Russian History 2.0?
“The oil glut of the 1980s, which followed the 1979 oil price shock, was a direct contributor to the collapse of the Soviet Union in 1991. The USSR had just before that become a major global oil producer; lower prices immediately resulted in a substantial loss of hard-currency export revenue, forcing the USSR to deplete its official reserves amid growing deficits of almost everything across the union,” said George Voloshin, head of the Paris branch of Aperio Intelligence.
Europe relationship with Russia
Post-WWII, Europe and especially Germany sought politically deep ties to Russia to keep peace. The strategy embraced mutually beneficial trade to create deeper geopolitical ties. As Europe was a major energy importer, and Russia had massive energy reserves the relationship revolved around oil and natural gas.
To economically transport oil and natural gas numerous pipelines were built. The most logical pipeline route was via Ukraine. By 2005 83% of Russian natural gas exports to Europe flow through Ukraine. This was fine when Ukraine was part of the Soviet Union and even post breakup with pro-Russian governments in Ukraine.
Russia also became a major fertilizer exporter based on natural gas. Europe is natural market. Much of this fertilizer is shipped rail via Ukraine.
Oil and gas discoveries in the Ukraine
In the early 2010s, Ukraine discovers major oil and natural fields. These were well in excess of Ukraine’s domestic needs. It would allow them to become a significant exporter. The most significant were natural gas in the Black Sea around Crimea. Unable to exploit these on their own, Ukraine brought in the global majors such as Exxon and Shell. It also ramped up fertilizer production for domestic and export markets. The route to fertilizer is via natural gas.
2014: Pro-Russian government in Ukraine is replaced
The dissolution of the Soviet Union largely kept pro-Russian leaders in the former republics. After all Russia was still the big kid on the block, and friendly relations are important. In 2014 a pro-EU government came to power. Ukraine established more equitable market based tariffs on natural gas pipelines amounting to several billions per year. This led Russia to build major pipelines such as Nord Stream which avoid intermediary countries such as the Ukraine.
The lack of Russian control on many fronts from pipeline, to a major oil and gas competitor, to a neighboring major country with close alliance with EU and potential NATO member became a major thorn for Russia. It directly challenged the Russian energy economy and could eventually see the economic collapse of Russia 2.0. Change became imperative to keep Mother Russia alive.
2014: Annexation of Crimea and Donbas separatists
Russia annexed Crimea, stranding billions in oil and natural gas equipment. It also transferred the major port of Sevastopol from Ukraine to Russia. The Black Sea oil and natural gas fields were now in Russian hands. Nearby Russian ports on the Black Sea, which account for the majority or Russian oil exports are secure.
Donbas separatists declare independence from Ukraine. Russia provides equipment, support, funding and ‘volunteers’. Donbas region contains Ukraine’s most promising shale oil and gas discoveries.
Putin a student of history wants to avoid 2.0 as his legacy
Putin has been a leader on the world stage longer than most heads of state currently in offices around the globe. He is a tested leader.
There are too many coincidences with timing for energy not to be a major part of Putin’s decisions in Ukraine. This is history repeating itself over energy resources. Putin’s personal legacy is to keep Mother Russia viable, that requires the oil and gas export economy that requires parts of the Ukraine in Russian hands.
