Russia

One of the greatest mistakes in the analysis of what is happening in Ukraine is the view of Russia as a one man dictatorship. That is clearly not the case. Moscow is a complex political society with numerous powerful figures. They, rather than Russia’s passive democracy, determine who is in charge. Vladimir Putin has been a strong leader but his power is not absolute. The eternal truth is that all leaders lose power in the end and very few go voluntarily.

After nearly 15 years in office as President or Prime Minister he has already exceeded the normal lifespan of leadership. Actuarially he is living on borrowed time and is dependent on continued success. In the current situation the line between success and failure is very narrow and energy issues are at the heart of the judgment. Read more

The first and easiest prediction arising from the continuing crisis in Ukraine and the deterioration of relations between Russia and the EU is that natural gas prices will rise. After all half the gas Europe imports from Russia comes through Ukraine. Very little of that supply can be replaced from other sources in the short term.

Russia has announced a sharp (44 per cent) increase in prices for the gas supplied to Ukraine – in part as a punishment for past unpaid bills. Surely Europe must be vulnerable to either a cut-off of supplies or a forced price rise? And yet in the real world actual gas prices have fallen over the past month and now stand at a three-year low. Is the market mad? Read more

The dispute over Ukraine has moved into a diplomatic phase and for the moment at least the prospect of a Russian advance into eastern Ukraine has receded. The consequences of what happened in the Crimea, however, continue to shape European policy making. The invasion provided a sharp reminder of Europe’s reliance on Russian gas – a degree of dependence which the EU will now reduce even if a settlement is agreed by the diplomats. It is quite possible that within two or three years European gas imports from Russia could be halved. Russia would be reduced to being one supplier among many in a world where gas-to-gas competition inexorably reduces prices. Read more

This week’s meeting of the European Council in Brussels will be a significant test of the EU’s relevance and unity in dealing with the consequences of what is happening in Ukraine. Over the years as indigenous production, especially of gas, has declined Europe has allowed itself to become more and more dependent on Russian supplies. Last year Europe imported 160bn cubic metres of gas – a quarter of its total requirements. Even if Russia were a normal country that level of dependency would look high. Now, with Russia ignoring the strong messages from the German and American governments urging restraint in Ukraine, and massing troops on the border, reducing that degree of dependence is a matter of urgency. Read more

What happens now for the numerous companies, led by the oil majors, who have chosen to invest in Russia? The surprising answer may be that the short-term risks are less serious than the longer term prospects of disengagement as energy consumers, especially in Europe, reduce their dependence on a supplier they do not trust. Read more