Putin and the energy card

Ever since the Russian invasion of Ukraine in the last week of February, four major international forums have met one after another and all these forums had three points common in the agendas and themes – stop the Ukraine war by making it more financially unbearable for Moscow through sanctions, provide a generous support package to Kyiv and find a solution to the simmering energy and food crisis across the globe. But, except for material and financial support to President Zelensky’s government, very little has been done at these forums on the other two points.

The G7 summit, the EU gathering, the NATO summit in Madrid and G20 summit in Bali have so far failed to deliver anything concrete or tangible to deflate Moscow and assuage the growing uncertainty about the global energy and food crisis. 

Exactly at the very outset of the G7 summit, the Americans had started talking about two proposals to tighten the noose around Russia’s neck: One, by introducing sanctions on Russian gold, the country’s second biggest export after the energy sector, the Americans tried to first sell this idea to Britain, Japan, Canada and other European partners. However, there were serious reservations with regard to the technicalities of its execution; particularly the Europeans were quite reluctant and insisted on deferring the idea till further consultations with the rest of the EU members before joining the Americans’ sanctions on Russian gold exports.

The second proposal was related to the imposition of capping on the prices of Russian oil and gas. But this idea was also shot down by the differences between German Chancellor Scholz and French President Macron, again on the “technical aspects” of this proposal. Scholz was actively campaigning for this price cap, while Macron refused to move forward on this matter until work is completed at the technical level. The Europeans are trapped in a vicious circle. Their too much dependency on Russian oil and gas has been hitting them in two ways, financially and politically. All those countries, which cut off their imports from Russia, have been severely hit financially by the surging energy prices. The fact is that some countries that are providing financial and hardware support to Ukraine are also inversely dependent upon Russian energy and paying billions of dollars to Moscow.

Ironically, in the first two months of the Ukraine war, Russia earned more than $66.5 billion from its energy exports, while Germany alone paid some $9.5 billion. The Americans’ idea of an oil price cap does not appear to be a workable one at the moment because oil trading is being done in the open market and Russians will find many buyers elsewhere. The only viable solution could be to implement a kind of price cap through Western insurance and shipping companies who can refuse to transport Russian oil being traded outside the capped price. Banning the services associated with the transportation of Russian oil beyond the capped price is the only option left with Washington and its allies to frustrate Vladimir Putin.

But this is not an easy option too. It also involves a long list of technicalities to ensure its proper enforcement. Plus, there is a parallel channel of undocumented oil trading that can be exploited by Moscow in an extreme situation.

Another viable and working option with the Russians is oil-for-yuan-for-gold with the Chinese, which is very much in place and the Russians are doing oil trading with Beijing through this arrangement outside the petrodollar domain. The problem is further exacerbated by Russia through its increased oil production in May and June to preempt the possible energy sanctions – the Russians delivered the biggest quantity of oil in OPEC.

Vladimir Putin is playing his shots very well till now. He knows that Europe’s dependency on Russian energy is the key with which he can manoeuvre the game plan as per his whims – and this is the most dangerous part of the whole game. Washington and its allies, knowing well that they cannot afford to stop the Ukraine war by physically intervening and sending troops to help the Ukrainian army to push back the invading Russians, are trying to hurt and exhaust Moscow financially through oil price controlling and sanctions. But the problem is much more complicated than what US President Biden and his associates thought at the start of the war.

They all underestimated and misjudged Putin’s plan this time. More than four months have passed since Russia started its invasion of Ukraine, but Washington and its allies have not been able to knit a comprehensive and unanimous plan to wriggle and frustrate Vladimir Putin. They should start paying heed to Henry Kissinger and French President Emmanuel Macron, who have been advocating the resumption of table talks with Moscow. But the acrimony witnessed between the Russian entourage and other participants at the G20 summit in Bali suggests that the two sides are still far from the stage where negotiation could be resumed at any time sooner. So far, it seems, to the utter frustration of Washington and its Western allies, Putin is playing his energy card very well to keep them from devising a unanimous strategy in this matter.

Dr. Khalid wrote via [email protected]