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Putin is upon us

As the Russian military continues to flounder in Ukraine, the world is concerned that Vladimir Putin can use a tactical nuclear weapon.

Maybe, but for now, I think Putin is assembling a different weapon.

Is a oil and gas pump that is fusing before our eyes and with our inadvertent help, and could easily detonate it this winter.

French President Emmanuel Macron (R) welcomes German Chancellor Olaf Scholz upon his arrival for lunch at the Elysee Presidential Palace in Paris on October 26, 2022. (Photo by Ludovic MARIN/AFP)


French President Emmanuel Macron (R) welcomes German Chancellor Olaf Scholz upon his arrival for lunch at the Elysee Presidential Palace in Paris on October 26, 2022. (Photo by Ludovic MARIN/AFP)

Doing so could send heating oil and gasoline prices into the stratosphere.

The political fallout, Putin surely hopes, will split the Western alliance and prompt many countries, including our own, where both Republicans and MAGA progressives are expressing concern about the rising cost of the Ukraine conflict, to seek a dirty deal with the man in the Kremlin. , early.

In summary:

Putin is now waging a ground war to break through Ukraine’s lines and a energy war on two fronts to break the will of Ukraine and its allies.

It’s trying to wreck Ukraine’s electrical system to ensure a long, cold winter there while positioning itself (in ways I’ll explain) to drive up energy costs for all of Ukraine’s allies.

And because we, the United States and the West, do not have an energy strategy to cushion the impact of Putin’s energy bomb, this is a terrifying prospect.

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

1. We want decarbonize our economy as quickly as we can to mitigate the real dangers of climate change.

2. We want the prices lowest possible of gasoline and heating oil so we can drive our cars as fast and as long as we want, and never have to put a sweater inside or do anything to conserve energy.

3. We want to say to the petro-dictators in Iran, Venezuela and Saudi Arabia let them go for a walk.

4. We want to be able to treat people oil and gas companies like outcasts and dinosaurs that should get us out of this current oil crisis and then go into the woods and die and let solar and wind power take over.

5. Oh, and we don’t want new oil and gas pipelines or wind and solar transmission lines messing up our backyards.

I understand why people want all five, now. I want all five!

But they involve trade-offs, which very few of us want to acknowledge or discuss.

In an energy war like the one we find ourselves in now, you need to be clear about your goals and priorities.

As a country and as a Western alliance, we do not have a scale of priorities in terms of energy, only competing aspirations and a magical thought that we can have it all.

If we persist in that, we will face a world of pain if Putin launches the energy bomb that I believe he is putting together for Christmas.

This is what I think their strategy is:

It starts with getting the United States to reduce its Strategic Petroleum Reserve.

it’s a huge crude stock stored in giant caverns that we can call upon in an emergency to make up for any cuts in our domestic production or imports.

Last Wednesday, the president Joe Biden announced the release of an additional 15 million barrels from the reserve in December, completing a plan it presented earlier to release a total of 180 million barrels in an effort to keep gasoline prices at the pump as low as possible: before the midterm elections.

(He didn’t say the last part. He didn’t need to.)

According to a report from The Washington Post, the reserve contained “405.1 million barrels as of October 14. That’s about 57% of its capacity. maximum storage authorized 714 million barrels”.

I sympathize with the president.

People were really hurt by gasoline at $5 and $6 a gallon.

But using the reserve, which was designed to protect us against a sudden cut in domestic or global production, to save a dime or a quart of gasoline before the election is risky business, even if the president has a plan to fill it in the coming months.

Putin wants the United States to use up most of its Strategic Petroleum Reserve cushion now, just as the Germans gave up nuclear power and got addicted to cheap natural gas from Russia.

Then, when Russian gas was cut off due to the Ukraine war, German households and factories had to frantically cut back and scramble for more expensive alternatives.

Next, Putin is watching as the European Union prepares to prohibit maritime imports of crude oil from Russia, starting December 5.

This embargo, together with the move by Germany and Poland to stop pipeline imports, should cover approximately 90% of Russia’s current crude oil imports from the European Union.

sanctions

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

The US Treasury and the European Union believe that without such insurance, the number of Russian oil customers will be drastically reducedso they are telling the Russians that they can get insurance for their tankers from the few Western insurance companies that dominate the industry only if they lower the price of their crude oil exports to a level set by the Europeans and the United States. Joined.

My sources in the oil industry tell me they seriously doubt this Western pricing will work.

Russia’s partner in OPEC+, Saudi Arabiayou’re certainly not interested in seeing a precedent for such pricing by buyers.

Furthermore, the international oil trade is full of shady characters:

Does the name Marc Rich ring a bell?

They thrive on market distortions.

Tankers carry transponders that track their locations.

But tankers doing suspicious activities will turn off their transponders and reappear days after they have made a ship-to-ship transfer or transfer their cargo to storage tanks somewhere in Asia for re-export, effectively laundering their Russian oil.

The oil in a single very large tanker can be worth about $ 250 million, so the incentives are huge.

Now add one more iffy player to the mix:

China.

It has all kinds of long-term, fixed-price contracts to import liquefied natural gas from the Middle East at about $100 per barrel of oil equivalent.

But because of the president’s crazy approach Xi Jinping To contain COVID (some 300 million citizens have been under full or partial lockdown in recent months), China’s economy has slowed considerably, as has its gas consumption.

As a result, an oil industry source tells me, China has been taking some of the LNG sold to it in those fixed-price contracts for domestic use Y reselling it to Europe and other gas-hungry countries for $300 per barrel of oil equivalent.

Now that Xi has secured his third term as general secretary of the Communist Party, many expect him to ease his blockades.

If China returns to a level close to its normal gas consumption and stops re-exporting its excess, the global gas market will become even scarier.

Finally, as I noted, Putin is trying to destroy Ukraine’s ability to generate electricity.

Today, more than 1 million Ukrainians they are without power and, as one Ukrainian lawmaker tweeted last week, “Total darkness and cold is coming.”

Add all this up and then suppose that in December Putin announces that he will stop all Russian oil and gas exports for 30 or 60 days to countries that support Ukraine, rather than submit to oil price fixing by the European Union.

He could afford it for a short time.

That would be Putin’s energy bomb and Christmas present to the West.

Prices

In this tight market, oil could hit $ 200 per barrel, with a proportional increase in the price of natural gas.

We’re talking about $10 to $12 per gallon at the pump in the United States.

For Putin, the beauty of an energy bomb is that, unlike the explosion of a nuclear bomb, which would unite the entire world against him, the explosion of an oil price bomb would divide the west from Ukraine.

Obviously, I’m just assuming that this is what Putin is doing, and if the world goes into recessioncould drive down energy prices.

But it would be wise to have a actual Counter Strategy, especially since while some in Europe have managed to stock up on natural gas for this winter, rebuilding those reserves by 2023 without Russian gas and with China getting back on track could be very expensive.

If Biden wants the United States to be the arsenal of democracy 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 energy arsenal as well as a military one.

Because we are in an energy war!

Biden needs to deliver a major speech, making it clear that for the foreseeable future, we need more of every kind of energy we have.

American oil and gas investors should know that, while producing as cleanly as possible, they should invest in carbon capture and make sure any new pipelines they build are compatible with transporting hydrogen (probably the best clean fuel coming in the future). the next decade: They have a welcome place in America’s energy future, along with the solar, wind, hydro and other clean energy producers that Biden has heroically propelled through his climate legislation.

I know. This is not ideal.

Not where I expected us to be in 2022.

But this is where we are, and anything else is really magical thinking, and the only person who won’t be fooled by it is Vladimir Putin.

c.2022 The New York Times Company

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