Putin wants the oil

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Vladimir Putin answered journalists’ questions on the situation in Ukraine. (Wikipedia)

It’s About the Oil

But now that Putin has the Crimean Peninsula and shows no signs of returning it to Ukraine, he’s ready to negotiate with the United States and Western Europe — or in other words, NATO. From his point of view, Putin has the Russian Black Sea Port all wrapped up for the Motherland, there’s one more thing he needs to secure: the Black Sea oil fields.

Part of Russia’s Black Sea Fleet. (Photo via Wikipedia)
Part of Russia’s Black Sea Fleet.
(Photo via Wikipedia)

It’s the engine of Russia’s economic machine. Everything President Vladimir Putin has said about invading the Crimea and the posturing to invade Ukraine — to protect the Russian-speaking people — is just cover for his real ambition: to control the petroleum.

Thirty years ago President Reagan and his administration tried to block the expansion of the Soviet Union’s oil and gas industries, for a variety of reasons, but mostly because Reagan didn’t want the U.S.S.R. to become a leading supplier of oil to our Western European allies.

It wasn’t primarily for national security reasons, although those always sound good in the telling, but for economic reasons: greed.  But, the Europeans did it anyway and now Russia is the largest supplier of Europe’s oil and gas, almost a third of it. And it does put the U.S. in a rather awkward strategic security position.

It would be a severe blow to Russia if even only a few of the major players in Europe went along with sanctions on Russia’s energy sector — and Germany’s Chancellor, Angela Merkel, has already condemned Putin’s invasion, accusing him of “stealing” the Crimea so the threat is real. But, it would be a serious hardship for the Europeans to give up the Russian oil, as evidenced by their reluctance to employ harsh sanctions on Russia’s oil and gas industry.

So the threat of further sanction against parts of Russia’s economic sector has some teeth. Angela Merkel may have been an ally of the Soviet Union in her youth, but she is completely German now, Chancellor of the most prosperous nation in Europe. She doesn’t need to strictly align with any nation. She refused to back the U.S. when President Bush started a war in Iraq and she won’t let Russia violate the “principles of post-war order in Europe” any further.

Chancellor Angela Mertkel of Germany with Vladimir Putin, in 2008 when Putin was Prime Minister of Russia. (Photo via Wikipedia)
Chancellor Angela Mertkel of Germany with Vladimir Putin, in 2008 when Putin was Prime Minister of Russia.
(Photo via Wikipedia)

Before she was a politician, Merkel was a research chemist for East Germany, the Soviet Union’s most important satellite. She has always been reluctant to do anything against Russia, regardless of what Putin has done in the past. But invading a sovereign nation and taking territory by force was a step too far for Merkel. East Germany is so far in the distant past, whatever ties she might have had with the Kremlin have been buried in a mountain of Western prosperity.

Sure, Putin wants to keep Ukraine out of NATO, it’s an important point for him, especially considering these former Warsaw Pact countries are now members: Hungary, the Czech Republic and Poland in 1999; Latvia, Bulgaria, Estonia, Romania, Lithuania, Slovenia and Slovakia in 2004; and Albania and Croatia in 2009.

Russia fears being surrounded by NATO and then isolated from the rest of Europe. If Ukraine were to align itself with NATO — or even become a member — it would be an incredible political insult to Putin and Russia: one of it’s former Soviet Socialist Republics flipping sides and taking up with the decadent capitalist West. “Sorry Vlad old buddy, we like the guys on this side of the fence better — and oh by the way: part of that off shore oil field is in our territorial waters.”

Putin’s only bargaining chip is the oil.

He may be crazy, but he has a game plan. He may feel slightly impotent, which accounts for his totalitarian policies, both domestic and international, but he knows one thing: if Russia is to keep from sliding deeper into irrelevancy, they have to remain in control of Europe’s energy. And for that Putin is willing to be the outlaw in European affairs.

A shirtless outlaw who rides horses, goes scuba diving and shoots trapped tigers.

Surprisingly, or maybe not so surprisingly, very few U.S. media outlets have talked much about the oil. They like to talk about the manly Putin versus the not-so-manly Obama. Putin rides horses — Obama rides mountain bikes.

  • Just an aside for the Obama haters on Fox News and elsewhere: President Bush is a far more avid mountain biker than President Obama so your protestations about the president and his mountain bike fall a little flat.

The media has been portraying the president as “weak,” led by so-called conservatives who think any actions short of war are signs of weakness. John McCain being the most vocal of these hawks. All you need do is watch Fox News for a day to hear the pundits and guests parrot the “weakness” talking point all day long.

When they’re not doing a segment on the horrors of Spring Break, an annual tradition that lets Fox News show five minutes of scantily-clad college kids cavorting about the beaches of Florida, Texas and elsewhere. I ain’t complaining. They get props in my book for providing some good entertainment this time of year.

Back to Putin and the oil.

Putin just signed a deal with Exxon to start drilling for oil in the Gulf of Mexico. Yet one more bargaining chip. Is the U.S. government willing to hurt one of its own corporations by insisting on harsh sanctions against Russia’s energy sector?

For the past three years Exxon has been in business with Rosneft, Russia’s, I mean, Putin’s energy company. Just a few days ago they expanded their partnership to include drilling in the Gulf as well as on and offshore drilling in Texas, Alaska and Alberta, Canada.

Makes you think about the 78 billion in subsidies the big oil companies receive from our tax dollars. That’s an issue for another day.

My guess is when the parties do meet at the negotiation table, a deal will be worked out for Russia to keep the Crimean Peninsula and Ukraine will be compensated. Putin will be willing to pay the price as long as he gets to keep his access to the Black Sea oil. That is the key for him.

President Bush meeting with President Putin in Shanghai, China, October 2001. Bush looked into Putin’s eyes and saw his soul. (Photo via Wikipedia)
President Bush meeting with President Putin in Shanghai, China, October 2001.
(Photo via Wikipedia)

U.S. government fiat can take away many other energy assets, including the American oil companies doing business with Russia, but it can’t touch Russia’s oil reserves. Putin will negotiate, but he’s also betting, or at least hoping, the Europeans that depend so much on his oil will not impose sanctions on his energy sector.

Putin also knows people and nations have limits and invading Ukraine could be the trigger that brings on much harsher sanctions. Not only is President Obama saying it, but his old ally, Chancellor Angela Merkel too and if he doesn’t have her on his side — or at least on the sidelines — his country will become a much larger version of Iran if he invades any other sovereign nations: oil rich, but market poor.

Every conflict we get into now is about energy, specifically oil and gas. How the negotiating parties proceed will shape our energy policy for years to come. Regardless of how this turns out, President Putin will have a seat at the table of our energy policy, either directly or through proxies, like Exxon. Until we start moving away from fossil fuels, this will be at the heart of our energy policy.

Part One can be read here.

3 thoughts on “Putin wants the oil

  • April 4, 2014 at 5:37 PM

    Undoubtedly the Kremlin would take Ukraine’s Black Sea oil fields if it could get them. As would more or less any regional power. But is this likely to drive further Russian aggression in Ukraine?

    Even with Crimea, EEZ boundaries still cut off access to most of the oil in question. That would almost certainy necessitate further incursions into Kherson and Odessa. Both would mark the furthest expansions possible into Ukraine’s relatively pro-Russian east. Control of those oblasts (and Mykolaiv, perhaps) would completely cut off Ukraine’s access to the Black Sea.

    For those reasons, Ukraine is extremely likely to let that region go without a fight. Romania and Moldova would also have direct stakes in that fight, expanding a small border skirmish over Crimea into a regional war. More to the point, it is unimaginable that Russia could maintain the same veil of ambiguity and plausible deniability over such aggression that facilitated the invasion of Crimea without serious international consequences.

    • Tim Forkes
      April 4, 2014 at 8:50 PM

      That certainly brings up some interesting points Carl. Looking at those boundary agreements in the Black Sea, plus the leasing agreements between the host nations and the oil consortiums; and Russia’s oil plans that include pipelines through Ukraine, one bad choice would crash Europe’s energy sector.

      You’re right about Romania. They have a big stake in the Black Sea. They have agreements with six different consortiums there.

      Obviously Putin (and the Kremlin) is looking at those oil fields with deep longing, 24 years ago nearly all of it was theirs, Odessa played a major role for the old Soviet government. But I’m guessing (and we’re hoping) the Kremlin understands the repercussions of further incursions into Ukraine.

      I read in the Business Journal someone suggesting the U.S. government would use the oil companies as proxies to help keep Russia in line; their greed would dictate their need to maintain a profitable stability. Of course, the BJ writer didn’t refer to it as “greed.”

      This reminds me of how long the U.S. was at odds with Great Britain before we truly became partners and allies. As you may recall, England took sides with the Confederacy in the Civil War. My point being: since the dissolution of the Warsaw Pact and the USSR, the borders are still being disputed and have yet to be sorted out. Oil and gas being the primary sticking point.

      Russia deserves a piece of the Black Sea pie, but crashing borders is probably not the way to achieve those ends.

      • Tim Forkes
        April 4, 2014 at 9:13 PM

        Which gets me back to the thought that got me started on this path, which was lost once I got into the meat of the issue: all the Obama-haters calling the president weak. World economics is not my field of expertise by any stretch, but it doesn’t take a Ph.D. to see the complexity of what’s at stake in the region and why being reckless can be disastrous.

        The Obama-haters are just playing to the cheap seats and the “Obama is weak” talking point is a much easier topic than the macro-economics of Europe, hence the major media outlets by and large follow suit.

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