For most of the past year, since his invasion of Ukraine last February, Russian President Vladimir Putin has been living up to his supposed energy. OmnipotenceAnd make the global economy hostage to his whims. Since last summer, Putin has cut off natural gas supplies to Europe. Hopes that the Europeans, shivering and without heat during the winter, would do turn Their leaders will make it politically futile to continue supporting Ukraine.
The threat was potent: In 2021, a huge event 83 percent Some of the Russian gas was exported to Europe. Russia’s total global exports of 7 million barrels of oil per day and 200 billion cubic meters of pipeline gas annually accounted for about half of its federal revenue. More importantly, exports of Russian goods played a crucial role in global supply chains: Europe was dependent on Russia for 46% of all gas supplies, with similar levels of dependence on other Russian products including minerals and fertilizers.
Now, as we approach the first anniversary of Putin’s invasion, it is clear that Russia has permanently lost its former economic power in the global market.
For most of the past year, since his invasion of Ukraine last February, Russian President Vladimir Putin has been living up to his supposed energy. OmnipotenceAnd make the global economy hostage to his whims. Since last summer, Putin has cut off natural gas supplies to Europe. Hopes that the Europeans, shivering and without heat during the winter, would do turn Their leaders will make it politically futile to continue supporting Ukraine.
The threat was potent: In 2021, a huge event 83 percent Some of the Russian gas was exported to Europe. Russia’s total global exports of 7 million barrels of oil per day and 200 billion cubic meters of pipeline gas annually accounted for about half of its federal revenue. More importantly, exports of Russian goods played a crucial role in global supply chains: Europe was dependent on Russia for 46% of all gas supplies, with similar levels of dependence on other Russian products including minerals and fertilizers.
Now, as we approach the first anniversary of Putin’s invasion, it is clear that Russia has permanently lost its former economic power in the global market.
Thanks to an unusually warm winter in Europe, Putin’s moment of great influence has passed, and as we were right. weather forecast Last October, Russia itself was the biggest victim of Putin’s gas gambit. Putin’s influence over natural gas is now non-existent, because the world – and most importantly, Europe – no longer needs Russian gas.
Far from freezing to death, Europe quickly secured supplies of alternative gas by going global liquefied natural gas (liquefied natural gas). This included an estimated 55 billion cubic meters from the United States, two and a half times more than pre-war US exports of LNG to Europe. Combined with increases in supply from renewables, nuclear, and coal meanwhile, these alternative supplies have reduced Europe’s dependence on Russian gas to 9 percent of its total gas imports. In fact, Europe now buys more LNG than it ever did from Russia.
Moreover, a warm winter in Europe meant that not only were worst-case scenarios avoided, Europe’s full storage tanks were barely drawn and could move on to the next winter. In January, the German storage tanks of the Record 91 percent fullup from 54 percent last year, which means Europe will need to buy less gas in 2023 than it did in 2022.
The repercussions are enormous. Europe now has an adequate energy supply well into at least 2024, providing enough time for cheaper alternative energy supplies – whether from renewables or bridge fuels – to be fully operational and operational within Europe. This includes completing an additional 200 bcm of LNG export capacity by 2024 – enough to replace Russia’s 200 bcm/year gas exports once and for all.
Moreover, the days of globally expensive energy amid “Russia-led supply pressures” are gone forever. In addition to expected lower demand in Europe for LNG, so is China pivoting away from global LNG in favor of domestic sources. Combined with a rapidly growing supply of LNG, it is no surprise that the gas futures market is now pricing gas to be Cheaper from pre-war levels for years to come.
On the other hand, Putin has no remaining leverage and no way to replace his former primary client; He finds out the hard way that it is easier for consumers to replace unreliable suppliers of goods than it is for suppliers to find new markets. Already, Putin makes practically no profit from gas sales, since his previous sales of 150 billion cubic meters of gas through pipelines to Europe have been replaced by a measly 16 billion cm To China and pocket change in global LNG sales, barely enough to cover expenses. There are no markets for Putin to replace anything close to this 150 bcm shortfall: China lacks what is essential Pipeline The ability to take more for at least a decade favors domestic and diversified energy sources anyway, while sluggish Russian technology makes it No way To expand LNG exports beyond a slow trickle.
Likewise, Putin’s oil influence is diminishing. Gone are the days when the fear that Putin would take Russian oil supplies off the market sent oil prices skyrocketing 40 percent more than two weeks. In fact, when — in response to last month’s broach of G-7 oil price ceilingwhich we helped develop – Putin announced an embargo, from February 1, onwards oil exports to countries That accepted the price ceiling, oil prices in fact He went down.
why? Because it is now clear that the world is no longer dependent on Putin’s oil. The oil market is tending to favor buyers, rather than sellers, amid oversupply – more than enough to offset potential declines in Russian crude production. (In December, Russian Deputy Prime Minister Alexander Novak Tell Russian media reported that the government was ready to cut crude oil production by up to 700,000 barrels in 2023.) Oil prices are lower now than they were before the war, and in the second half of 2022 alone, there were lunges; of supply by 4 million barrels per day from producers such as the United States, VenezuelaCanada and Brazil. with even more New supply expected this year, any missing Russian oil will be replaced smoothly and easily in a matter of weeks. And this time, Putin No coercion Saudi Arabia is seeking a rescue by drastically cutting OPEC+ production quotas as it did last October. This is because the United States now to stop Crucial Saudi arms and technology transfers amid international escalation audit of large unused OPEC+ spare capacity.
Putin’s financial leverage has also evaporated because the G7’s price cap gives him a choice in which to lose, which he means is eroding Russia’s energy position no matter what he does. China and India, without being explicitly involved in the cap, are working to take advantage of it to advance a hard bargain with Russia, with Discounts of up to 50 percentso even though India is buying 33 times More Russian oil than it was a year ago, Russia is not making a huge profit, given $44 tie production cost above The most expensive transportation. But if Putin cuts production further, as he has threatened to do, he will lose all important oil market share, For a long time obsessed with Putinin the middle of an oil market that is increasingly oversupplied and cut from its revenues when it is Already starving for cash.
Even Putin’s other commodity cards are all depleted. His maneuver to arm the food suspiciously collapsed even when he was His nominal allies turned on him. And in markets for certain metals where Russia has historically dominated, such as nickel, palladium and titanium, buyers fearing extortion in addition to high prices have accelerated resupply and Energizing Passive public and private investment in the mineral supply chain and critical mining projects. They are found mostly in North and South America and Africa, and are home to many exploited mineral reserves. In fact, in several important metals markets, such as cobalt And NickelThe combined output from the new mines opening in the next two years would add up to more than enough supply to replace Russian minerals in global supply chains. Always.
Putin failed economic maneuvers Another set of misjudgments to add to an increasingly long list, from his disregard for the people of Ukraine to his disregard for the collective unity and willpower of the West.
Of course, Putin’s economic war and energy war were not without consequences. The fallout has affected many lives, shifting supply chains, altering trade flows, and consumers continue to feel the pinch of higher prices because newfound low prices take time to work through the economy.
But what matters is that the end is in sight. Putin will never be back in put To cause such chaos and upheaval in the world economy, as it has permanently weakened Russia’s strongest hand—its energy and commodities—may be irreparable. The war on the battlefield is still going on, but on the economic front at least, Victory is in sight.