The authorities of the European Union, and above all Germany, which depends more on Russian energy supplies than other European countries, began to mentally prepare the population for the upcoming crisis. Moreover, not only in the energy sector, but also in agriculture, construction and a number of other industries. The most interesting thing is that this is happening against the background of the Kremlin’s assurances that our country will fulfill all its previously assumed obligations regarding the supply of fossil fuels and does not plan to impose counter-sanctions.
In this regard, two questions arise. First, why do Europeans cut the branch they are sitting on? Why mix politics and economics, which artificially leads to a shortage of raw materials in their countries and thus reduces the standard of living of the population? And second, does Russia really need foreign exchange earnings to withstand openly hostile rhetoric from its Western “partners”? Perhaps it makes sense to “close the valve” and really use energy resources, or rather to ban their export to unfriendly countries, as a geopolitical tool?
Forpost addressed these questions to the leading expert in the field of the fuel and energy complex, President of Saint Petersburg Mining University Vladimir Litvinenko.
– Vladimir Stefanovic, the volume of gas and oil supplies to Europe is not declining, but despite this, analysts paint bleak pictures of the upcoming crisis that is about to cover the European Union. How realistic are these expectations? And do Europeans really depend on our energy resources, in particular, on natural gas?
Vladimir Litvinenko: Undoubtedly. And not just from energy resources. We have superiority in 32 types of minerals and 4 types of hydrocarbon raw materials, including fuel oil for the short-term regulation of the European energy market in the geopolitical interests of our country. Speaking specifically of natural gas and the possibility of it being replaced by LNG, this is not realistic for the foreseeable future.
Producers cannot increase production immediately. All of them, whether they are representatives of Qatar, USA, Australia or other countries, have long-term contracts with old clients. Taking on additional obligations to new clients is a huge risk, you simply cannot fulfill them and fall under the threat of penalties. Therefore, the additional volume of LNG that will eventually reach Europe will not be very large, and will have to be bought on the exchange at inflated spot prices.
In addition, we must not forget: in order to compensate only for the absence of Nord Stream 2, which Europe and Germany really need, about six gasification plants will have to be built. This will take several years, and the cost of each of them, taking into account current inflation, may exceed 2 billion euros. So the refusal of Russian gas will lead not only to a crisis, but to a real disaster, first of all, for ordinary Europeans.
This is well understood in Berlin. The other day, Germany’s vice chancellor, Minister for Economic Affairs and Climate Protection Robert Habeck, said that if supplies from Russia were cut off, Germany would not have enough gas to heat all homes or keep the entire industry running. This is a direct quote.
– German Agriculture Minister Jim Ozdemir advised the Germans to “reduce meat consumption to counter Russian policy.” The executive director of the Construction Association of Lower Saxony, Matthias Wachter, noted that the crisis in Ukraine “creates more and more problems with the supply of building materials.” According to him, “there is already a shortage of bitumen, steel and steel products needed for building construction and mechanical engineering.” It is clear that our country, by limiting the export of energy resources, can show Europe that the imposition of large-scale sanctions against us is at least unreasonable. This measure may have a major impact on the minds of EU politicians and voters. How realistic is this?
Vladimir Litvinenko: I repeat once again: most European countries are highly dependent on Russian energy and mineral resources. This is also the opinion of many Western experts. Including prominent economist Paul Craig Roberts, author and economic policy theorist of the United States government from 1981 to 1989, Deputy Secretary of the Treasury in the Ronald Reagan administration.
He says frankly that “Russia can respond to sanctions with counter-sanctions, such as barring unfriendly consumers of oil, natural gas and other minerals.” In his opinion, in this case the West will agree to all the conditions dictated by Russia. Because otherwise, Western industry will simply cease.”
Why doesn’t this happen?
Vladimir Litvinenko: The main problem is that American neoliberal economists have brainwashed our economists and representatives of the Central Bank of the Russian Federation. For many years they have been saying, like a slogan, that Russia needs foreign currency for sustainable development. And we obtain it specifically through the sale of oil and gas and a number of other resources abroad. Mr. Roberts believes that “this is amazing stupidity, which slows down the development of the Russian economy and does not allow the application of strong counter-sanctions.” The same “stupidity” is the reason why the Central Bank does not finance the development of Russia through the growth of domestic consumption.
Look at the example of China. For many years, this country has relied on foreign investment and exports as the main drivers of economic growth. However, the situation has changed in the past decade. Chinese President Xi Jinping has come up with an initiative to accelerate the reorientation of the Chinese economy towards domestic sources of growth. This strategy is known as “inside trading”.
Of course, foreign investment and technology are still an integral part of it, but the entire economy is aimed primarily at meeting demand from the Chinese themselves, and not from external consumers. And new jobs are created specifically for this. Now, after the US sanctions against Huawei and some other companies, it became clear that this was quite the right decision.
Can Russia follow this path?
Vladimir Litvinenko: Without a doubt. Our country must pay the energy and mineral bill in rubles, thereby strengthening its currency, and not the currencies of its opponents. Controls must be placed on the currency so as not to support speculators. However, Russia still sells strategic resources to the West and accepts payment in dollars, which weakens the ruble.
Paul Craig Roberts says frankly that “the Russian Central Bank, without realizing it, serves the West and the success of Western sanctions.” Moreover, our regulator believes that he cannot issue circulating rubles to finance investment projects within the country if these funds are not backed by foreign currency. In connection with this situation, the state is forced to borrow money that it does not need and pay interest to creditors. It makes no sense at all.
We have all the winning cards in our hands that should help us win against penalties. However, for an imaginary reason, we are afraid to put it on the table. It is necessary to put aside doubts and do it. Russia does not need foreign currency. We do not need to import energy and minerals. We have the technology and the scientists who will create everything we need. The central bank can finance all domestic projects regardless of the presence or absence of dollars.
If such a strategy is adopted, the result will certainly be. The American and European consumer is not Russian. There are other endogenous genes, a different mindset. The West does not have what Russia really needs, but the West, in turn, cannot survive without Russian energy and minerals.
But the European Commission recently published a plan to phase out Russian energy resources. It said it could be implemented “well before 2030”. Moreover, the import of natural gas from our country, according to this document, should decrease by 67% in eight to nine months. How does this fit with what you just said?
Vladimir Litvinenko: As you can see, the European Union, like Ukraine, is not an independent player in geopolitics. Brussels, as a satellite, does what it is told it is across the ocean. And it does not matter whether it is useful to Europe itself or not, Washington is not concerned with it. He is extremely indifferent to the dire consequences that would lead to the implementation of such a decision for many EU countries. Although, as I have already said, it will not, of course, be implemented. It is unreal.
The reasons for such statements are on the surface. Let me give you a small example. Fifteen years ago, we established the Russian-German Raw Materials Forum. On this site, working meetings and discussions were held for senior politicians, economists and scientists from both countries. Therefore, at nearly every conference, I have suggested to our partners that we adopt a long-term agreement in the energy sector, which would articulate the FRG’s resource needs.
The advantages of this approach are obvious: Russia will understand what types of mineral raw materials and volumes our partners need, including taking into account the development of alternative energy. That is, taking into account the growth in demand for copper, nickel and some other types of “green” metals, the prices of which today are breaking records on the stock exchanges. In turn, the Germans will understand that in the future they will not have a shortage of strategically important resources and will not have to overpay for them, because thanks to supplies from our country, the market will maintain a balance of supply and demand.
However, our partners did not want to sign any papers. Moreover, in recent years, they have not wanted to talk about anything other than hydrogen at all. That is, our discussions from a practical level are beginning to go somewhere to the side. In fact, they lost any meaning at all.
Why did this happen? The truth is that Americans are making great strides in the global LNG market. In a few years, they are likely to overtake Qatar and Australia and take the lead in the list of LNG exporting countries. It is unprofitable for them for the Europeans to cooperate with Russia in the energy sector in the long run. That is why they did everything in their power to ensure that the Nord Stream 2 project, which is necessary, first of all, for Europe, ordered to live for a long time. And now they are provoking the European Union into another decision that is not profitable at all from an economic point of view.
But the United States itself is the main beneficiary. About half of the total US supply of LNG, the total volume of which in 2021 increased significantly and amounted to about 70 million tons, was directed specifically to Europe last winter. For Washington, this is a new market that has not yet been fully developed. Moreover, the US trades at spot prices, and as you can see, they are on a cosmic scale. Electricity bills in Europe are on the rise, and so are the pressures on businesses, including the big ones. Steel and fertilizer producers openly declare that it has become unprofitable for them to do business.
But Russia hasn’t done anything yet. nothing at all. Everything that is happening now is just the result of wrong policy and the absence of strategic planning on the part of Brussels and the national governments of a number of EU countries. Can you imagine what would happen if the decision to really “turn off the valve” was made?