The World Economy No Longer Needs Russia

For years, and since his invasion of Ukraine last February, Russian President Vladimir Putin has been riding high on his perceived omnipotence, holding the world economy to his whims. Since last summer, Mr. Putin has choked off gas to Europe, hoping that Europeans, shivering and without heat in the winter, will turn on their leaders and make it difficult for them to continue supporting Ukraine.

The risk was high: In 2021, 83 percent of Russian gas was exported to Europe. Russia’s total global exports of 7 barrels of oil per day and 200 billion cubic meters (bcm) of pipeline gas per year are half of its federal budget. Crucially, Russian exports played an important role in the global economy: Europe depended on Russia for 46 percent of its oil, relying on other Russian products including steel and fertilizers.

Now, as we approach the one-year anniversary of Putin’s coup, it is clear that Russia has lost its former economic power in the global market.

For years, and since his invasion of Ukraine last February, Russian President Vladimir Putin has been riding high on his perceived omnipotence, holding the world economy to his whims. Since last summer, Mr. Putin has choked off gas to Europe, hoping that Europeans, shivering and without heat in the winter, will turn on their leaders and make it difficult for them to continue supporting Ukraine.

The risk was high: In 2021, 83 percent of Russian gas was exported to Europe. Russia’s total global exports of 7 barrels of oil per day and 200 billion cubic meters (bcm) of pipeline gas per year are half of its federal budget. Crucially, Russian exports played an important role in the global economy: Europe depended on Russia for 46 percent of its oil, relying on other Russian products including steel and fertilizers.

Now, as we approach the one-year anniversary of Putin’s coup, it is clear that Russia has lost its former economic power in the global market.

Thanks to a warm winter in Europe, Putin’s hard-working days have gone smoothly, and, as we predicted last October, the biggest victim of Putin’s oil gambit was Russia itself. Putin’s gas power is now nonexistent, as the country—and, more importantly, Europe—no longer needs Russian gas.

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Instead of freezing to death, Europe quickly found alternative gas in pursuit of the world’s liquefied natural gas (LNG). This includes about 55 bcm from the United States, two and a half times more than the US exported LNG to Europe before the war. Combined with increased production from renewable sources, nuclear, and, currently, coal, other resources found in these areas have reduced Europe’s dependence on Russian gas to 9 percent of its total gas exports. In fact, Europe is now buying more LNG than it ever bought Russian gas.

In addition, an unseasonably warm European winter means that not only has the worst-case scenario been avoided, but all of Europe’s storage tanks have not been depleted and will likely continue into the coming winter. In January, Germany’s storage tanks were 91 percent full, up from 54 percent last year, meaning Europe will have to buy less gas in 2023 than in 2022.

The results are huge. Europe is now guaranteed to be self-sufficient in energy until 2024, giving enough time for low-cost alternatives – renewables and fossil fuels – to be introduced and run in Europe. This includes the completion of an additional 200 bcm/year of LNG exports by 2024—enough to offset Russia’s 200 bcm/year natural gas supply once.

In addition, the days of high-cost global electricity between “Russian controlled squeezers” are well and truly over. In addition to Europe’s expected lower demand for LNG, China is moving away from international LNG in favor of domestic sources. Coupled with the ever-increasing supply of LNG, it is no surprise that the gas futures market is now making oil prices cheaper than pre-war levels for years to come.

Putin, on the other hand, has no chance to stay and has no way to change his old client; they are finding that it is easier for consumers to replace unreliable suppliers than it is for suppliers to find new markets. Already, Mr. Putin is not getting any profit from gas sales, because his pipeline sales of more than 150 bcm to Europe were replaced by 16 bcm to China and pocket change from international sales of LNG, which was not enough to pay the bills. There are no markets for Putin to change anything close to 150 bcm: China doesn’t have the pipeline capacity to take it back for a decade and prefers domestic and diversified energy sources, while Russian technology makes it impossible. LNG exports continue to slow.

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Putin’s oil boom is also on the wane. Gone are the days when fears of Putin taking Russian oil off the market sent oil prices soaring 40 percent in two weeks. In fact, in response to the release of the G-7 oil price last month, which we helped create – Putin announced a ban, starting on Feb. on the ground.

Why? Because now it seems that the world is no longer dependent on Putin’s oil. The oil market is turning in favor of buyers, not sellers, amid a glut of supplies – more than offset by a potential drop in Russia. (In December, Russian Deputy Prime Minister Alexander Novak told Russian media that the government was ready to cut oil production to 700,000 barrels in 2023.) Oil prices are now lower than before the war, and in the second half of 2022 alone, they were running supplied with 4 million barrels per day from producers such as the United States, Venezuela, Canada, and Brazil. With new additions expected this year, any Russian losses could easily be reversed in a matter of weeks. And this time, Putin will not force Saudi Arabia to come to the rescue by cutting OPEC+ production quotas as he did last October. That’s because the United States is now suspending the transfer of Saudi weapons and technology amid widespread international scrutiny of OPEC+’s unused surplus.

Putin’s power has also changed because the price of the G-7 gives him a chance to lose, which damages Russian power no matter what he does. China and India, without taking part in the risk, are using it to drive a strong partnership with Russia, with a discount of up to 50 percent, so even India is buying 33 more Russian oil than it was a year ago. not making a big profit, because of its low price of $ 44-even if its production cost is above the cost of transportation. But if Putin cuts production even further, as he has threatened to do, he will lose an important share of the oil market, a long-standing obsession of Putin’s, in the midst of an oversupplied oil market and cut off revenues while he is already starving. money.

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Even some of Putin’s cards are all used. His desire to carry food fell to the ground when even his friends who were known to support him turned against him. And in some metals markets where Russia once dominated, such as nickel, palladium, and titanium, buyers who fear fraud combined with high prices have accelerated the recovery and reinvestment of former public and private companies in the vital mining and quarrying industry. This is mainly in North and South America and Africa, where there are many mineral deposits. In fact, in many key metal markets, such as cobalt and nickel, the output of new mines that will be opened in the next two years will add enough volume to replace Russian metals in the supply chain around the world.

Putin’s economic failure is yet another misstep to add to a long list, from his dehumanization of Ukraine to his undermining of public relations with Western powers.

Of course, Putin’s failed war on economy and power has not been without results. The crash has affected many lives, changed the supply chain, changed the business cycle, and consumers are still feeling that prices have gone up because the low prices that have just been achieved take time to take effect in the economy.

But the important thing is that the end is near. Putin will no longer have the chance to cause chaos and economic collapse around the world, because he has weakened Russia’s strongest arm – its power and resources – to the point of elimination. The battle on the battlefield is still being fought, but on the financial front at least, victory is in sight.



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