2008 August 31 Sunday
Russia Threatens European Oil Cut Back

The Russians want the European countries to know that they are powerless to force Russia to pull out of Georgia.

Reports have begun to circulate in Moscow that Russian oil companies are under orders from the Kremlin to prepare for a supply cut to Germany and Poland through the Druzhba (Friendship) pipeline. It is believed that executives from lead-producer LUKoil have been put on weekend alert.

"They have been told to be ready to cut off supplies as soon as Monday," claimed a high-level business source, speaking to The Daily Telegraph. Any move would be timed to coincide with an emergency EU summit in Brussels, where possible sanctions against Russia are on the agenda.

Europe would be lucky in the long run if Russia cut back on oil supplies to Germany. That would serve as an enormous wake-up call to the Germans. They'd be forced to revisit their planned nuclear power plant phase-out and would likely shift toward building new nukes instead. Also, they'd further ramp up wind and solar and shift toward a more electrical economy.

Moscow is not above playing the oil card.

Supplies were cut to Estonia in May 2007 following a dispute with Russia over the removal of Red Army memorials. It was blamed on a "repair operation". Latvia was cut off in 2005 and 2006 in a battle for control over the Ventspils terminals. "There are ways to camouflage it," said Vincent Sabathier, a senior fellow at the Centre for Strategic and International Studies in Washington.

These rumors are probably part of an effort by Putin and company to intimidate the Europeans from punishing the Russians for their partial occupation of Georgia.

European diplomats say Moscow has sent a clear signal it will retaliate if the EU imposes sanctions arising from the Georgia conflict during an emergency summit of to be held on Monday.

The Russians are denying the rumours. They do not need to admit that they started the rumours. The rumours have already achieved their desired result.

Russia's energy minister and a top oil company denied on Friday they were preparing to cut oil flows to Europe in response to threatened sanctions, a step Moscow never took even at the height of the Cold War.

At this point Europe needs Russia more than Russia needs Europe. The Russians can buy goods from the Far East if the Euroes put any restrictions on their exports. The Russians can afford to cut back on oil production given how much they can make off of higher oil prices.

The coming peak in Russian oil production is close. The world oil production peak is near as well. Therefore the European countries all need to make plans for how to gradually replace the oil and natural gas from Russia. The Russians would do them a favor by cutting back on fossil fuels exports at this point in time. Such an act would spur the Europeans to develop alternatives that they need to develop anyway.

Share |      By Randall Parker at 2008 August 31 03:27 PM  Russia

Stephen said at August 31, 2008 7:17 PM:

Randall said: The Russians can buy goods from the Far East if the Euroes put any restrictions on their exports.

Not really. The Russian nouveau riche want luxury goods (BMW, Mercedes et al) and the only place to get them is western Europe. Western Europe doesn't even try to compete with the Far East - only the US is fooling enough to try that.

Kenelm Digby said at September 1, 2008 2:53 AM:

You talk a great deal about the coming 'Russian oil bust' with a great deal of self-satisfaction and contentment, as though it was a wish fulfillment.
However, I'm sorry to bust your bubble, but when one considers the absolutely enormous reserves of methane clathrates concealed in lake-bottom sediments in Siberia (estimates range in trillions of cubic meters - the energy equivalent of all other hydracarbons combined), and the fact that these huge reserves haven't even been attempted to be tapped yet (i doubt if they present any insurmountable expense or technical difficulties), an altogether different picture emerges.
Suffice to say that the prosperity of Russia is secured for many, many generations to come.

Randall Parker said at September 1, 2008 8:10 AM:

Kenelm Digby,

I certainly do not talk about the decline in oil production with "great deal of self-satisfaction and contentment". I expect to become unemployed when that happens. I expect we will have to spend more of our incomes on food and basic utilities. This isn't going to be fun.

My point about Russia is that it is punching above its weight and it is near peak in power and influence. Maybe the Russians will be able to get the Ukrainians back under their rule before Russia's demographic and energy decline pull them back down again. But their run of renewed power will be short-lived.

Methane clathrates: I used to think they were going to get exploited at a level that will melt the polar ice caps. But the optimism around them from an energy perspective has gotten seriously dampened as a result of research.

daveg said at September 3, 2008 1:16 PM:

Does russia sell this oil at market rates? I have heard conflicting stories on this...

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