Putin may cut off oil as well as gas to cripple Europe - by Ambrose Evans-Pritchard - 13.07.22

Updated: Jul 21

With the eurozone teetering on the brink and Nord Stream 1 inspections due to be completed today (21st July), there is every chance the Kremlin will twist the knife and concoct an excuse to keep the pipeline closed argues Ambrose Evans-Pritchard in a special report for the Telegraph.


“France’s finance minister Bruno Le Maire warned on Sunday that a “total cut-off” is more likely than not.”


Responding to European sanctions for its conduct towards Ukraine, the Kremlin’s response has been long in the coming:


“Vladimir Putin has prepared the ground for a drastic cut in supplies of both oil and gas at any moment, giving him the means to strike a psychological hammer blow against the Western democracies before a global recession erodes his energy leverage.


The coming weeks may be his best chance to try to force the West to the table on Russian strategic terms, locking in territorial gains on Ukraine’s Black Sea coast and in the Donbass before the delivery of heavy weapons from NATO raises the military cost for Russia to excruciating levels.”


The European response has been breath-taking in its naiveté. It's decision to try to rig the oil market with unenforceable price caps on Russian crude by the end of the year have merely escalated the crisis:


“It supposes that Mr Putin will allow the EU to reduce its dependence on Russian fossil fuels in an orderly fashion and on its own leisurely timetable, even as several EU member states cross the line in Ukraine from engaged neutrals to something closer to co-belligerents. “We think Russia will seek to make Europe’s energy detox plan as debilitating as possible,” said Helima Croft from RBC Capital.


"The talk within the Kremlin apparatus is that Russia must now take pre-emptive action, exploiting its energy lock hold to stop EU states rebuilding natural gas stocks before winter. “It is highly likely that no more gas at all is going to be flowing. The Russian leadership knows just how vulnerable Europe is,” he said.


Less widely discussed is whether Putin plans to double-down and impose an oil embargo too:


“It is widely assumed that he would not play the oil card because the import revenue is too valuable – worth $700m a day, viz $400m for gas – and because crude is too fungible a commodity on global markets for targeted use against Europe. But this overlooks the internal structure of the Russian economy and may underestimate Mr Putin’s willingness to create maximum havoc as an instrument of foreign policy.


Natasha Kaneva and Ted Hall at JP Morgan think the Kremlin may be seriously tempted to try. They argue that Russia could halve its total output temporarily and starve the world of up to five million barrels a day - 5pc of global supply - without doing lasting damage to its drilling infrastructure or suffering an intolerable economic hit.”


They estimate that a shock and awe squeeze of this magnitude would drive prices to $380 a barrel, levels that would bring the global economy to a shuddering halt.


The more likely calibration is a cut of three million barrels a day. This would lift Brent to $190, still high enough to blast through the all-time record of $148 in mid-2008. “The tightness of the global oil market is on Russia’s side and strong public finances could absorb the revenue losses without too much difficulty,” they said.


Is he bluffing?


“Mr Putin likes to blow smoke in our faces, keeping us permanently off-balance. He may decide that the gas weapon alone is enough. But as former White House Russia guru Fiona Hill likes to put it: if you think he won’t do something beyond the pale, “yes, he will”.”


In the meantime, Europe waits to see what happens to Nord Stream.


The full article can be found below with a link to the original here.



Article for the Telegraph by Ambrose Evans Pritchard - Putin may cut off oil as well as ga
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CREDIT: Agencja Wyborcza.pl via REUTERS

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