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Commentary: Nothing to lose, lots to gain for Russia in keeping up uncertainty over energy

Much of the leverage gained by Moscow’s ability to cut off food and energy exports lies in the uncertainty created by the possibility of their use, rather than in their actual employment, says Bloomberg’s Julian Lee.

Commentary: Nothing to lose, lots to gain for Russia in keeping up uncertainty over energy

The United States is ramping up pressure on Russian President Vladimir Putin, ending an escape clause allowing his government to pay foreign debts (Photo: POOL/AFP/File/Alexander NEMENOV)

LONDON: Russia is going to keep creating uncertainty over shipments of oil, gas and agricultural commodities onto world markets. It has nothing to lose and lots to gain.

So don’t get complacent about recent developments that might suggest Russian President Vladimir Putin is walking back from disrupting energy, food and fertiliser flows. He isn’t.

In the past couple of weeks, a Russian court threw out the 30-day suspension of shipments through the Caspian Pipeline Consortium’s (CPC) conduit that carries mostly Kazakhstani crude to an export terminal on Russia’s Black Sea coast.

The suspension would have removed as much as 45 million barrels of crude from global supplies, with a value of more than US$4.5 billion. But the fine imposed on the company in place of the suspension was a mere 200,000 rubles, equivalent to US$3,200.

The successful appeal was undoubtedly a victory for the pipeline company and a relief for European refiners. But for the government of Kazakhstan and the foreign oil companies operating there, the threat of future disruption hasn’t gone away.

FEARS NORD STREAM GAS FLOWS WOULDN’T RESTART HAVE BEEN ALLAYED FOR NOW

Flows through the CPC system have already been interrupted twice since Russian troops invaded Ukraine on Feb 24. In late March, the terminal was partially shut for a month after a storm reportedly damaged two of the three loading buoys.

Then in mid-June, loadings were again suspended from two moorings for a survey of the surrounding water area, which led to the discovery of a number of World War II mines. A sceptic might have expected mine removal to have been a priority when the buoys were first installed.

Europe is watching closely whether Russia will resume on Thursday gas deliveries via the Nord Stream pipeline, which has been shut down for 10 days for regular maintenance (Photo: AFP/File/John MACDOUGALL)

Of even greater concern for European nations, the Kremlin’s hand has been firmly in control of Russia’s gas flows. For most of last year, deliveries were running at about 400 million cubic meters a day. That abruptly fell by about 25 per cent as winter approached, with flows slashed on the Yamal-Europe pipeline through Poland.

They dropped again in January, when volumes sent via Ukraine were also severely curtailed. By June, total pipeline gas flows from Russia to Europe were down to about 40 per cent of normal levels, dropping below 20 per cent in the past two weeks, with the Nord Stream pipeline halted for annual maintenance.

Fears that the line directly linking Russia to Germany wouldn’t restart once the work was finished have been allayed — for now.

Shipments along the route resumed on Thursday (Jul 21), but Putin was quick to warn that they could fall again within days unless a turbine sent to Canada for servicing is returned before one of the others on the line is taken out of service.

BE UNDER NO ILLUSION EXPORTS CAN BE HALTED AGAIN

The threat of disruptions to gas flows remains very real.

And then there’s the deal to allow shipments of grain from Ukraine’s Black Sea ports. While any agreement to restore these vital exports is to be welcomed, be under no illusion that they can’t be halted again at any time. Theft of Ukrainian grain by Russia is well documented, so too is the wanton destruction of crops in the fields.

Russia’s apparent steps back from the brink in all three of these areas should be treated with caution. Just because the weapons haven’t been used this time, doesn’t mean they won’t appear later.

Just like the nuclear missiles Putin and his henchmen keep threatening to use, much of the leverage gained by Russia’s ability to cut off food and energy exports lies in the uncertainty created by the possibility of their use, rather than in their actual employment.

Once used, though devastating, the threat has gone. By holding them in reserve, the pressure can be maintained almost indefinitely.

Expect Russia to keep threatening oil, gas and agricultural flows as winter approaches, even if it doesn’t curtail them.

Source: Bloomberg/ch
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