First, a personal note: As some of you know, this is an idea I’ve been floating in Berlin since well before Corona. Then, last October, I had an experimental test run, a one-off, sponsored by the Qatari embassy’s Divan – and it went very well.
However, the biggest success from that event was that Ben Aris, co-founder and editor-in-chief of bne IntelliNews enthusiastically joined me to found the Berlin Energy Forum as a regular monthly sort of membership club. Amongst the longest serving foreign correspondents in Eastern Europe, Ben has been covering Russia since 1993, with stints in the Baltics and Central Asia. He is a former Moscow bureau chief for the Daily Telegraph and was a contributing editor at The Banker and Euromoney for a decade amongst writing for many other publications. He is also a professional photographer, and nowadays based in Berlin.
Ben is one of those rare people who relishes doing analysis and data-driven writing (non-stop!), AND who knows how to do business – and thoroughly enjoys doing it. Just the partner for this endeavor.
My model and inspiration for this forum was always the New York Energy Forum, which has run for over 40 years now. I happily attended while teaching in NYC. My experience with that forum, plus familiarity with a few top DC think tanks, and various foreign diplomats (esp. in NYC/UN), is how, as an academic, I got to know a broad spectrum of USA oil and gas executives, journalists, financial-institution analysts and government officials. Those personal connections have, over the years, anchored my assessments of USA, of OPEC MENA-and-Latin American members’, and of Russian and Chinese strategy. This sort of community doesn’t exist in Europe in such a focused manner, save perhaps in London. Perhaps we can now bring a bit of that world to Berlin with our new BEF.
This version has my voice in English. Translations of interview question are in the blog pos
[Right: Video in English. Below: Arabic version]
The US administration asserts that Kyiv’s drone strikes on Russian refineries threaten to cause higher oil prices. However, as I have argued since early-mid-March (Kyiv Post, USA press, USA press, Polish press), this is not logical (to first order). What undoubtedly alarms DC is that Kyiv has demonstrated that – if it chose to – it could also disrupt the three big Russian westward-facing oil-ports that handle 60% of Russian exports to the global oil market, undoubtedly causing a global oil-price shock. But, fear of such a shock might be overblown. [1]
“O’Donnell told Newsweek that that if Ukrainians really wanted to hit oil exports, they would go after Novorossiysk Fuel Oil Terminal in the [eastern] Black Sea and Primorsk Oil Terminal at the end of the Baltic Pipeline System.
“‘These are the two major exports sites for Russian oil and they are demonstrated to be within range of aerial drones and perhaps, in the case the Black Sea, their seaborne drones,’ he said. ‘If they really want to cut Russia’s oil income, they would go after those ports and they haven’t—that might be in deference to Americans concerns.’“ (Russia Faces Major Gas Headache After Ukraine Strikes, Newsweek, article by Brendan Cole, Mar 25, 2024.)
Last week, Newsweek (USA) twice cited my analysis of Ukrainian drone strikes. In one instance, I had the honor of following an interview with General Ben Hodges, former Commander of US Army, Europe, with whom I concur in regretting the USA opposition.
(Aside: I hope to have an Op-Ed, perhaps tomorrow, in Europe, assessing that (i) the USA’s stated reasons versus Ukraine’s drone strikes to date do not make sense, and (ii) the “elephant in the room,” which must really have alarmed the White House, is that Ukraine’s strikes on refineries ipso facto demonstrate they COULD, if they so chose, disrupt anywhere up to 60% of Russian oil exports. Lastly,(iii) if the USA, EU and allies do not rapidly prepare non-Russian oil-sector producers for this eventuality, a global oil price shock could result.)
Here are the links to last week’s two new interviews/citations by Newsweek:
Interview 1/3: Kate Lycock of DW Radio’s Inside Europe interviewed me yesterday, on the historical role of fuel-denial in war, and the impacts of Ukraine’s drone strategy on Russia (first story, on 21 March)
Aside from some WW2 history, I identified two separate impacts we can see in the present Ukrainian campaign: a) The impact on Russian fuel deliveries to the war zones themselves and to the domestic Russian war economy, and b) their possible impact as a “force multiplier” for the oil-price cap sanctions on Russian oil exports, designed to deny Moscow its all-important oil revenues that are financing its aggression. I also speculated a bit as to how these strikes, together with Black Sea sea-drone operations, might be shaping coming Ukrainian offensive(s). (This show is also syndicated in the USA as I recall.)
2/3: on 20 March, I was also interviewed on the drone strikes by Voice of America’s Harry Ridgwell, while I was at the Berlin Energy Transition Dialogue, held at the German Federal Foreign Office. (See Video in LHS column.)
3/3: Lastly, I was quoted a couple times by Brendan Cole of the USA national magazine, Newsweek, on 18 March:
Note, there are new developments since yesterday, including Russia’s revenge strikes on Ukrainian infrastructure (reports are that 1 million Ukrainians have no electricity today) and on its Special Operations Headquarters. However, of the 30 Russian drones that swarmed to target this Kyiv building, every one was shot down.
Also, there are reports (Financial Times) that the USA is warning Ukraine that the strikes will draw retaliation and raise the price of oil.
Who cares! This has gone on for simply too long. There are vastly sufficient oil reserves in the world that can be tapped to fully replace Russian oil even if it were totally taken offline. After over two years of war, Washington and the EU Members should have by now begun a concerted effort to get sufficient new oil on line to enable blocking a high percentage of Russian exports from being exported to the world market
I talk about one possible approach to this in my DW interview, involving Denmark and Sweden inspecting and banning passage of sketchy Russian tankers through their economic zones in the Baltic Sea.
After two-plus years of war, there is no excuse to still be playing around with the oil price cap without either significantly lowing it — say, to $30/barrel as the Ukrainians suggest, in any case begin stepwise lowering it below the present $60, which would be a signal to producers to start developing new fields — and/or finding ways to block shipments more directly.
This is not to diminish the clever and difficult work people at especially OFAC and the USA Justice Department in Washington and their colleagues in London and Brussels have carried out to tighten and make more effective the oil price cap. However, as it stands, the cap is too high and a weak instrument.
The entire political preoccupation with keeping Russian oil on the market is fundamentally flawed, Signals must be given to the market that it will be step-wise taken off the market, which will instill/stimulate IOCs, NOCs and smaller firms to rapidly bring undeveloped oil reserves online to permanently replace Russian exports.
LAST: Here are some references for further reading that I found useful in my research.
Highly recommended, by my friend, the intrepid Михайло Гончар – Україна уразила вже третину найбільших російських НПЗ – Главредhttps://glavred.net/article/v-rossii-krasivo-gorit-ukraina-porazila-uzhe-tret-krupneyshih-rossiyskih-npz-gonchar-10550015.html (Translation: Russia is on fire: Ukraine has already hit a third of the largest Russian refineries – Interview with Michael Gonchar, March 14, 2024, 4:02 p.m, Ukrainian drones are reducing oil refining in Russia and creating a fuel shortage there, Mykhailo Gonchar believes.)
Ukraine Drone Strike Hits Refining Complex Deep in Russia || Peter Zeihan – YouTube (NOTE: added a gap to URL before ‘.com’ to prevent it displaying here) https://www.youtube .com/watch?v=86YrV2D-nB4
According to energy and geopolitics expert Tom O’Donnell, Ukrainian allies’ oil price cap, in conjunction with Ukrainian drones’ physical damage could be a significant hit to Russian revenues.
Tom O’Donnell, PhD, an expert on energy and geopolitics, sat down with Kyiv Post to explain what Ukraine’s attacks on Russia’s energy sector will mean for the larger Russian energy sector.
It sounds like a huge number. But how much do you think losing 12 percent of production, in a day, will affect Russia?
First off, although these refineries hit by Ukrainian drones yesterday represent about 12 percent of Russian production, experience shows that they might not each be totally impaired from production. Nevertheless, there are two particularly significant implications for Russia.
First, whatever percentage of Russian refined oil products this impairs, the damage will both deprive the war economy of needed export revenues and/or of much-needed fuels to keep the domestic war economy running.
Already, Russia had announced it will ban the export of gasoline from March 1 in order to tame prices for consumers in the runup to the presidential elections mid-month. In 2023 about 17 percent of Russian gasoline was exported.
What is the origin of the current price pressure?
The present price pressure is both a result of the demands of the war economy as well as previously successful Ukrainian hits on other refineries that began in January.
This gets to my second point – the successful refinery strikes of yesterday, involving a reported launch of 58 drones, as well as recent hits on a Russian domestic gas transmission pipeline, all demonstrate that the January successes were not one-off special operations, but rather the beginning of what will be a sustained Ukraine armed forces campaign capable of, over time, significantly disrupting Russia’s all-important oil and gas import revenues and internal refined-product supplies.
Kyiv has launched some of its largest air attacks on Russia this week ahead of the vote, which is set to hand President Vladimir Putin another six-year term in the Kremlin.
If Russia continues to lose refineries, which appears likely, what new complications will it create for Russia?
First, from a strategic point of view, it is important to see these physical strikes against Russian oil and gas infrastructure in conjunction with the sanctions efforts of the USA, EU and other allies aimed at reducing Russian oil profits. These drone strikes should be seen as a “force multiplier” to allied oil sanctions.
How so?
Consider that, with Russia no longer having the Druzba oil pipeline flowing into Central Europe due to EU sanctions, this has forced it to shift its Urals-region oil exports to seaports on the Baltic coast of Russia and to a new western-Arctic port. Hence, hitting any refining or export facilities inside Russia along this general Urals-oil export corridor has a significant effect on Russia sustaining export revenues. This oil mainly flows to Turkey, India and China, with Russian oil tankers representing the main users of the Suez and then the Red Sea. Due to sanctions, most of these ships are now either directly or indirectly Russian-controlled, to avoid the sanctions oil-price cap.
There has been a discussion in US-EU security-and-sanctions circles that these ships could be stopped for inspection by Sweden and/or Denmark in the Baltic, in the straights between their countries, and many might be refused passage due to having sketchy insurance and/or being unsafe, old vessels.
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What do you think of the oil price cap? Is it a good idea?
From the point of view of strategic impact, the allies’ choice of an oil-price cap has been, in my view, a weak and overly complex-to-enforce instrument. However, in conjunction with Ukrainian drones’ physical damage, the overall hit to Russian revenues might become significant.
Secondly, Ukraine has also hit refineries in Russia just east of its own territory, which will mainly undermine the region’s war economy and complicate supplying the massive demand from Russia’s invasion forces. This region already has chronic fuel-supply problems, with farmers last year protesting against a lack of diesel for harvests, causing Russia to ban diesel exports during that season.
Dr. Tom O’Donnell is Berlin-based and is a Global Fellow of the Wilson Center.
Jason Jay Smart, Ph.D., is a political adviser who has lived and worked in Ukraine, Moldova, Kyrgyzstan, Kazakhstan, Russia, and Latin America. Due to his work with the democratic opposition to Pres. Vladimir Putin, Smart was persona non grata, for life, by Russia in 2010. His websites can be found at http://www.JasonJaySmart.com / http://www.AmericanPoliticalServices.com / fb.com/jasonjaysmart / Twitter: @OfficeJJSmart
Related references for assertions I made in my interview – Tom O’D.
[02.10.23 Note: Some typos/syntax corrected. Somehow could not edit w/ my phone yesterday.]
–1– The Saudis have no intention to spike oil price over $100/barrel, at least not for long – that’s my read.
Their customers’ economies are troubled, especially China, but Europe too – where too-high-an-oil-price could re-boost inflation, even push them into recession(s) killing oil demand.
Over the last year, the Saudi’s were newly proactive (their traditional mode was always to react after-the-fact). And their economists’ market calls were correct.
For several months, OPEC+ cumulative production cuts barely held prices stable. Only in recent months, along with new (though tepid) demand, did prices climb, form high-$80s to now mid $90s.
The Saudi minister professes to be unsure whether demand will rise in Q4. The IEA and the futures market (in backwardian now) see tightness. The Saudi minister answers that, if that happens, he has plenty of oil ready to put back into markets.
But – Nota Bene – despite present drawdowns in USA oil stocks and apparent tightness elsewhere, suddenly many oil analysts are saying that the present price rally could be short lived, and that OPEC-plus may have to keep or even deepen its cuts to maintain prices as they are.
Here are three very useful reports to this effect:
We discussed the EU’s repeated failures to impose an embargo in Russian oil. Now, (after Monday 30 May) they are considering a sea-borne-oil-only embargo.
Re: Urgente Pedido de Entrevista Periodística – Corresponsales Clarín y La Nación – Argentina
De Maria E… … Fri, Apr 29, 11:50 PM
Dr. O ´Donnell, … Estas son las preguntas para la entrevista del domingo:
1¿Alemania tiene otra posibilidad que no sea seguir comprando el gas ruso? ¿Cuáles serían sus otras opciones?
Repuesta: Antes que nada, muchas gracias por esta oportunidad de hablar con su audiencia argentina.
Pues, debo señalar que hay dos problemas diferentes: el suministro de petróleo ruso a Alemania y Europa y el suministro de gas ruso a Alemania y Europa. Me preguntas por el gas. El gas es mucho más difícil para Europa y para Alemania que el petróleo Hay dos casos: una reducción gradual o parcial de gas o un corte inmediato.
Un corte gradual se puede manejar bastante bien. Ahora Putin está tratando de dividir y conquistar Europa cortando el suministro de gas a Polonia y Bulgaria.
Un recorte inmediato, ya sea por parte de Putin o debido a las sanciones de la UE, crearía una gran crisis energética en Europa. Sin embargo, es importante entender que, al final, Putin está en una posición mucho más débil.
Si Putin corta todos los suministros de gas a Europa, ahora no hay suficiente gas en el mercado mundial para compensar. Pero Occidente, y especialmente EE. UU., la administración Biden, se ha estado preparando para esto al menos dos meses antes de que Putin invadiera Ucrania, incluso antes de que Europa creyera las advertencias de EE. UU. de que Putin atacaría Ucrania.
24 April 2022: My Asharq/live evening TV news interview is a bit over seven minutes.
Would an oil embargo be “effective”?
I respond, What is “effective”? Clearly it would not end the war. However, a Ukranian soldier who decides to give his life to resist the Russian invaders has no illusion that his or her sacrifice, on its own, will end the war. But, he will makes what contribution he can.
So, the German leadership refuses to send Ukraine heavy weapons, and certainly won’t send German troops. However, Germany and the EU can at least step up and make this contribution – sanctionRussian oil now. This will greatly hinder Putin’s ability, within two to three months, to finance his war.
We discuss the question raised by the German leadership – by Chancellor Scholz (SPD party), Energy and Environment Minister Habeck (Greens) and Finance Minister Lindner (FDP liberals) – that supposedly an embargo in Russian oil (or gas) would do more harm to German citizens than to the Russian leadership.
The argument heard repeatedly from Berlin is that this is “not worth it” and also, that such an embargo it “would not end the war.”
Also, I answer the question of how much oil could Putin’s Russia divert from Europe to India if the EU and Germany embargoed oil.
I think I posed useful answers to these questions given the time we had. Your thoughts and critiques are welcomed, and solicited.
Above: English Audio – translator asking question (low) and my (louder) answers.
Al Jazeera interview, Doha [Arabic] on the ramifications of the Russian Central Bank default due to USA sanctions. (13 Mar 2022, 22:40, from Berlin).
Note: It is indeed possible for the EU – including Germany too – to immediately cut Russian oil imports to zero and not suffer prolonged high oil prices. How? I will explain in a coming post. This is a topic I have been working on intensively the past couple weeks.
I mention some of my (and others’) rationale for saying this in my answer to the second question from Al Jazeera. NOTE: A very good reference on this is: Christof Rühl speaking last week to bne inelligence. I strongly concur with him. (this note added 15 Mar.)
Here’s an English transcript of my Al Jazeera comments on OPEC+ negotiations and some further remarks on the group’s agreement to raise production. Good evening from Berlin. Answer 1. Well, OPEC-Plus is faced with maintaining a very delicate balance. On the one hand, demand in the Western world is down, its weak, while in the Eastern world, in Asia – in China and India – demand is relatively strong. And this is a complicating matter. At the same time, in supply, in Libya, for example, the oil production is not under the [OPEC+] agreement and has been coming back on the market. OPEC has been doing relatively well, in the last few months or so, of balancing the market. The question is, how to maintain this going forward, with its exports, how to balance supply with demand. But what is appearing is not the big split between Russia and Saudi Arabia that we saw last year in the Oil Price War. Now we have differences … such as we see with the UAE [i.e., versus the Saudis]. The UAE would like, as we have seen, also Russia has said, an increase in production. That would be very difficult for other, more expensive producers to do at this point. Answer 2: Yes. It does. I mean, of course the UAE has been getting a lot of press [about its demand to increase production], … so it is a matter of how serious the UAE is, and how serious the Russians are to want to raise production in some way.
The 24.04 video: Aljazeera asked me about negative prices and we got into storage, Putin’s huge blunder in launching the price war, the fate of US shale, and the dilemma faced by Trump and the Texas Railway Commission on cutting US production: there’s no way to please both the independent US producers and the big US international oil companies. One or the other is going will be very upset. (Note: English audio record replaces original Arabic here. Thanks to AlJazeera for the clip.)
Let me expand a bit on this point I made at the end of the interview: Trump is dithering as the day of reckoning approaches – the day when US oil’s physical storage is full. Then it won’t be just the WTI Nymex futures price going negative overnight, the physical, spot market would go negative and freeze up.
So, either Trump has to invoke national security and use federal powers to order proportional, across-the-board cuts nationally, or the Texas Railway Commission and itsContinue reading →
The Global Barrel 