Opinion – Thomas L. Friedman: Putin seems to save a more powerful bomb for Christmas

As the Russian army continues to falter in Ukraine, the world worries that Vladimir Putin could use a tactical nuclear weapon. It could be, but for now, I think the Russian president is assembling a different weapon. It’s an oil and gas bomb forged before our eyes and with our inadvertent help — and he could easily detonate it this Northern Hemisphere winter.

Doing so could send home heating oil and gasoline prices skyrocketing. The political fallout (which Putin certainly expects) will split the Western alliance and drive many countries — including the US, where Trump-allied Republicans and progressives voice concerns about the escalating cost of the conflict — to seek a dirty deal with the Kremlin man, and fast.

In short: Putin is now waging a ground war to break Ukraine’s lines and a two-pronged energetic one to break the will of Ukraine and its allies. He is trying to destroy Ukraine’s electrical system to ensure a long, cold winter there, while putting himself in a position to raise energy costs for all of Kiev’s allies. And since we – the US and the West – don’t have an energy strategy to cushion the bomb’s impact, the prospect is daunting.

When it comes to energy, we want five things at once that are incompatible — and Putin is on to it:

1. Decarbonize the economy as quickly as possible to mitigate real dangers from climate change.
2. Cheapest gas and heating oil prices possible, so we can drive fast cars and never have to wear a sweater indoors or do anything to save energy.
3. Tell petrodictators in Iran, Venezuela and Saudi Arabia to go for a walk.
4. Being able to treat US oil and gas companies like pariahs and dinosaurs that should get us out of the current crisis and then go into the woods and die, letting solar and wind power dominate.
5. Oh, and may new oil and gas pipelines or wind and solar transmission lines not spoil our backyards.

I understand why people want all five – now. I want all five! But they involve exchanges that few of us want to acknowledge or discuss. In an energy war like the one we are facing, you need to be clear about goals and priorities. As a country and Western alliance, we don’t have a scale of priorities, only competing aspirations and the magical thinking that we can have it all.

If we persist in this, we will have a world of suffering if Putin drops the energy bomb that I think he is assembling for Christmas. Here’s what I think his strategy is: it starts with getting the US to reduce its strategic oil reserve. It’s a huge stockpile stored in giant caves that we can turn to in an emergency.

On Wednesday, President Joe Biden announced the release of an additional 15 million barrels from the reserve in December, completing a plan he previously laid out to release 180 million barrels in an attempt to keep the price of gasoline at the pump as low as possible. as low as possible – before the legislative elections. (He didn’t say the last part. He didn’t have to.)

According to a report in The Washington Post, the reserve contained “405.1 million barrels on Oct. […]about 57% of its maximum authorized storage capacity of 714 million barrels”.

I sympathize with the president. People were really struggling with gasoline at $5 and $6 a gallon. But using the reserve — designed to protect us in the face of a sudden cut in domestic or global production — to cut 10 cents a gallon before elections is risky business, even if the president has a plan to replenish it in the next few months. months.

Putin wants the US to make the most of its strategic reserve now — just as the Germans gave up on nuclear power and he got them addicted to Russia’s cheap natural gas. So when Russian gas was cut off because of the war, German homes and factories had to frantically downsize the operation and fight for more expensive alternatives.

Putin is watching the European Union prepare for a ban on seaborne crude oil imports from Russia, effective December 5. The embargo – along with Germany and Poland’s move to halt pipeline imports – is expected to cover about 90% of current imports.

As a recent report by the Center for Strategic and International Studies in Washington noted: “Crucially, the sanctions also prohibit EU companies from providing transportation insurance, brokerage services, or financing of Russian oil exports to third countries.”

The US Treasury and the EU believe that without such insurance the number of customers for Russian oil will decline dramatically, so they are telling Russians that they can get insurance for their tankers from the few Western companies that dominate the sector only if they lower the price. of its crude oil exports at a level set by the Europeans and the US.

My sources in the oil industry say they seriously doubt that Western pricing works. Saudi Arabia, Russia’s OPEC+ partner, is certainly not interested in seeing such a price-fixing precedent. Furthermore, the international market is full of shady characters – Does Marc Rich sound an alarm? – who thrive on market distortions.

Oil tankers carry transponders that track their location. But tankers involved in shady activities will shut down the engine and reappear days after they have made a ship-to-ship transfer or transfer their cargo to tanks somewhere in Asia for re-export, in effect laundering Russian oil. The product on a large tanker can be worth around US$250 million (R$1.34 billion), so the incentives are huge.

Now add one more rogue player to the mix: China. It has all sorts of long-term, fixed-price contracts to import liquefied natural gas from the Middle East at around $100 a barrel of oil equivalent. But with leader Xi Jinping’s crazy approach to containing Covid, the economy has slowed considerably, as has its gas consumption.

As a result, an oil industry source tells me that Beijing is taking some of the LNG sold under these fixed-price contracts for domestic use and reselling it to Europe and other countries in need of the product for $300 a barrel of oil equivalent.

Now that Xi has secured his third term as general secretary of the Communist Party, many expect him to loosen his locks. If China returns to anything close to its normal gas consumption and stops re-exporting the surplus, the global market will be even more frighteningly tight.

Finally, as I noted, Putin is trying to destroy Ukraine’s ability to generate electricity. Today, more than 1 million Ukrainians are without power and, as a Ukrainian lawmaker tweeted last week, “total darkness and cold is coming.”

So add it all up and suppose that in December Putin announces that he is suspending all Russian oil and gas exports for 30 or 60 days to countries that support Ukraine, rather than submitting to EU oil pricing. He could pay that for a short time.

That would be Putin’s energy bomb and Christmas gift to the West. In this tight market, oil could reach $200 a barrel, with a proportional rise in the price of natural gas. We’re talking $10 to $12 a gallon at the pump in the US.

The beauty for Putin is that, unlike detonating a nuclear bomb – which would unite the whole world against him – detonating an oil price bomb would separate the West from Ukraine.

Of course, I’m just assuming that’s what Putin is doing, and that if the world goes into recession it could drive energy prices down. But it would be wise to have a real counter-strategy, especially since while some in Europe have managed to stock up on natural gas for this winter, replenishing inventories for 2023 without Russian gas and with China returning to normal could be very expensive.

If Biden wants the US to be democracy’s arsenal to protect us and our democratic allies — and not leave us begging Saudi Arabia, Russia, Venezuela or Iran to produce more oil and gas — we need a robust arsenal, both energy and energy. how much military.

Because we are in an energy war! Biden needs to make a big speech, making it clear that for the foreseeable future, we need every kind of energy we have. American oil and gas investors need to know that as long as they produce as cleanly as possible, invest in carbon capture and ensure that the new pipelines they build are compatible with the transport of hydrogen – probably the best clean fuel there will be next year. decade–they will have a welcome place in America’s energy future, alongside the producers of solar, wind, hydro and other clean sources that Biden heroically promoted through his climate legislation.

I know. It’s not ideal. It’s not where I expected us to be in 2022. But this is where we are, and anything else really is magical thinking — and one person who won’t be fooled by it is Vladimir Putin.