The current situation in the Ukraine is simple.
First, the facts. Russia produced around 10.6 million barrels of oil
in 2012 according to BP’s Global Statistical Review. This was second
only to Saudi Arabia who produced around 11.5 million barrels. BP will
release its 2013 statistics in the next few months; we don’t expect to
see too much proportional change. Total global oil production is
currently at around 86 million barrels, this highlights Russia’s
position. Russia is even more prominent in natural gas production; it
produced around 592 billion cubic metres in 2012 which was the largest
single production by a nation. A large proportion of this gas exports
through legacy pipelines, which run through countries like the Ukraine
and end up as a major energy source for most of Western Europe.
At the end of the day, Western Europe needs its energy and Russia
knows this well. This brings us to the second point, politics. Russia
can afford to negotiate its geopolitical interests on its own terms
because it knows that whatever reasonable measures it puts into place,
there is little that Western Europe can do economically. A military
occupation of Crimea and other Russia interests in and around the
Ukraine will be met with nothing other than Western vocal opposition.
Russia knows that it can push its military to certain points with little
consequences. The West will use its media and lobbying to try and paint
Russia as an aggressor but this is not likely to make any difference,
as has been the case in Syria for the past two years.
The third point is economics. If there are military strikes in the
Ukraine, which is not likely, there might be a slight spike in the gold
price. Russia needs global markets to sustain its economy; it cannot
afford to isolate itself. It knows that military operations are a just a
means to prove the point that it is a force to be reckoned with. The
whole issue highlights a bigger theme around energy prices. Western
Europe is held hostage to a dominant and defiant Russia which is still a
completely dominant force in energy markets. This means Western capital
and technology will chase diversification in the coming decade. North
Africa and the Mediterranean are key areas of energy development for
Western Europe, particularly for liquefied natural gas. If the West
cannot get this type of diversity up and running fast enough, the
squeeze on oil prices will be profound.
Peter Esho, Invast.
