OPINION: Russia’s Gas Blackmail Runs Out of Steam

‘Europe, I’ll cut you off from gas supply!’

‘OK.’

‘Completely.’

‘We see.’

‘But you can get it through Nord Stream 2.’

‘No, thanks.’

‘Then I’ll send gas to Turkey.’

‘We see.’

‘You can buy gas there.’

‘No, thanks.’

‘Then you won’t get any gas.’

‘We understand.’

‘I won’t sell you gas!’

‘We see.’

This is the kind of virtual conversation between Russia and the EU as well as the entire civilized world that we have heard for the last six months. If you possess resources that your opponent consumes, you believe that you have power over them, that they depend on you, and that you can get the better of them. The Kremlin thinks so and it would be right… some 200 years ago.

Nowadays, economic domination is not achieved by resources, because they do not generate added value. The European Union’s plan for weaning itself off Russian energy resources will cost it EUR500 billion. This is 10 times more than Russia earned in 2021 from selling natural gas, mostly to the EU. It appears to be hugely disproportionate and incurring huge losses. Europe may seem to have given up – more so when considering that Russia also has oil to sell…

But the fact of the matter is that the EU can afford it. They are richer, simply because in the 21st century wealth is earned through added value, which is generated not from resources but in the hi-tech and service sectors. It is generated by human capital.

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In a nutshell, Europe can afford its energy independence. It can afford alternative options. Blackmail no longer works.  Just a few weeks ago, when stock markets priced natural gas at $3,500 per 1,000m³ and Gazprom-sponsored TV showed reels of freezing Europe, senior Russian politician was ululating and predicting $5,000 amid mass price hike protests in frozen European cities. Now the price has plummeted to $1,200 and spot prices are even lower than $500, while tankers with liquefied natural gas are waiting to be unloaded near Spanish shores because there are not sufficient capacities to store it.

It is already clear that Europe will not freeze to death this winter or any coming winter. Besides, there is global warming.

So, Russia keeps bragging about its resources, but it is losing its own energy war. Its natural gas no longer works as a weapon. The threat of using this weapon was serious and quite frightening until Russia used it. Now yes, Europe has the problem of expenses, but failed gas blackmail is the Kremlin’s failure, and a big failure too. Russia has lost the European market – the most solvent and stable in the world – for good and there are no other markets that can replace it. Russia has no infrastructure to sell its natural gas to other regions. The gas hub with Turkey is just a mirage that requires billions to be invested in pipelines for the benefit of Putin’s friends. But those pipelines all run to a dead end, because no-one will buy Russian gas. That’s what Putin has done.

Now that Russia’s coffers are not replenished with money from gas exports, it relies totally on revenues from selling its oil. Paradoxically, these revenues depend completely on oil prices, but Russia’s actions, which  provoke recession in the EU are causing oil prices to drop. And even the desperate step taken by OPEC + to reduce oil extraction does not prompt prices to rise.

This is a century of technologies when owners of resources are not the rule setters, but Russia seems to be stuck in its idolized past, in which Pushkin said that “Barclay [de Tolli], winter and Russian God helped Russia win.” The trouble is that in place of Barclay Russia has Steven Seagal, winters are not as cold as they used to be, and the run of luck is going against Putin. Because luck favors winners.

In the 21st century, the most valuable resources are human resources that generate added value, and here Russia is also in the red. Those who are willing and able to generate added value don’t go to Moscow or Sochi but look to London, San Francisco, Berlin or Paris, while Moscow has to make do with secondhand junk like Steven Seagal. As long as this trend persists, hydrocarbon stocks will not dictate the agenda.

In the meantime, 25 percent of Russia’s qualified hi-tech workforce has fled the country. And that is far more detrimental than the loss of 75 percent of its revenue from gas exports.

The views expressed in this article are the author’s and not necessarily those of the Kyiv Post.