Now it’s the game, a dangerous one with potentially grave consequences, where both sides are raising their hand and calling the bluff. EU ministers are facing the daunting task to find an immediate solution to the energy crisis when they are due to meet this Friday. Russia, through Kremlin’s spokesman Peskov, has just announced that the gas flows will resume in full only when the EU drops its sanctions.
The EU calculation was that Russia is forced to sell gas to Europe anyway. After all, it is 70% of Russia’s gas export market and gas has a very limited storage or liquidation quality. What Russia is now doing, is burning the gas instead of putting it into the pipeline, and earning the same or even more on the remaining 30-40% because of x10 higher prices.
The Russian calculation is that the EU’s only realistic alternative is to start closing down its industries, and/or to give up its green transition goals and policies. That is – as a long term policy – unthinkable in most of the member states where the greens are either in power or very influential. It would practically amount to moral collapse. This explains why there is such resistance to uncouple the gas price from the electricity price, as it would result in the drop of investments in renewables. The EU’s storage capacity, even if 90% full, would in the worst case scenario last up to 2-3 months, depending on weather conditions and pace of economic activity.
On the G7 oil cap. The Russian response was immediate – they will stop selling under a certain price (they are already anyway selling to India and others with a 20-30% discount). That would squeeze the oil market (if OPEC does not substantially increase output and replace Russia’s share, which is at the moment unlikely) and will result in price hikes. If Russia removes from the market 2 mln barrels a day, the price per barrel would go up to 180-200 USD, if 5 mln barrels, then up to 350 USD. And Russia could afford that, if forced to.
The stakes are high. One should always bare in mind Putin’s biography note about the cornered wounded animal..
That is a short term picture. In the long run, the West has much more potential and possibilities of adaptation, and it will. In this, Putin has irrevocably taken the path of changing the geopolitical energy map where there are much more unknowns for Russia itself with its economy’s high dependence on fossils.
https://www.linkedin.com/pulse/high-stakes-energy-game-clyde-kull