Filenews 25 July 2022
By Julian Lee
Russia will continue to create uncertainty about oil, gas and agricultural flows to global markets. He has nothing to lose, while he has a lot to gain.
Therefore, do not be complacent about recent developments which may suggest that President Vladimir Putin is backing down from the interruption of the flow of energy, food and fertilisers. It does not do so.
Temporary relief
In the past two weeks, a Russian court has rejected the 30-day suspension of shipments of cargo shipments through the Caspian Pipeline Consortium (CPC) pipeline, which transports mostly crude from Kazakhstan to an export terminal on Russia's Black Sea coast.
The suspension would have removed up to 45 million barrels of crude from the global crude supply, with a value of more than $4.5 billion. However, the fine imposed on the company instead of the suspension was only 200,000 roubles, which is equivalent to $ 3,200.
The successful appeal was undoubtedly a victory for the pipeline company and a relief for European refineries. However, for the Kazakh government and the foreign oil companies operating there, the threat of future unrest has not disappeared.
Kazakhstan's oil flows end up two-thirds in Europe
Flows through the CPC system have already been interrupted twice since Russian troops invaded Ukraine on February 24. At the end of March, the terminal was partially closed for a month after a storm reportedly destroyed two of the three loading buoys.
Then, in mid-June, shipments were again suspended by two anchorages for a survey of the surrounding water area, which led to the discovery of some World War II mines. A sceptic would have expected mine removal to be a priority when the buoys were first installed.
The "heavy hand" in gas flows
To even greater concern for European countries, the Kremlin's hand firmly holds control of Russia's gas flows. For most of last year, deliveries were about 400 million cubic meters per day.
This amount fell sharply by about 25% as the winter of 2021-2022 approached, with flows decreasing on the Yamal-Europe pipeline via Poland. They fell again in January, when the volumes sent through Ukraine were also severely reduced.
By June, total gas flows from Russia to Europe fell to about 40% of normal levels, down from 20% in the last two weeks, when the Nord Stream pipeline had been closed for annual maintenance.
Russian gas flows to Europe have fallen to multi-year lows
Fears that Russia's direct connection to Germany would not reopen once the project was completed have been allayed - for now. Shipments along the route resumed on July 21, but President Putin was quick to warn that they could retreat again within days unless a turbine that had been sent to Canada for service was returned before one of the remaining turbines serving the pipeline went out of service.
The threat of gas disruption remains extremely real.
And then there is the agreement to allow grain shipments from Ukraine's ports to the Black Sea. While any agreement to restore these vital exports is welcome, have no illusions that they cannot stop again at any time. The theft of Ukrainian grain from Russia is well documented, as is the unpredictable destruction of crops in the fields.
The threat more effective than using
Russia's steps back down from the brink of crisis in all three areas should be treated with caution. The fact that her "weapons" were not used this time, does not mean that they will not be used later.
Just like the nuclear missiles that Putin and his henchmen are threatening to use, much of the leverage gained from Russia's ability to cut off food and energy exports lies in the uncertainty created by the real possibility of their use and not necessarily by their actual use.
Once used, although destructive, a threat has disappeared. By keeping it in reserve, the pressure can be maintained virtually indefinitely.
You expected Russia to continue to threaten oil, gas and agricultural flows as winter approaches, even if it does not contain them in the end.
Source: BloombergOpinion
