Video: My answers in English; Host’s questions in Arabic.
Note: Questions in Arabic; my responses in English.
I explained how the crude oil cap is thus far successful. This bodes well for the products’ cap effectiveness.
The market situation is relatively favorable for application of EU sanctions on all Russian refined products on 5 February. Demand is still soft as Europe, even if it is not going into recession, and it is coming out of an unusually war winter that also softened demand. Also, China is not yet roaring back from its COVID reopening attempts.
Summary (Added only on blog, T.O’D.): Scholz’s resistance to sending Leopard 2 tanks to Ukraine has freed up many in Germany and beyond with reservations about the direction of the West’s strategy to become vocal.
Scholz is opposed to the recently changed USA-NATO strategic understanding that Putin’s new, long-war-of-attrition strategy could give sufficient time for his larger economic and energy war on Europe to bear fruit, seriously disrupting the West’s solidarity with Ukraine.
Biden and the NATO majority concluded that Putin’s long war of attrition strategy must be smashed. This requires large numbers of heavy weapons – tanks, aircraft, etc. – for Ukraine.
However, Scholz’ faction in Germany and in other EU states see a stalemate (e.g., war of attrition)) as likely positive, as it might lead in time to the two sides accepting a negotiated settlement or frozen conflict. This, they feel, is the path to ending the dangerous Russian-EU energy and economic war.
However, the majority pro-escalation camp, expects that a war of attrition (aka stalemate) risks the destabilizing effects of a prolonged and costly economic-and-energy “Cold War. 2” on Western stability and solidarity.
Scholz’, by demonstrably stalling NATO’s ability to send German tanks, effectively signaled his leadership of the no-escalation and pro-stalemate EU-wide faction, which is of significant size. In Germany sections of every political party now align with Scholz’ strategy. He and his faction wait for their time, when and if the new NATO escalation strategy fails.
All German parties were deeply involved in the previous energy partnership with Moscow; there is no significant organized opposition faction able to take leadership from Scholz and implement a Zeitenwende. This vacuum drives a gathering German – and EU – political crisis
Moscow is well aware of these matters. (Kyiv Post Opinion piece follows)
German Chancellor Olaf Scholz’s resistance to sending Leopard 2 tanks to Ukraine has freed up many in Germany with deep reservations about the direction of the West’s strategy and policy, to voice their frustrations, fears and, for many, an unwillingness to join in a Russian-Ukraine war, as opposed to containing it.
Al Jazeera asked for an online commentary within an hour of Putin’s announcement. These were my initial thoughts.
I also spoke to AJ Arabic, and a couple hours later, on Germany’s Deutsche Welle’s English language service elaborated on these points (see video, next blog post).
The question is where will the EU-USA-g7 western alliance go from here. If they stepwise lower the cap, and also work hard to get new oil online (from OPEC and the USA), they can gradually keep lowering Russia’s market share. However, as I indicated, the coming recession – esp. in Europe – and the uncertainties of Chinese demand as it exits COVID shutdowns in early 2023, complicate calculations of whether the globala oil market will be short or long on supplies and if the price will spike or not. I said this will be “a chess game.”
The title above says much more succinctly what I was hoping to get into in this interview. Below are the beginning of an article I was writing for this blog post. However, a USA organization is interested in using it for an Op-Ed. So, only the initial part is below. I hope to post on this fully very soon (i.e., a published article). – Tom O’D.
In my view, the Biden Administration has unwisely gotten into an exaggerated public clash with the Saudis and OPEC/OPEC+ over their 2 mbd quota cut.
The key here is the need for more investment rapidly into both the OPEC states (which have plenty of oil reserves that can be developed) and into USA shale resources (that are also abundant and need to be more rapidly expanded).
The looming global recession discourages investors in both instances, of course. And, the Biden administration has reason to worry, both if a global recession soon begins, slashing oil demand, and especially if it doesn’t (but, it will).
I agree with Ed Morse (video interview on CNN here), veteran oil-market analyst, head of Citibank’s Global Commodities: Regardless of the OPEC quota cut, given the strong trend towards a global recession, which is proceeding relatively slower in the USA than elsewhere, it’s likely oil prices will be “in the $70’s at the end of the year.”
EU Commission President Ursula Von der Leyen presented the commission’s plan to address the growing energy crisis before and during the coming winter. Now there will be two weeks of discussions among Member states until their energy ministers gather on 30 September to decide which to endorse. There will undoubtedly be no price caps on Russian or other natural gas. There will be liquidity for those energy companies struggling to purchase high-priced gas. There are measures to decouple the effects, at least, of the coupling of the electricity prices to high natural gas prices in the wake of Putin’s regime cutting its pipeline flows to Europe. The idea here, as I explained, is a sort of “windfall profits taxes” on low-cost energy producers, such as renewables and nuclear, to capture their rents and redistribute them to those citizens and firms struggling to pay energy bills during the crisis. I explain that this is a wholly appropriate measure during wartime, which is what this is – an economic and energy war vs. Russia to support the Ukrainian people’s fight against Russian aggression. I was asked, again, as on other networks recently, whether the EU is “divided” on these measures. I explained how there are absolutely no proposals that the EU (or USA) back down on its sanctions program vs. Russia and esp. vs. Russian energy. I explained how, despite Orban of Hungary and some similar examples, these have been pretty well handled by the majority of Member states and the Commission and in fact the sanctions and emergency measures have gone forward. I noted that in two or so years, Russia will be relegated to a second-level energy exporter, and the EU will certainly be able to be independent of Putin’s regime in the energy sector.
He did not insist, as have various Russian Federation officials lately, that Nord Stream 1 gas flow has been cut for technical reasons to do with the lack of a Siemens compressor.
The compressor in question was sent to Canada for repairs, but its return has been waived from sanctions restrictions. As Chancellor Scholz rightly said, the lack of a compressor is clearly not what cutting gas to Europe is about. It is political.
Nor did the expert in Moscow claim it was due to bureaucratic German-Russian difficulties with paperwork, as Putin and others have claimed..
He instead pointed out that the EU has said it will stop by year’s end the import of Russian oil, and Germany has said it will not use Russian gas in two years, and, without this and some sort of “political compromise,” gas could undoubtedly be fully flowing again from Russian into the EU.
So, I asked – rhetorically – just what possible sort of “compromise” might Putin be angling for? The Donbas for gas? Odessa for gas?
I asserted my opinion that “Europeans have their sense of dignity” and would never agree to such a “compromise.” Put that way, they will prefer to be cold this winter and to have industries and businesses have to shut for lack of gas.
We also discussed a few details of what sort of suffering – rationing of energy, low temperature heating and closing of businesses – Germany and the EU can expect to have to endure this winter.
The title tells most of it. I explain why I think Putin is playing with gas, not oil and the EU and German vulnerabilities.
Now, German storage will not be able to be filled to the ministry’s target level of 95% by November, according to the Federal Transmission System chief, Mr. Klaus Muller – in fact, even if NS1 were still flowing at 40%.
Not only that, although Energy Minister Habeck has agreed to bring back online all the coal power plants possible, in fact Germany has a poorly thought-out over dependence on wind and it simply is not blowing much this summer. So, in actuality, we are burning more gas now to produce electricity than last year – a complete waste of gas. Also, the Rhine is low and coal barges are having difficulty delivering coal to power plants.
We discuss the excuses Putin is giving for cutting Nord Stream 1 flows now from 40% to only 20%. I asserted that they are nonsense. (Various links are below, under Read More.)
This pipeline has been in service since 2011 and there has never been a cut back of flow due to a defective or poorly maintained compressor, and now Russia is claiming a second one is in disrepair. Putin, in Tehran, last week warned he would do this and also said that Ukraine refusing to transit Russian gas through territory Russia has forcibly occupied is another reason he might cut Nord Stream 1 flows. So, this is clearly political, not technical.
This will mean, according to comments recently by Klaus Mueller – head of the German Federal Gas Transit Agency, that it will be impossible to fill German storage to the 95% level the minister has ordered — Mueller had said this was the case even at the former 40% flows of NS1.
I explained the reason Putin is playing this game with gas deliveries – because natural gas brings his regime far less revenues than the all-important business of Russian oil exports, while at the same time natural gas is much harder now for Europe to replace for some years hence from other sources – as it arrives mostly via pipelines from Russia, not by sea like most oil. So, gas is Putin’s greatest lever for now in the energy front of the economic war being waged in support of Russia’s war of aggression against Ukraine.