The authorities of the EU and, above all, Germany, which is more dependent on Russian energy supplies than any other country in Europe; are beginning to morally prepare the population for the coming crisis. This happens not only in the energy sector, but also in the agriculture, construction and a number of other sectors. Interestingly enough, this is happening against the background of the Kremlin's assurances that our country is going to fulfill all its previous commitments in terms of fossil fuel supplies and has no plans to introduce counter-sanctions.
This, however, raises two questions: Firstly, why are the Europeans cutting off the branch they’re sitting on? Why do they mix politics and economics, artificially creating a deficit of raw materials in their own countries and thus putting themselves in Dire Straits? And secondly; does Russia need foreign currency so much, to tolerate the openly hostile rhetoric of its Western "partners"? Maybe it makes sense to "turn off the valve" and actually use energy resources, or rather the ban on their exports to unfriendly countries, as a geopolitical tool?
Forpost addressed these questions to Vladimir Litvinenko, rector of St. Petersburg Mining University and a leading expert in the field of the fuel and energy complex.
- Mr. Litvinenko, the volume of gas and oil supplies to Europe is not declining, but despite this, analysts are drawing bleak pictures of the coming crisis that is about to hit the European Union. How realistic are these forecasts? And are Europeans really so dependent on our energy resources, in particular natural gas?
Vladimir Litvinenko: Absolutely. And not just on energy resources. We have an advantage in 32 types of minerals and four types of hydrocarbons, including fuel oil for short-term regulation of the European energy market in our country's geopolitical interests. If we talk specifically about natural gas and the prospect of replacing it with LNG, it is unrealistic in the foreseeable future.
Producers cannot instantly increase production. All of them, from Qatar to the United States, Australia or other countries; have long-term contracts with old customers. It is too risky to make additional commitments to new customers, you can simply fail to fulfill them and face penalties. This is why the additional volumes of natural gas arriving in Europe in the future will not be large and will have to be purchased on the exchange at overpriced spot prices.
In addition, we should not forget that in order to compensate for the absence of Nord Stream 2, which Europe and Germany badly need, about six major regasification terminals would have to be built. This will take several years, and the cost of each of them, taking into account the current inflation rate, could exceed 2 billion euros. So giving up Russian gas would lead not just to a crisis, but to a real catastrophe, above all for ordinary Europeans.
Berlin understands this very well. One of these days, Robert Habeck, German Vice Chancellor, Minister on the economy and climate policy, stated that if supplies from Russia are interrupted, Germany “will not have enough gas to heat all houses or to keep all industry afloat”. This is a direct quote.
- German Minister of Agriculture Cem Ozdemir advised Germans to “reduce meat consumption to counter Russia’s policies”. And Matthias Wechter, executive director of the Construction Association of Lower Saxony, noted that the crisis in Ukraine “creates more and more problems with the supply of construction materials”. According to him, “there is already a shortage of bitumen and steel products, which are necessary for the construction of buildings and machinery”. Naturally, our country, by restricting the export of energy resources, could show Europe that imposing large-scale sanctions against us is, at the very least, unreasonable. Perhaps this measure would have a significant impact on the minds of EU politicians and voters. How realistic is it?
Vladimir Litvinenko: I’ll say it again: most European states are extremely dependent on Russian energy and minerals. This is also the opinion of many Western experts. Among them is the prominent economist Paul Craig Roberts, the author and ideologist of the U.S. government’s economic policy in 1981-89, Deputy Treasury Secretary in Ronald Reagan’s administration. He explicitly suggests that “Russia could respond to sanctions with counter-sanctions, such as cutting off unfriendly consumers from oil, natural gas and other minerals.” In his opinion, “in this case, the West will agree to all the conditions that Russia dictates”. Otherwise, Western industry will simply give up.
- So why isn’t it happening?
Vladimir Litvinenko: The main problem is that American neoliberal economists have brainwashed our economists and Central Bank officials. For years they have been repeating the mantra that Russia needs a foreign currency for the sustainable development. And we get it just by selling oil, gas, and a number of other resources abroad. Mr. Roberts believes that “it is an amazing stupidity that hinders the development of the Russian economy and does not allow to apply strong counter-sanctions”. This same “stupidity” is the reason why the Central Bank does not finance Russia’s development through the growth of domestic consumption.
Look at the example of China. For many years this state relied on foreign investment and exports as the main engines of economic growth. In the past decade, however, the situation has changed. Chinese President Xi Jinping has launched an initiative to accelerate the reorientation of China’s economy toward domestic sources of growth. This strategy is known as “domestic circulation”.
Of course, foreign investment and technology are still an integral part of the economy, but the entire economy is aimed primarily at meeting the demand of the Chinese themselves, not external consumers. And new jobs are being created for this very purpose. Now, after U.S. sanctions were imposed on Huawei and some others, it is clear that this was absolutely the right decision.
- Can Russia follow that path?
Vladimir Litvinenko: There is no doubt about it. Our country has to bill for energy and minerals in rubles, thus strengthening our own currency, not the currencies of our adversaries. Should establish currency controls so as not to support speculators. However, Russia still sells strategic resources to the West and accepts payment in dollars, which weakens the ruble.
Paul Craig Roberts explicitly states that “the Russian Central Bank, without realizing it, is serving the West and the success of Western sanctions”. Moreover, our regulator even believes that it cannot put rubles into circulation to finance investment projects inside the country if these funds are not backed by foreign currency. Due to this position, the state is forced to borrow money it does not need and pay interest to creditors; and this makes absolutely no sense.
We have all the tools in our hands that should help us win in the sanctions confrontation; but for some illusory reason we are afraid to lay them on the table. It is necessary to cast aside doubts and do so. Russia does not need foreign currency. We do not need to import energy and minerals. We have the technology and the scientists to create everything we need. And the Central Bank can finance all domestic projects regardless of the presence or absence of dollars.
If such a strategy is adopted, the result is sure to come. The American and European consumers are truly different from the Russian consumer: They have different internal genes and a different mentality. The West has nothing that Russia really needs, while the West, in its turn, cannot survive without Russian energy and minerals.
- But the European Commission has just recently published a plan to abandon Russian energy sources. And stated that it can be implemented “long before 2030”. Moreover, according to this document, imports of natural gas from our country should fall by 67% in eight to nine months. How does this fit in with what you just said?
Vladimir Litvinenko: Well, the European Union, like Ukraine, is not an independent geopolitical player. Brussels, which acts as a satellite, does what it is told from across the ocean. And no matter whether it is beneficial or not for Europe itself, Washington is not interested in it… Washington’s deeply indifferent to the disastrous consequences for many EU countries if such a decision is implemented. However, as I said, this will difficultly be implemented. It’s simply unrealistic.
In regards to the reasons for such statements, well… they lie on the surface. Allow me to give you an example: Fifteen years ago we created the Russian-German Raw Materials Forum. This forum held business meetings and discussions between leading politicians, economists and scientists from the two countries. At almost every conference, I suggested to our partners that they adopt a long-term energy agreement that would spell out the resource needs of the Federal Republic of Germany.
The advantages of this approach are obvious: Russia would understand what kinds of minerals and in what quantities our partners need, including the development of alternative energy; taking into account the growing demand for copper, nickel and other “green” metals, the price of which is breaking records on the stock exchanges today. In turn, the Germans would realize that in the future they would not have a shortage of strategically important resources and would not have to overpay for them, because, thanks to deliveries from our country, there would be a balance of supply and demand in the market.
However, our partners did not want to sign any papers. Moreover, in recent years, they did not want to talk about anything but hydrogen. In other words, our discussions started to drift away from the practical plane. And, to be honest, they have lost any meaning whatsoever.
Why did this happen? The fact is that the Americans are making great strides in the global liquefied natural gas market. In a few years, they are likely to overtake Qatar and Australia and become the number one LNG exporting country. It is not to their advantage that Europeans cooperate with Russia in the field of energy in the long term. That is why they have done everything possible to ensure that the Nord Stream-2 project is abandoned, even though Europe needs it. And now they are provoking the EU to make yet another completely disadvantageous decision from an economic point of view.
But the United States itself is the main beneficiary. About half of all U.S. shipments from last winter went to Europe. Their total sales volume in 2021 increased significantly, and was about 70 million tons. For Washington, this is a new market that has not yet been fully explored. Moreover, the U.S. trades at spot rates, which, as you can see, are at a cosmic level. Electricity bills in Europe are growing, as are the pressures on business, including big business. Steel and fertilizer producers are openly saying that it's becoming unprofitable for them to do business.
And Russia hasn’t done anything yet, nothing at all. Everything that’s happening now is just a consequence of an ill-conceived policy and a lack of strategic planning on the part of Brussels and the national governments of a number of European Union states. Can you imagine what would happen if a decision was made to “close the valve”?