Crude Observations

No More Convoy at Least…

Well, here we go. The first of many blogs that will thankfully not be about trucker convoys and occupations of national capitals. Instead, this blog will be in part about… the prospective occupation of another national capital.


We have all seen the horrific images and accounts of the unprovoked, international order defying and completely perplexing Russian invasion of Ukraine. And we all sit helplessly while on the other side of the world, the comfortable détente that we all thought was permanent is brutally shattered by the actions of one man and one man only – Vladimir Putin.


I do have some knowledge of history and politics of Eastern Europe and the old Soviet Union and the new and equally nasty Russian Federation, but I’m not going to spend my time theorizing about what cockamamie justification Putin has for the invasion, what over-arching strategy this is part of (because I’m not sure there is an actual strategy) or why he is doing this now.


I have thoughts, but there are enough pundits and scholars and the like who have their own expertise and theories and are much wiser than I am. What can I possibly add?


Okay fine. Here is how I see it. Putin took the Crimean Peninsula in 2014, and let’s face it, we let him have it. This is the endgame of that initial push. Putin can’t take and hold Ukraine. But he wants something. He wants them in his spere of influence. Because he is first and foremost a Soviet Union guy. He wants to rebuild that union. So, he will put a government friendly to him in place and back out. Ukraine will join the Russian Federation thus stopping the eastward expansion of NATO (which was never going to happen anyway) in its tracks. The two independent areas that have majority Russian speaking populations will get their wish and become impoverished vassal states to Russia.


Putin will also secure for himself a land bridge between Russia and Crimea (look at a map) which will give him unfettered access to the Black Sea.


Finally, there is a possibility of allowing a Western rump of Ukraine to remain notionally outside of Russian control, secured with a promise to never join NATO which can serve as a buffer between Russia and NATO protected Eastern Europe.


And life for people in Ukraine will be terrible. But once these objectives are met the killing will stop.


There’s really not much that NATO or the United States or Western Europe can do to stop this invasion over and above what they have currently done. Ukraine isn’t part of NATO, so there are no Article 5 protections. The 1994 treaty that guaranteed Ukrainian territorial integrity clearly means nothing to its most important signatory, Russia and with the nuclear weapons now gone, the strategic objectives of NATO and the rest of the world have been achieved.


NATO and thew United States can’t send troops as that would be an incredible provocation to a clearly unstable lunatic who has access to nuclear weapons and has implied he is ready to wave them around in a sign of his masculinity. Never mind that by the time any force of consequence could be assembled, the action on the ground would very likely be over.


Ukraine is on its own.


Ukrainian forces have been acquitting themselves well. They are a highly trained force that has been on alert and fighting in the breakaway regions for eight years. Russian forces are comprised of elite battalions and a giant army of conscripts that, while poorly trained, are there in massive numbers. The sheer volume will eventually overrun the Ukrainian forces, no matter how well trained.


Ukrainians are fighting for their country, so they won’t go down easily – it will be a war of attrition even if the high value and recognizable targets get taken – like the capital Kyiv. And there will be no diplomatic solution. The time for that went away a long time ago. That said, Putin doesn’t want to dealing with an insurrection into perpetuity so that is why I believe that once he achieves whatever weird strategic objectives he has (maybe even my wild ass guess) he will magnanimously declare victory and withdraw the majority of his forces along redrawn borders.


As for the rest of us, what can we do? We can only do what our governments are already doing. Support the efforts of the Ukrainian government with money and supplies for as long as that is feasible.


And exact economic revenge on Russia through the use of as many sanction weapons as possible. The Russian economy is not strong. COVID has ravaged the country. Interest rates are at elevated levels battling inflation and the international isolation could accelerate that.


Sure Russia has accumulated 100’s of billions of reserves over the past year thanks to rising energy prices, but that can only get you so far when your only confirmed trading partners are China, Cuba, Venezuela and Syria. And if you are fighting a war of attrition in a country of 40 million that you arbitrarily invaded, that can be pretty taxing on the treasury. I mean you have to pay these guys something, am I right?


Sanctions on banking will cripple the financial sector.


Asset seizure and freezing of accounts on specific individuals, including members of the government is going to matter. Russians don’t keep their money in Russia.


Equally important is clamping down on the Russian mob, otherwise known as the oligarchs. This group of billionaires are Putin’s key support circle. He looks the other way at their corruption and they all collectively launder their money out of Russia into western markets and assets including the United Kingdom (real estate and soccer!), the United States (real estate, yachts and stocks) and even sleepy old Canada (easy money suburban GTA and GVA real estate).


Hit their lifestyles, seize their assets, kick their kids out of posh private schools and restrict their mobility and pretty soon they are going to have a lot of questions for the crazy guy from back in the hood who keeps causing international furor. The last thing criminals and grifters like is having their shenanigans made public. It isn’t inconceivable that putting someone a little more stable in place would be in their interests. It’s like the end of Casino when the bosses decided that Vegas had gotten out of control, so they whacked everyone who was a problem.


The squeeze is definitely on and everything is on the table. Except it isn’t, is it?


Nope. Energy exports are not part of the sanction playbook. Why not you may ask.


The answer is primarily Europe, which gets 40% of its natural gas supplies and 30% of its oil from Russia. Flipping that over, 70% of Russia’s natural gas exports and 50% of its oil exports go to Russia. And energy as a whole represents 60% of Russia’s overall exports. Holy Carbon molecule Batman!


So, they are co-dependent.


Sanctioning energy imports may seem nice on paper, but it is economically reckless for the EU to do it without a plan. And as well know, the EU’s energy planning is not exactly setting the world on fire. Case in point, today Germany permanently shut down tow more nuclear power plants. What?


At any rate, there are steps that can be taken.


The first and most obvious one was to press the big red button on Nord Stream 2, the Gazprom pipeline that was waiting on approval. Once energized this pipeline was set to provide about 10% of Germany’s natural gas needs. It’s a big, big deal.


Concurrent with this, the EU needs to step up the expansion of its LNG import terminals and, maybe, get a little bit better at storage so they don’t run into these ridiculous price spikes again. Note that from this perspective, Putin may have waited too long to inflict maximum damage as the worst of winter has passed. Regardless, it’s not just a home heating issue, something like 70% of German gas consumption is for industrial purposes.


Accelerating the energy transition would also ease the dependency but… meh. Takes too long.


You know what doesn’t take too long? Other countries doing something. Since 2021, the US has been importing, on average, 150,000 barrels of oil per day from Russia. At current prices, that’s $13.5 million dollars a day or $5 billion dollars a year. Funny tidbit? They don’t need it. It can come from Canada. It can come from Saudi Arabia. Heck, they can even slow down their own exports a bit.


It needs to stop. Now.


Similarly, Canada also receives imports of Russian oil to the east coast (yes, yes, I know, Energy East). In the last year that averaged 17,000 barrels per day or about $550 million for the year. Clearly that can stop.


All told, Russian exports of energy to the UK, the EU and North America amount to $700 million a day. We are literally funding the war we want to stop.


I get it, it’s physically impossible to “embargo” Russian energy and they are currently too important to the EU to just shut off the taps.


But we can, and should, take all necessary steps to reduce dependency on Russian energy. And, I would argue, just for fun, imported energy, especially from untrustworthy and rogue regimes – you know who they are.


In a world where “everything” has changed, “everything” should be revisited.  This includes the energy transition. It also includes a critical look at our own energy infrastructure, vulnerabilities and possibilities, including more domestic production and (shudder) pipelines.


None of these actions will reverse Russian aggression in Ukraine, nor will it materially (if at all) improve the lives of anyone affected by this senseless war. And it will have devastating impacts on the average Russian, including those who are bravely protesting the invasion on the streets in major Russian cities (and being promptly arrested), but it is a necessary and only way to retaliate and eventually win this battle against Putin and Russia.


It is worth remembering that the Cold War against the Soviet Union wasn’t won by any decisive physical battle. We spent them out of existence – they couldn’t keep up economically and the Soviet sphere of influence collapsed on itself. It’s small comfort to the people of Ukraine, but we can, and must, do it again.

Crude Observations
Sign up for the Stormont take on the latest industry news »

Recent Posts