As if we didn’t have enough on our plate, the Russians are coming.
It had to happen.
Since the collapse of the old Soviet Union, Russian power has not come through the barrel of a gun but, rather, a barrel of oil and natural gas.
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Rivaled only by Saudi Arabia, Russia is the biggest player in the global energy market.
Today, Russia holds the world's largest natural gas reserves, the second largest coal reserves and the eighth largest oil reserves. Russia is also the world's largest exporter of natural gas, the second largest oil exporter and the third largest energy consumer.
Although Dmitry Medvedev holds the top spot at the Kremlin, make no mistake, Vladimir Putin still pulls the strings. Since his early days as the Russian President, Putin, the former KGB chief, has not been shy about using his nation’s biggest export as a means to regain Russia’s former preeminence as a world power.
Winning Streak
In 2007, Russia’s real gross domestic product (GDP) grew by approximately 8.1 percent, surpassing average growth rates in all other G8 countries, and marking the country’s seventh consecutive year of economic expansion. Russia’s economic growth over the past seven years has been driven primarily by energy exports.
The military incursion into the Black Sea region of South Ossetia this past summer, combined with this week’s halt to natural gas exports to Europe through the Ukraine, demonstrates the extreme measures the Russians are willing to take to protect their franchise. Unlike the Saudis or other members of OPEC who use the control of the supply stream to advance their economic and political agenda, the Russians can back their plays with military might.
The Russian monopoly, through its export vehicle Gazprom, controls one quarter of the natural gas in Europe. This mid-winter gas shutdown, triggered by a dispute with Ukraine over prices and debt, renewed calls in Western Europe to develop nuclear power plants and alternative sources of energy.
Price-Drop Is at the Nexus
Today’s disruption by the Gazprom followed a halt in supplies to the Balkans yesterday and cuts to other countries. The dispute already has lasted longer than a similar conflict in January of 2006 that interrupted shipments to Europe.
These latest actions by the Russians have been prompted in large measure by the global drop in energy prices.
During the past decade, the growth of the Russian economy has become nearly one dimensional – relying primarily on its energy exports. The precipitous drop in world energy prices since summer has sent shockwaves through the already shaky economy, sparking global concern over a return to Russian hegemony.
Although the economy is job No. 1 for the incoming Obama administration, it won’t be able to ignore the growing threat of Russian instability, especially if the global economy continues to depress energy demand and prices.
John Cohn is a senior partner in the Globe West Financial Group[ based in West Los Angeles. He may be contacted at www.globewestfinancial.com
