Russia’s President Vladimir Putin is starting to feel the heat of new U.S. sanctions, as Washington is putting some additional bite into its confrontation with Moscow.
At the same time, new sanctions or even a full-out (proxy) confrontation are looming on the horizon, looking at the tensions at the Russian-Ukrainian border. Putin’s reactions are straightforward, threatening asymmetric responses to any Western pressure or military interference in the coming months.
The still fledgling or outright weak reactions of Western governments, especially in Europe, are received in Russia as a sign of weakness. Even though current US-EU sanctions on Russian institutions and oligarchs are taking their toll, the larger picture hasn’t changed much.
Russia’s military buildup on the eastern Ukrainian border, the unilateral decision to block the Black Sea for international shipping and naval forces, in breach with the Montreux Convention, and the threat of increased US sanctions on the NordStream 2 involved parties, doesn’t seem to have changed Putin’s strategic considerations. The global critique about the Russian treatment of Navalny is seen by Moscow as external interference in an internal issue, not to be discussed even during Putin’s yearly “State of Union” address to the Russian people.
US President Biden, however, seems not to be satisfied at all with the effects of current sanctions on Russia. New, harsher measures are already planned, even after last week’s Washington decision to expel Russian diplomats and bar US banks from buying Russia’s sovereign bonds on the primary market. Until now, most US sanctions have been linked to Russian interference in US elections, cyber-attacks and its appalling treatment of the political opposition.
Moscow’s reaction until now has been rather icy, the Bear doesn’t seem to be impressed by the threat of new sanctions. This reasonably soft Russian approach could, however, change very quickly, as Putin’s State of the Union address issues asymmetric reactions on all levels if so-called “red-lines” are crossed.
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For the outside world, however, it’s not really clear what those red lines exactly are. Moscow already has indicated that additional Western sanctions or a military build-up in the Ukraine-Black Sea arena are a red-line. Analysts are now speculating what the Russian reaction to such actions could be.
Western analysts mainly fear a military reaction, looking at the Ukrainian issue at present. The immense military buildup on Ukrainian borders could lead to a direct open involvement of Russian troops under the pretext of ‘protecting’ Russian citizens and interests in the region, as has been done before in Georgia and other places. This full out Cold-War approach is an option not to diminish straight away, as Russian aggressive maneuvering has been building up since the Arab Spring, with its involvement in Syria and Libya being the clearest examples.
Others are wondering if a possible Russian retaliation could be through blocking oil and gas supplies to Europe and and or the U.S.
Increased energy supply dependency of the EU and the US increases Moscow’s geopolitical leverage. This situation has divided the leading European powers. Germany, for example, is hinting at opening up to Moscow, while France and the UK are taking the opposite approach.
Then there’s the largely undiscussed nuclear option. Another oil price war. While it may seem counterintuitive to some, Moscow could decide to push down prices in order to hurt international oil and gas companies, and independent US shale companies in specific. By taking on the U.S. oil industry, Biden’s economic recovery could be dealt some serious damage.
Another oil price war could destabilize the entire U.S. shale patch, which is still recovering from last year’s oil price implosion. During 2020 Russia has grown to be the third-largest oil supplier to the United States, overtaking even Saudi Arabia. Oil analysts have noticed it, but US politicians have turned a blind eye. The power of oil suppliers should not be undervalued, especially not when it’s in the hands of a rival world power.
An aggressive move by Moscow doesn’t necessarily have to be at the expense of others in the OPEC+ alliance. In fact, other OPEC members could actually benefit from a direct assault on US oil and gas export markets. Asian economies such as China or India will not be unhappy with lower oil prices, and Beijing even could be a supporter as it will hurt the US at a time that Washington is expanding its sphere of influence in the South China Sea.
By Cyril Widdershoven for Oilprice.com
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Russia’s association with OPEC under the umbrella of OPEC+ has enabled it to play along with Saudi Arabia a very pivotal role in the control of global oil and prices in addition to being able to influence OPEC+’s policies and decisions on oil production cuts. Furthermore, Russia knows that the US shale oil industry is already sagging under hundreds of billions of dollars and its fate is now in the hands of OPEC+. For these reasons, Putin won’t kickstart another price war.
Putin has neither reason to retaliate against the EU through blocking gas supplies since the EU doesn’t threaten Russia nor blocking oil supplies to the United States since they are so small currently amounting to 5% of US crude oil imports and only because of the sanctions on Venezuela.
Russia has managed so far not only to nullify US sanctions which were imposed on it in 2014 after the annexation of the Crimea but also to use them to diversify the Russian economy extensively and enable it to flourish. While nuisance with hardly any real bite, more US sanctions will meet the same fate like the previous ones. Nord Stream 2 is unstoppable and will be completed this year.
The ‘Red Line’ for Putin is if the United States and NATO start a military build-up in the Ukraine-Black Sea arena and encourage Ukraine to embark on a military adventure against Moscow-backed separatists in the Donbas region or the Crimea or accept Ukraine as a member of NATO.
Putin’s response at its most ferocious form would be to occupy Ukraine and join it to Russia under the umbrella of Russia’s nuclear deterrent should the United States and NATO try to intervene in the conflict.
On a more limited action, Putin may decide to occupy a land corridor linking the Donbas region with the Crimea thus solving a logistical problem of supplies particularly water to the people of Crimea rather than depending on a bridge linking Russia with Crimea or on the sea.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London