On 5 November, I told Kanal24, Kyiv that a US-Ukraine campaign to disable the Russian petrostate’s oil sector is underway. I stressed that this is a multi-spectral campaign combining (i) severe USA sanctions and secondary tariffs on Russian oil exports in parallel with (ii) Ukrainian military action on oil refineries and export-terminal ports. These attacks are known to be conducted and planned in close cooperation with USA military intelligence (FT,12 Oct.).
This means that an assessment of either aspect of this campaign on its own is inadequate. The synergy of sanctions plus military hits is the issue.
Secondary Sanctions. It has been widely recognized that the USA would need to, as promised, vigorously impose secondary tariffs on any entities that violated its recent tariff announcement. Indeed, on Sunday, President Trump lent support to a bill being drafted in Congress to hit any entity “doing business with Russia.”, not only buying its oil (i.e., “Trump says Republicans drafting bill to sanction countries that trade with Russia, Reuters. November 17). This sounds similar to the Senators Lindsey Graham (R, SC) and Richard Blumenthal’s (D Conn) so-called “bone-crushing sanctions” bill (Politico, 7 June) endorsed by 83 senators on 3 June.
The apparent aim of the port drone and missile attacks is to slash oil exports from Russia’s three or four biggest westward facing terminals. The focus thus far is on Black Sea terminals:
You are invited to register now for Monday, 10 Nov. at 14:00 UK || 15:00 CET || 9:00 ET, an EIES Webinar. [My view: the USA, Ukraine & allies can dismantle the Russian petrostate. My posts on this are linked at the end]. I’m honored to join experts:
Dr. Jaak Aviksoo, Former Minister of Defence of Estonia, EIES Energy Security Leadership Council
Christof Rühl, Senior Research Scholar at Columbia University’s Center on Global Energy Policy, former BP Chief Economist
Dr. Thomas O’Donnell, Energy and Geopolitical Strategist and Founder of GlobalBarrel.com
Moderated by Rosemary Griffin, OPEC+ Lead Reporter, S&P Global Commodity Insights
Opened by Peter Flory, Senior Fellow, EIES, Former NATO Assistant Secretary General
Dismantling the Petrostate: Moment of Truth for Russian Oil? – Webinar: Monday 10 Nov.
Register Now – Allies have so far failed to break Putin’s war machine. The EU recently agreed on a 19th round of sanctions and plans to further ramp down Russian energy supplies. But EU sanctions have shown their limits, political leaders have not been able to use Russia’s frozen assets to aid Ukraine, and Moscow’s hydrocarbons still flow into the Union and other major markets.
Washington’s and London’s most recent sanctions may change the game. As we enter another winter of war, can Europe and the United States build on hard-won Transatlantic convergence to strike a decisive blow to the engine of the Kremlin’s aggression: Russia’s oil exports? Can the EU agree to and successfully manage the phaseout of Russian oil and gas?
Dear colleagues and friends — there are two key energy aspects in this detailed interview with Nataliia Lutsenko of Channel 24, an all-news TV channel from Kyiv: (1) Ukraine’s attritional war on Russia’s domestic oil sector and (2) whether Ukrainian long-range drone capacities will be called upon (viz., permitted by the USA) to accomplish what the new US policy of ending Russian oil exports seeks to accomplish through secondary tariffs. Elaborating:
(1) Domestic Russian oil refining capacities: I explained that, If Ukraine can sustain these new drone attacks at a faster rate than Russia can repair them, this will be a major blow to the supply of diesel fuel required by the Russian war economy, especially to war industries, railways (i.e., to locomotive fuel), for harvesting of crops this fall, and to supply the war front and occupied Ukraine. The last time this was tried on a large scale, roughly two years ago, Ukraine caused significant hardships to Russian refining, but ultimately it did not achieve sustained damage at a rate necessary to collapse Russia’s immense national refining capacity. However, as I pointed out to Nataliia, Ukraine’s drone production and sophistication is now greater, and chances of success therefore better. We should know in some weeks or perhaps a few months if Ukraine can now overwhelm Russia’s repair capacities.
Already, fuel prices have spiked in Russia, with Moscow deciding to insure refiners receive a special subsidy they would otherwise not get due to high prices they are charging for fuel, to address difficulties with the renewed drone war. (Russian Refiners Hit Rough Patch, Hope for State Support, E.I., 20August25, [paywall].)
(2) Russian oil export capacities: Why does Ukraine’s war on the Russian oil sector not include destruction of Russia’s three westward facing oil ports, the terminals it uses to export the overwhelming bulk of its oil exports? These are Ust-Luga and Primorsk in the Baltic, and Novorossiya on the Black Sea. Why has the oil export capacities of these ports essentially never been hit?
This Friday, Trump and Putin will talk in Alaska about the future of Ukraine. Why has Putin asked for this meeting?
The two have spoken repeatedly on the phone …. but, something changed. As I indicated in my previous post (here), Trump has turned from his preferred plan to end the war, to one of confrontation and coercion of Putin (what I have called “Plan B”), aiming to force him into halting his war of aggression and seriously discuss peace proposals.
It was an honor to speak with Natalia Lutsenko of Channel 24 TV in Kyiv, and the Ukrainian national audience on these heavy issues of war and peace. The video interview – about 34 minutes long – goes into some detail of my analysis of the balance of forces.
The ceasefire Trump brokered will hopefully end this “12-Day War.” I want to discuss here why this war did not trigger a global energy crisis. [Here’s what I said about this to Al Jazeera last week, in the last five paragraphs. A PDF is also embedded below. I’ll also post a TRT-London show on Iran’s nuclear strategy, recorded Tuesday, soon.]
To assess the risk to energy supplies, understanding the aims of the combatants is key. Throughout this war, it was the USA-Israel side setting the agenda, and there were two strategic aims they could pursue. One was to “only” destroy Iran’s nuclear program and its existing conventional regional power-projection capacities. The second was to go beyond this to undermine the viability of the Islamic Republic, up to forcing a regime change. Why do I say this?
Above: Audio of my comments to (various) press on 22 April 25, on the impact of falling oil prices on Russia’s capacity to war on Ukraine. Also, a scenario I have discussed for over a year, first privately and then publicly, of how the USA could shut down the great majority of Russia’s seaborne oil exports, to devastating consequences for its oil sector and capacity to continue the war. In the present market situation of oversupply and anticipated continued weak demand, this could be done in a way that does not spike global oil prices.
This will only be done if Trump decides he needs to use harsh coercion to force Putin into an acceptable peace deal with Ukraine, AND if Trump were willing to impose lasting harm on the older Russian oil fields.
My long print interview at Lithuania’s LRT [Lithuanian PDF | English PDF] with Aleksandra Ketlerienė, deputy editor-in-chief of Lithuania’s LRT.lt, published 7January. We spoke in Warsaw, 19 November. My thanks to Aleksandra for her insightful questioning and editorial care. We discussed:
The EU’s systemic energy-policy “own goals” since its initial energy-crisis win after Moscow began cutting gas exports early in 2021.
Reforming failed/ineffective Russian price-cap sanctions for real sanctions, and how the global oil market is now favorable for “maximum pressure.”
Historical perspectives on oil, gas, renewables, and nuclear sectors, essential for realistic policy formation.
An historical overview of China’s decades-long effort to overcome its energy security, learning lessons of Japan’s WW2 weaknesses.
Again, oil security is determined by both global-market balances and geostrategic realities – at present the Mideast war and Russia’s War on Ukraine. My analyses this weekend were featured in: (a)an AlHurra video (LHS English, RHS Arabic), and below these (b)a detailed BBC-Cairo print interview (LHS English Google Translate, RHS Arabic original). where I make similar points as my Friday video in Warsaw.
Alhurra ENGLISH. My comments at 2:45 & 8:20. Date: 5 Oct 2024, with co-guest GPI President Paolo von Schirach, Washington.
Alhurra ARABIC, 5 October 2024
My BBC (CAIRO) print interview in Arabic and English (Google Translate):
Recorded Thurs AM, 03Oct24. Warsaw Old Town, Castle Square.
Will Israel hit Iranian oil infrastructure? And, what part of it? To what effect on markets, and geopolitics, (i.e., Mideast, OPEC, Russia and Ukraine war)? A video report.
MAIN POINTS (see transcript):
1. What if Israel hits Iran oil infrastructure in retaliation for missile strikes on Tel Aviv on Tuesday night? 1.a. The difference effects of hitting Iranian refineries vs oil export terminals In itself, neither target would make big difference in the market. The market would immediately jump, of course, but in principle the effect would be small. 1b OPEC+ and Western Hemisphere have plenty of spare capacity.
2. Consider Saudi market tactics … reportedly they want to now go for share over price support, as price support is failing after well over a year of output cuts (about 6 mb/d). Note: Shortly after this recording the Saudis repudiated the WSJ that reported the switch in tactics to defending share. Likely they’ll now want to wait and see what happens to Iranian exports, or if this Israel-Iran tit-for-tat gets out of hand.
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.
In an Easter Sunday interview in 20+ Polish papers [POLISH & ENGLISH below], I said White House reasons for Ukraine not to hit Russian refineries don’t make sense. The “elephant in the room” alarming DC is that Ukraine can now disrupt Primorsk, UST-Luga and Novorossiskya oil ports, needed for 60% of Russian exports.
This would not only deny Moscow vital oil revenues needed to wage war, it would also spark a spectacular global oil market shock. I explain that the USA and allies can urgently prepare for this, while the Ukrainians are still maintaining strategic patience.
“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
[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:
Today (Mon., 12.09.23; 12:16 CET) EuroNews-Serbia interviewed me (Video has English audio-overlay). I explained:
Saudi logic for cutting, with Russia, about 125 million barrels from the market so far, and by the end of 2023 some 245 million barrels [1] is its prediction of soft demand due to China’s slow recovery and somewhat the EU too; plus the Saudi minister points to central banks continuing to fight inflation with high rates.
However, the IEA disagrees, seeing a shortage of supply in Q4. I added that the market is in backwardian, and so agrees with IEA.
My assessment:
Price over $100 is likely this year; it is after all fairly close now, in the 90’s.
I answered a question about who gets hurt the most from high prices.
It is the countries who do not produce oil and are relatively poor. So, mainly some states in Asia and So. Asia, Africa and Latin America.
As for Europe, rising oil price will be somewhat inflationary; especially hitting Eastern Europe, where inflation is generally still a greater problem.
However, I pointed out that compared to historical peaks in 2008-09 and 2010-11, $100 or even $125/bbl or even higher prices are needed to begin approaching the REAL price of oil back in those cases.
So, $100 oil is now not so inflationary as it was back then (and in general oil is not as inflationary as it was in the last century, because economies have larger service and knowledge sectors that are not as strongly affected by fuel prices as manufacturing and chemical industries.
I also explained that the Russian oil price cap sanctions have actually “put money in the pockets” of people in poorer states, as its enforcement meant that Russia, while still selling its oil, has been forced to sell it cheaper.
In particular, up till the start of last month (start of Sept), Russia was losing about half the revenues it would have ordinarily made on its oil exports. (This can be seen on a chart recently released by the USA Treasury Department. [3])
However, as a higher percentage of its oil (about 75% now) is sold via tankers that are not owned or insured by the EU or UK , it can be sold at higher prices without falling under the price cap enforcement mechanism. This higher price is, then, also now contributing to the higher price of oil on the global market. [2]
The Global Barrel 