Russia Is On the Cusp of Regaining Global Power
Oil and Middle East politics combine to afford Russia a chance to resume a position it lost at the collapse of the USSR
Vladimir Putin has chosen the timing of his intervention in Syria very skillfully. Through his operations in the Middle East, he has the chance to make Russia a world power again. This game is all about the price of oil, and Putin knows: the hand that turns the oil spigot has the last word in all geopolitical issues.
Russia's intervention in Syria as a means to fight terrorism is only a superficial goal. Unlike the Americans, the Russians calculate their actions with prudence; not just militarily, but geopolitically as well.
Russia has long since been a partner of Syria. Syria is an important bridgehead to the Middle East, particularly with regard to transport routes for raw materials. Originally, the Americans wanted to have the Russians cut off from these routes, but the shot backfired. The US Army refused to follow President Barack Obama.
So in going after Assad, the Americans had to join the front with unpredictable mercenaries and terrorists. The only partner to the US was Turkey, but Turkey chose to pursue its own self-interests. The terrorists, in turn, were happy with the weapons they’d captured – and used them against the Americans, when necessary. Washington had accepted the formation of IS [ISIL/ISIS/Daesh] in the beginning. The Americans had hoped to use this war machine to topple Assad.
At the same time, the neocons, who are behind the US strategy, tried to keep the Russians occupied with Ukraine. Through the expansion of fracking, they had hoped to establish an alternative to crude oil in the US and in Ukraine, possibly even in the EU. That, however, turned out to be a long, hard road. The fracking method is expensive and can only be financed through taxpayer money. The fracking companies were far away from any profit-earnings; stock prices plunged.
This is the moment Putin seems to have been waiting for, because Russia was hit hard by the price decline that OPEC had instrumentally used to ward off fracking. The implementation of skillful monetary policy helped to ease the pain – i.e. strong dollar, weak ruble – but the dependence on commodity exports is Russia’s Achilles heel. During the Yeltsin years, in a trusted play between the US neo-cons and some willing oligarchs, the country was looted for all it was worth. No government has managed to diversify the Russian economy. The new commodity shock is extremely dangerous for Russia.
The first developments in oil prices proved Putin right. The price rose after the intervention in Syria was started.
The commodity analyst Dallas McEndree has a very interesting analysis on Oilprice.com:
Energy is the foundation of Russia, its economy, its government, and its political system. Putin has often stressed the importance of mineral resources for the preservation of Russia's economic growth and industrial development. Mineral resources are needed to help Russia catch up to the more developed economies and for modernizing Russia’s military, and their defense industry.
Since 1992, the correlation between GDP growth on the one hand and the production of oil and gas, exports and prices on the other has been clearly evident. Russia’s oil and natural gas are not just important for Russia, but for its Eurasian neighbors as well. In 2014, Russia supplied about 30 percent of Europe's gas and a quarter of its crude oil in 2013.
Besides the raw materials themselves, Russia’s well-developed ground infrastructure for the distribution of these resources is of great importance to Russia. Tatiana Mitrova, Head of the Oil and Gas Department in the Energy Research Institute of the Russian Academy of Sciences (ERI RAS), reckons: “Russia has a unique, transcontinental infrastructure in the heart of Eurasia (150,000 km of pipelines), which makes it the backbone of a vast and developing Eurasian gas market.
The control over both the means of transport as well as the gas reserves makes Russia the pivotal center of this new market.” The land-based oil-distribution network is small, but not insignificant. The 4000-kilometer-long Druzhba Pipeline, for example, covers about 30 percent of total deliveries to Europe. The Russian government is keen on furthering the development of this infrastructure, and has already introduced a number of pipeline projects.
The threats to the Russian energy sector have intensified more and more in recent years and the revenues that Russia is able to draw from the business are under severe pressure. The decision of Saudi Arabia to let the market determine the prices has led to sharp drops in the prices of crude oil and petroleum. The export prices are also affected, which in turn, are what is partly responsible for the switch to hybrid pricing models for gas in Europe.
The charts show how threatening the situation is:
The sanctions ordered by the US against Russia have increased the pressure. Due to the sanctions, Russian energy projects receive no financial backing, nor can projects be supported through the delivery of technology or equipment. On top of that, the US and Canada have already established themselves as strong competitors in oil and gas production, as McEndree has analyzed.
It was therefore necessary for Putin to act. He managed to persuade the rebels in the eastern Ukraine to keep quiet. Recently, they have even canceled the regional elections – brokered by Putin. Lucky for Putin, the EU-funded Kiev government is corrupt and argues mainly about which pockets the EU taxpayers' money should be flowing into. The EU has to finance the Greek debt at the same time, and is busy dealing with the refugees, therefore neither Germany nor France have an interest in escalating the conditions in Ukraine. They simply can’t afford it.
The third aspect is the issue of the US elections. Obama is a lame duck - and perhaps that is why he’s the only one in Washington who’s still somewhat sane. Obama knows that the military involvement in Syria was a disaster. Obama doesn’t want to go down in history as the president who threw the Middle East and Europe into total chaos.
Obama is therefore willing to cooperate with Putin and is glad that he is there to pull his chestnuts out of the fire for him. The Neocons are in an uproar, but can’t do much. The advantage of the military-industrial complex is in this case, the fact that Obama is the commander-in-chief. The neocons and NATO can’t do much more than bark.
Putin's alliances with Iraq, Iran, and especially with China are proof of a certain foresight. With partners like these, Russia can play a leading role in the Middle East. By wisely looking ahead, Putin was also able to involve Israel. Above all, Putin might succeed in breaking OPEC’s power hold. This is directed primarily against Saudi Arabia. The Saudis themselves are busy at the moment with the generation change and are going in a direction so that the young sheikhs can distinguish themselves with an illegal war against Yemen. This occupies a lot of forces and serves to divert their attention.
McEndree has precisely analyzed this aspect in Putin's strategy:
The question remains to be clarified as to whether the developments in the Middle East could save the Russian energy market. Tensions there are usually linked to the security of transport routes for raw materials. The Middle East itself is primarily dependent on sea transport. Since all waterways include a geographical bottleneck, they are far more vulnerable to external threats than the pipelines used by Russia. By expanding the airbases in Syria, Russia could influence these pathways.
Putin’s action has significantly strengthened Russia's influence on OPEC. Russia already has close ties with Iran and Venezuela, and soon possibly with Iraq. These countries stand against Saudi Arabia's decision on oil prices. The Russian Deputy Prime Minister for Energy Policy noted that OPEC members are now suffering from the effects of their own strategy to edge out rivals by flooding the market, and doubts that OPEC members would be really satisfied with long-term low oil prices.
Russia could indeed succeed in splitting OPEC into two blocks, and thus isolating Saudi Arabia. A strategic alliance between Putin and Iran, as well as Putin and Iraq, could create even more opportunities for Russia to put pressure on Saudi Arabia. For one thing, they could test Saudi determination to defend its market. Secondly, by cooperating with Iran and Iraq, one could take over Saudi market shares in the Chinese market. The Chinese market will be the second largest import market, and with its ever-growing demand, it will be of even greater interest to all parties in the next few years.
So thanks to his impeccable timing, Putin could achieve far more than just a military prestige victory over the Americans. Turkey, led by an opportunistic and unscrupulous Erdogan, will quickly bring Putin to its side. The Turkish Stream project is underway. Current delays are not very important; they’re Putin’s threats against Erdogan. So far, Putin hasn’t said anything about Erdogan’s private war against the Kurds. He’s pleased that Erdogan is preoccupied with the Kurds and doesn’t have any corresponding interests with the Americans.
The EU won’t budge. It is now totally dependent on the Russian supply of energy. If Russia controls the Middle East, the talks with the EU will all of the sudden become very constructive for the following reason: there will be two partners sitting at the table for these energy imports with Russia and Iran, and the chaotic EU leadership will be hopelessly secondary.
McEndree thinks Putin would have to consider his actions carefully, so as not to arouse the fear of total energy dependence on Russia in Europe. The risk is negligible, because most of the EU’s fears are currently centered on the refugees, and they will pay any price to get the issue off the table. Erdogan has already flexed his muscles in Brussels. Once Putin pacifies Syria, he’ll be welcomed with open arms.
If the plan works, Russia could actually break up OPEC and thus win access to the oil price. It’s not possible for Russia to exist with a long term low gas price. A not-to-be-underestimated danger for Putin is the recent warning of the Governor of the Bank of England, Mark Carney. He said with unusual clarity that drastic regulations for oil and gas products could happen very suddenly. That would hit Russia hard.
Granted, it wouldn’t hit Russia in the short term, but it could redirect the flow of capital into alternative energy sources. Russia is too weak to stop this sort of attack. The alliance with China could pay off here. China has created a new level of infrastructure projects with the aid of the new Investment Bank AIIB and the Silk Road Project.
McEndree writes, “All of these options require successful cooperation with Syria, Iraq, and Iran. This is not completely guaranteed in light of the Ukraine crisis.”
That's true, but if Putin wins this battle, he has at least a fair chance to have Russia taken seriously as a world power. Big talk coming from the US or the EU is not enough, because what matters in the foreseeable future is this: the hand that turns the global oil spigot has the last word.