Wed. Oct 5th, 2022

Prof. ST Hsieh

Director, US-China Energy Industry Forum

626-376-7460

[email protected]

February 25, 2022

Russian military is advancing toward Kiev, and it will fall anytime. It is not the end of this war and, unfortunately, human sufferings in the battle ground will continue. It is not the time to assign responsibilities or claim who is the winner or the looser. Many challenging issues, not answers, will have to be settled by Biden and Putin, hopefully soon.

The conflict is not unexpected, but the regrets are that should it be resolved before guns were fired? There were opportunities and crossed messages, may be now is time look at the post-war scenario. But first, we have to ask the questions that why are all these bloods and sufferings?

The core issue of this war is energy security and the calculus of each player in Europe. First, it should be clearly pointed out that Russia is part of the Europe too. But geopolitics have decided that Russia and her few allies are not welcomed as genuine members of the European family. On the other hand, nature endowed Russia with abundant oil and gas. While European progressives pressed for an immediate green energy agenda, the reality is that Europe now depends on Russia for natural gas and crude oil. It is clear beyond any doubt that oil and gas productions are “dirty businesses,” and Europe takes the high standard and rejects the production of dirty fossil fuels. Thus Europe depends on Russia oil and gas with the claim that Europe is the leader of clean energy, asks the world to follow.

The war in Ukraine brings the dirty reality that Europe depends on Russia oil and gas to maintain a clean lifestyle. The following new reports highlight the dilemma:

  1. Russia will not be punished for its invasion with an embargo on energy exports, as Saddam Hussein was after Iraq invaded Kuwait in 1990. Indeed, on some measures Russian gas exports to Europe are actually higher. The flows of euros from Western Europe to the Kremlin for its biggest export will continue, even as those countries decry what President Putin is doing with that money.

The hypocrisy is that who is to decry how Putin is doing with that money? It is the west that decided Russia will not be punished for its invasion with an embargo on energy exports. If the money is immoral, why anyone should give it to Putin?

  1. Another wise advice is Kenneth Griffin, the CEO of the hedge fund Citadel, wrote in The Wall Street Journal that Europe should reduce its reliance on Russian gas exports and the US should help the continent meet its energy needs by increasing oil production.
    • Europe depends on Russia’ oil and gas, is it some news?
    • Yes, Europe should reduce its reliance on Russia gas exports. But what is the cost and how long will it take? If it were easy, it should have happened long time ago! European leaders are not idiots! Making an obvious statement is easy provide a workable plan is the key.

STH

Putin’s energy shock: The economic realities of invasion

Faisal Islam Economics editor @faisalislamon Twitter, February 25, 2022

Published 1 day ago

The economics of this invasion are extremely serious.

It might sound absurd given the apocalyptic backdrop of fighting near Chernobyl. But it really does matter, and could very plausibly herald a 1970s style energy shock. It will be felt in households up and down the country and across the continent.

And the economic theatre is also crucial to how this war pans out.

The combination of crude oil prices above $100 and wholesale gas prices around £3 per therm, would mean the peak in inflation heading to 8% or higher, and, importantly, lasting at very high levels for longer.

Crippling rises in household energy bills are already happening as a result of the existing rise in the average market gas price. It is now going still higher. There could be another rise in average bills of the same magnitude as is being seen now. Some analysts in the industry see the possibility of average annual bills hitting an incredible £3,000 a year by the Autumn.

Euros still flow

The market hit today occurred with no actual disruption to supplies from Gazprom through Ukraine.

Russia will not be punished for its invasion with an embargo on energy exports, as Saddam Hussein was after Iraq invaded Kuwait in 1990. Indeed, on some measures Russian gas exports to Europe are actually higher. The flows of euros from Western Europe to the Kremlin for its biggest export will continue, even as those countries decry what President Putin is doing with that money.

Russia is clearly getting hit in the markets. Its sovereign debt is being shunned, its stock market is crashing, its currency has hit record lows. The Russian Central Bank has deployed some of its $630bn war chest of currency and gold reserves to prop up the rouble.

So is there any economic intervention here which could change the fate of this conflict or minds in the Kremlin?

The answer is causing total economic chaos in Russia sufficient to change its political situation, and a rethink of the wisdom of the invasion in Moscow.

The Institute for International Finance, a think tank of the worlds biggest banks, said the latest set of sanctions will cause bank runs in Russia and “average Russians will feel the cost”. With protests occurring in Russian cities, and being violently suppressed by authorities, the question is whether such chaos will be blamed on Putin’s invasion, or the West. Will other factions in and out of the Kremlin be emboldened to move on the President?

Swift rebuttal

As in any war, the economic weapons can escalate.

Western nations could cut the Russian financial system out of the Swift banking communications network, plunging Russia into further isolation.

But President Putin can also physically limit supplies of energy to the West, sending energy prices stratospheric, shutting down factories in Europe. Although this would have long term consequences for his entire economic strategy.

This could last a long time, and plunge most of Europe into significant recession. The consequences for diplomacy, politics and lives are concerning enough. But the economic impact is very serious indeed.

Russian gas flows to Europe through Ukraine reportedly jumped nearly 40% on Thursday, underscoring the continent’s dependence on Putin’s energy

Kate Duffy Fri, February 25, 2022, 5:14 AM

  • Russian gas exports to Europe via Ukraine spiked nearly 38% Thursday, Bloomberg reported.
  • European natural-gas prices soared as much as 62% on the same day.
  • Germany this week pulled out of the Nord Stream 2 pipeline project with Russia.

Natural-gas exports flowing from Russia to Europe through Ukraine ramped up on Thursday, jumping by nearly 38% from a day earlier, according to data reported by Bloomberg.

Figures from Ukraine’s grid operator further showed that these flows were expected to rise by about 24% on Friday compared with Thursday’s levels, according to Bloomberg.

Western Europe is heavily reliant on Russian gas supplies, and the increased flow Thursday underscored that continuing dependency. Some 41% of the European Union’s gas imports come from Russia, more than twice as much as Norway, the next-largest supplier, according to the most recent EU data.

The increased gas flows from Russia to Europe on Thursday came after Russian President Vladimir Putin ordered troops into Ukraine. World governments hit Russia with sanctions in response, but the US defended a decision not to include the energy sector in its measures.

The Russian state-owned energy giant Gazprom said Thursday that gas flows to Europe through Ukraine were as expected.

European gas prices soared as much as 62% on Thursday, the largest increase since 2005, according to data reported by Bloomberg.

Russia is the world’s second-largest producer of natural gas, behind the US, according to the Energy Information Administration.

Earlier in the week, Germany, which relies on Russia for much of its natural gas, halted the Nord Stream 2 gas-pipeline deal with Moscow after Russian forces entered Donetsk and Luhansk, two eastern breakaway regions of Ukraine. The suspension of Nord Stream 2 had no impact on gas supplies because the pipeline wasn’t operational.

Kenneth Griffin, the CEO of the hedge fund Citadel, wrote in The Wall Street Journal that Europe should reduce its reliance on Russian gas exports and the US should help the continent meet its energy needs by increasing oil production.

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