the Russians’ next move with regard to Ukraine will be, although yet more cyberattacks seem as close to certain as anything might be. I do know, however, that the U.S. and its allies will continue to threaten sanctions should certain lines (a direct military “incursion”?) be crossed. That’s how it should be, and if those lines are crossed sanctions should follow.
But Russia is in a far better position to cope with economic (at least) sanctions than it has been in the past, and it knows it.
Rather than destabilising Russia’s economy, western sanctions imposed since 2014 have propelled Moscow to pursue a conservative macroeconomic policy designed to transform the country into a financial fortress.
External shocks such as the Covid-19 pandemic demonstrated the resilience it had developed.
The central bank’s war chest has grown more than 70 per cent since late 2015 and now houses more than $620bn of foreign currency reserves.
High oil and gas prices have helped Russia pump up its rainy-day National Wealth Fund with $190bn in cash. The government predicts the fund will have more than $300bn in 2024.
Frugal fiscal policy has also kept gross government debt low, at about 20 per cent of gross domestic product. It is also forecast to fall to 18.5 per cent by the end of 2023, well below the forecast median 54 per cent level of its peers. Moreover, the proportion of foreign investors holding Russian sovereign bonds has sunk to a fifth of the total, making the country far less vulnerable to external shocks or a sudden sell-off than it was before.
Russian corporates are also better insulated from the shocks of any future sanctions. Total foreign corporate debt was $80bn last year — nearly half the $150bn total when the first sanctions were imposed in March 2014 . . .
When the US imposed sanctions on Rusal, Russia’s largest aluminium producer, in 2018, the effect on global markets was also so disruptive that the Treasury had to negotiate a climbdown. Today, this could similarly deter any sanctions against VSMPO-Avisma, which remains the largest supplier of titanium for Boeing’s aeroplanes.
Russia has also been successful in replacing imports, particularly of agriculture.
And it remains to be seen just how far America’s European allies (or some of them anyway) will be prepared to go along.
Imposing sanctions on a major natural resource producer like Russia isn’t easy either.
Europe imports more than 40 per cent of its gas and more than a quarter of its crude oil from Russia.
And it doesn’t seem much of a stretch to imagine that Russia is already reminding its European customers who is boss.
The Kremlin always likes to pretend that gas and politics can be kept apart. But the Europeans aren’t standing for that anymore.
EU Competition Commissioner Margrethe Vestager on Thursday gave the strongest indication to date that Moscow’s gas-export monopoly Gazprom risked another round of antitrust action from Brussels. The normally tight-lipped Dane gave a rare insight into her thinking on what would be a highly politically charged case by implying that Moscow appeared to be manipulating the market as energy prices soar and Russia masses troops on the Ukrainian border.
“It is indeed thought-provoking that a company, in view of increasing demand, limits supply,” she told reporters on Thursday.
“That is quite rare behavior in the marketplace,” she added, explaining that she had already received “a lot of responses” in her probe into Gazprom’s practices.
The “normally tight-lipped Dane” (not a description I’d use for Vestager, an ambitious self-promoter) may be about to discover that, when it comes down to it, the EU’s much-vaunted “rules-based” order doesn’t count for very much.
There are, of course, a good number of reasons for the current surge in gas prices in Europe, but Russia appears to be playing its part. That’s not, in Vestager’s sad little phrase, “thought-provoking,” it is merely Russia doing what Russia might be expected to do.
Seeking to explain the gas price surge, Fatih Birol, head of the International Energy Agency, also pointed the finger at Gazprom on Thursday.
“We see strong elements of ‘artificial tightness’ in European gas markets, which appears to be due to the behaviour of Russia’s state-controlled gas supplier.”
Russia said last year that it would boost supplies to Europe once it filled up its own reserves, but that’s not happening. Instead, the Siberia-to-Germany Yamal pipeline has been flowing in reverse from Germany to Poland for more than three weeks.
“This does suggest that, while Gazprom is reportedly meeting its nominations from European buyers, it is holding potential spot supplies off the market for either geopolitical or economic (to keep the price high) reasons or a bit of both,” wrote Mike Fulwood, senior research fellow at the Oxford Institute for Energy Studies.
Meanwhile, VOA reports:
Gazprom, Russia’s giant state-owned energy company, is slated to finalize an agreement in 2022 for a second huge natural gas pipeline running from Siberia to China, marking yet another stage in what energy analysts and Western diplomats say is a fast-evolving gas pivot to Asia by Moscow.
They see the pivot as a geopolitical project and one that could mean trouble for Europe.
Known as Power of Siberia 2, the mega-pipeline traversing Mongolia will be able to deliver 50 billion cubic meters of Russian gas to China annually. It was given the go-ahead in March by Russian President Vladimir Putin, and when finished it will complement another massive pipeline, Power of Siberia 1, that transports gas from Russia’s Chayandinskoye field to northern China.
Power of Siberia 2 will supply gas from Siberia’s Yamal Peninsula, the source of the gas exported to Europe. Western officials worry that the project could have serious geopolitical implications for energy-hungry European nations before they embark in earnest on a long transition to renewables and away from fossil fuels . . .
The new Sino-Russian energy project, which Putin discussed with his Chinese counterpart, President Xi Jinping, during a December 18 video conference, will give Moscow even more leverage when price bargaining with Europe and boost China as an alternative market for gas, according to Filip Medunic, an analyst with the European Council on Foreign Relations.
“Russia remains Europe’s main gas supplier, but Europeans urgently need to understand the changes it is currently making to its energy transport infrastructure—as these changes could leave Europe even more at Moscow’s mercy,” he outlined in a study earlier this year.
Such a pipeline would take years to build, but the fact Putin is discussing it right now delivers a clear message. It is worth adding that, tensions over Ukraine aside, the EU’s turn away from fossil fuels may, among its other geopolitical consequences (none of them positive on any realistic scenario), be driving China and Russia even closer together.