Tuesday, March 4, 2014

Russia And The Ukraine: Follow The Money (and the energy)

More and more is beginning to emerge regarding this rapidly evolving situation in the Ukraine. As usual, it is a highly complex geo-political situation that ultimately seems to involve energy and money:

Ukraine: 'More Dangerous Than Cuban Missile Crisis

“The Russians are not going to permit the loss of their naval base in Crimea, or their military-industrial complex in the eastern Ukraine.  These are military-industrial cities.  This is all now threatened by this change in Kiev that the Americans engineered.

This situation is now more dangerous than the Cuban Missile Crisis.  If the  Americans have to save face, and they can’t admit that this was something they caused, and they continue demonizing Putin and Russia, the danger to the world is immense.

Everyone in the U.S. mainstream media is calling for war.  One retired general was saying, ‘We can whip the Russians easy.  They can’t shoot straight.  We should attack and send troops to Poland and send the U.S. Navy to take the Black Sea base from the Russians.’  This is crazy stuff -- absolutely crazy and insane talk.

Well, the Russians aren’t going to back down -- they can’t.  It would be a strategic disaster for them to lose their Black Sea base or to lose the military industrial-complex in eastern Ukraine. So lines are being drawn here.  What happens in Ukraine has serious consequences for Russia.  So they have a huge stake in Ukraine.  But the administration in Washington is not sufficiently intelligent enough to be aware of that, and they feel they’ve got to save face.

You see, Eric, when Kennedy and Khrushchev came eyeball-to-eyeball during the Cuban Missile Crisis, both were intelligent and sensible people.  They realized it wasn’t worth a war, especially between two nuclear powers.

Regardless, this has permanently poisoned Washington’s relationship with the Russian government.  The Russians now see that Washington is a reckless, irresponsible entity that tried to subvert an area of great strategic importance to Russia.

The American government it too full of hubris and arrogance to accept such a defeat.  So I think they will push further.  But there is extraordinary danger in taking such an aggressive stance, and people in Washington should understand that this push on Russia involves an incredibly high risk to the entire world.  That’s the great danger the world faces -- Washington’s arrogance.”

 Many have noted that the Russia economy is critically dependent on oil and gas exports to the EU. It should be noted that the converse is less true every day about EU dependence on Russian oil and gas. The Wall Street Journaleven had a line about an EU proposal to push natural gas EAST to the Ukraine. It's hard to understand that passage or where the natural gas could come from unless one understands the North Africa to southern Europe gas pipelines.

The factors bringing the conflict in Ukraine to a head are:

1. The natural gas discoveries in eastern Poland and western Ukraine played the largest role.

2. The reduced importance of the gas pipeline running through the Ukraine to Europe as compared to 2009. Since that time the Nordstream lines have been finished and Gazprom acquired commercial control of the Belarus pipeline. The South Stream lines are well along in development.

3. Fast developing liquid natural gas (LNG) seaport terminal infrastructure.

Events in Libya, Mali and Algeria are not hermetically isolated from this. They are part of a comprehensive energy policy problem being dealt with by the same leaderships. It increasingly looks like a series of peripheral Energy Wars that are being fought out for control of Europe.
LNG exports are going to become a weapon in the struggle for geopolitical influence and control.

This highlights another problem for Russia/Gazprom. Its present natural gas advantage in Europe now rests mainly on its pipeline infrastructure. This advantage is fading due to the current and proposed pipeline projects running through Turkey to Europe, plus LPG terminal & ship developments, plus the five trans-Mediterranean pipelines from Libya, Algeria and Morocco to southern Europe, plus local shale gas plays...

The Ukraine is not the only country becoming less systemically important to Europe for natural gas supply. So is Russia. Current events will only accelerate everyone's efforts to diversify away from such an unstable and apparently dangerous supplier.

I think the long-term fallout from the Ukrainian Crisis will be similar to China's attempt to exploit its temporary low price monopoly position in rare earth metals a few years ago. The result is rare earth metals are becoming less rare by the day as alternate mines outside China are opened and reopened.

Russia said it had successfully test-fired an Intercontinental Ballistic Missile (ICBM) on Tuesday, with tensions running high over its military intervention in Ukraine's Crimea region.
A U.S. official said the United States had received proper notification from Russia ahead of the test and that the initial notification pre-dated the crisis in Crimea. The Russian Defence Ministry could not be reached for comment.
The Strategic Rocket Forces launched an RS-12M Topol missile from the southerly Astrakhan region and the dummy warhead hit its target at a proving ground in Kazakhstan, Defence Ministry spokesman Igor Yegorov told state-run news agency RIA.
The launch site, Kapustin Yar, is near the Volga River about 450 km (280 miles) east of the Ukrainian border. Kazakhstan, a Russian ally in a post-Soviet security grouping, is further to the east.
Russia conducts test launches of its ICBMs fairly frequently and often announces the results, a practice seen as intended to remind the West of Moscow's nuclear might and reassure Russians that President Vladimir Putin will protect them.

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