The Russian president is unable to learn from his mistakes, or even admit that he is not infallible. His reaction to each failure is escalation, as if he were trying to get a little more stuck. This logic of destruction is turning against the instruments of Russian power.
The scuttling of Gazprom
Since the beginning of the war (in Ukraine), Russia has deliberately cut off its gas supplies to Poland, Bulgaria and Finland and to Dutch and Danish companies, in retaliation for their support to Ukraine. Poland has nationalized Gazprom’s stake in Europol, the operator of the Polish section of the Yamal-Europe pipeline; as a result, Russia has prohibited dealing with this operator, thus burying the transit capacities of Yamal-Europe. The case of Bulgaria is interesting: Bulgaria has given itself a “Russophobic” government that favours an alliance with the European Union and the United States, but there is a powerful Russian party in this country and the domestic situation is tense. Moscow has therefore decided to pressure the current government by creating economic difficulties that the Kremlin hopes will bring Gazprom lobbyists back into power. Russia no longer delivers gas to Finland, the Netherlands and Denmark. In mid-June, France was no longer receiving Russian gas by pipeline. On June 15, Gazprom announced that beginning on June 16 it would not supply more than 67 million cubic meters per day to Nord Stream, against planned 167 million. As we have seen, Gazprom is closing the Polish Yamal pipeline at the same time. In addition, from 21 to 28 June, the supply of gas via Turkish Stream was halted, allegedly for annual maintenance of the pipeline. Nord Stream AG, operator of the Nord Stream pipeline, decided to stop gas deliveries from July 11 for 10 days until July 21, allegedly — for planned preventive maintenance. All of Europe is affected. For the first time, Gazprom has decided not to respect its contracts with European importers. The German Minister of Economy, Robert Habeck, called Gazprom’s decision to cut off supplies through Nord Stream 1 political: preventive maintenance of the pipeline was not to have taken place until autumn 2022 at the earliest. Dmitry Peskov, the spokesman for the Russian president, disagrees. According to him there is nothing deliberate on the Russian side in these stoppages. The reduction in gas supplies to a number of European countries is due to the fact that the Siemens turbines used to supply gas to Nord Stream were not returned after their maintenance in Canada. The delays are attributable to the anti-Russian sanctions. Siemens Energy has, however, subsequently rejected Russian claims. The Russian expert Mikhail Krutikhin also believes that the technical arguments put forward by Moscow do not hold up: Gazprom could use the Ukrainian pipeline to compensate for planned maintenance shutdowns but does not. For Krutikhin there is no doubt that this is a deliberate policy. Finally, Habeck has asked Canada to return the turbine as soon as possible. Ottawa has relented: the turbine will first be sent to Germany and then delivered to Russia. Thus, Canada will circumvent its own sanctions against Moscow, to Putin’s great satisfaction.
Almost half of the EU’s natural gas imports came from Russia in 2021 (155 billion cubic meters). About 77% of Russian gas exports went to Europe in 2021. Russian authorities claim that 27-28% of the Russian federal budget depends on revenues from oil and gas exports. But according to Mikhail Krutikhin, “These figures are far from the truth because they only take into account three taxes: the mining tax, export duty tax, and tax on oil products. But you have to add the state’s share of dividends, which also goes into the budget, you have to include the corporate profit tax, employee income tax and many other taxes, duties, and fees. And if we add it all up, we will see that on the whole, almost 60% of the Russian federal budget comes from oil and gas revenues.” Currently, daily gas supplies to Europe have been divided by four compared to 2017, 2018 and 2019. Russian oil exports have been halved and according to Ursula von der Leyen, President of the European Commission, EU oil imports from Russia will be reduced by about 90% by the end of the year.
It appears that Russia wants to preempt the seventh package of anti-Russian sanctions, which could include a progressive gas embargo. The initiator of the seventh package is Poland, which has already made itself independent of Russian gas with a program to reduce dependence on Russian gas that is spread over several years. A similar approach was adopted in the oil embargo in the sixth package: in December 2022, plans are to cease buying Russian oil completely; in March 2023, to stop buying Russian oil products, etc. European attempts to wean themselves from Russian gas have led Gazprom to go on the offensive. Russia wants to put the EU up against the wall while it has the means to do so and to try to undermine the seventh package of sanctions.
President Putin keeps saying that the sanctions penalize Western countries more than Russia. Once again, instead of recognizing that he has made a mistake, he has chosen to escalate and seems to be playing a game of one-upmanship. “It’s whoever wears out the opponent the fastest,” notes Igor Yushkov, an expert at the Financial University of the Government of the Russian Federation and the National Energy Security Fund in “Cold will end Germany’s gas hostility to Russia” . “In this situation, Russia has no choice but to worsen all the problems of the Europeans. The task is to exhaust, to bring the adversary to such a point that Europe or the collective West surrenders and agrees to sit at the negotiating table, if only to improve the economic situation. It is unlikely that they will accept all of Russia’s conditions, but an agreement on acceptable terms can be imagined […] How do you force the enemy to sit down to negotiate, and to be more accommodating? You have to hurt him. How do you do that? By preventing him from heating homes during the winter.”
An article by Gleb Prostakov, triumphantly titled “Gas has finally become Russia’s geopolitical weapon”, bluntly reveals the Kremlin’s calculations. “The problem of Russian gas and oil has led the European team to a dead end: everything that is undertaken will only aggravate the current situation, which in practice will result in citizen discontent and in increasing tension in interstate relations. It is amusing to note how quickly people and countries of the democratic West, as soon as the specter of power outages and factory closures loomed on the horizon, forgot about solidarity and, like greedy people, began to hide precious barrels, cubic meters and tons from others.” Thus, Moscow has not given up its traditional intentions. The Kremlin hopes to provoke a tidal wave of discontent in European countries that will propel pro-Russian populists to power. It also expects that energy shortages will provoke a nationalist reaction and that will compromise the cohesion of the European Union. The same Gleb Prostakov is already licking his lips: “In the context of an almost inevitable energy crisis in Europe, the leading economies — Germany and Great Britain — show a penchant for a policy of economic selfishness. Berlin risks being accused of destroying the unity of Europe. For Germany there are only bad choices. Either it distributes a paltry trickle of gas throughout the European Union, inflicting a serious blow on its own industry, which will aggravate the crisis both in the country itself and in the entire euro zone. Or it refuses to share, provoking a wave of criticism: it will be said that the European locomotive itself is dealing a powerful blow to European unity.”
What is really going on?
“Europe will have to pay alternative suppliers more (reinforcing the inflation shock), pollute more (revival of coal-fired power plants), and may soon have to ration its consumption (risk of recession),” summarizes economist Bruno Cavalier. On June 22, Robert Habeck stated that the Russian gas cuts were an “economic attack” by Russia against Germany. Berlin accuses Moscow of carrying out a deliberate strategy of reducing flows to Europe to destabilize the energy market. Germany has activated an “alert level” of its plan to secure gas supplies, which brings Europe’s largest economy closer to possible rationing measures. A total cut-off of Russian supplies would cause a “Lehman Brothers effect on the energy system,” warned Robert Habeck. Finance Minister Christian Lindner (FDP) points to the increased risk of a severe economic crisis due to a combination of three factors: rising energy prices, gaps in the supply chain facing industry, and inflation. In Germany, the calculation is that, in the event of rationing, GDP would fall by between 0.5 and 3 percentage points compared to the baseline scenario without rationing. The Russian press gleefully quotes a study by the Bavarian Business Association which “showed that a sudden halting of Russian gas supplies will lead to a 12.5% drop in the German economy and the loss of 5.6 million jobs. But they already exceed that — significantly — even the pessimistic forecasts of a contraction of the Russian economy. […] The depth of the German economy’s recession may become a problem for the stability of the entire European Union.”
In France, the Conseil d’Analyse Économique has forecast a minimal decline of between 0.15 and 0.3 points in GDP. However, Allianz Trade economists estimate that GDP could fall by 2.5% in 2023 in France and Germany and by 3.5% in Italy in the event of a reduction in Russian gas. France is in a more favorable situation than many other European countries, thanks to its LNG import terminals and gas interconnections with Spain. Ten out of 27 European Union countries have activated the first level of alert on gas supply, but France is not one of them, at least for the moment. But the law on “purchasing power”, which must be presented to the Council of Ministers in the coming days, will have a section entitled “Energy Sovereignty” which offers “unprecedented powers to the state” in the event of a major crisis this winter. The French government will accelerate the installation of a floating liquefied natural gas (LNG) import terminal by TotalEnergies to be cocked in the port of Le Havre. Work on connecting the vessel to the gas grid will begin in early autumn and commissioning is scheduled for September 2023.
If Russia cuts off all its deliveries, the EU will manage at best to limit the gas deficit to around 10% of total consumption. Liquefied natural gas (LNG) deliveries are 75% higher than last year. In June, LNG deliveries from the US to Europe exceeded Gazprom’s exports to the region. Norway is increasing its pipeline deliveries by 15% and Azerbaijan by 90%. The German government is considering nationalizing part of the second Nord Stream, disconnecting part of the offshore pipeline, and connecting it to a floating LNG terminal. Recently, Chancellor Olaf Scholz announced that the first floating LNG storage terminals could be launched in northern Germany in early 2023. EU countries have accounted for more than 40% of Egypt’s LNG exports so far this year, compared to 15% in 2021 (the gas comes from large offshore gas fields off Israel). A tripartite Israel-Egypt-EU agreement was signed in Cairo in mid-June. Israel is working hard to export some of its vast offshore gas resources to Europe. Other longer term options are being examined that will increase deliveries to the European Union. For example, there is talk of an undersea electricity cable linking the Jewish state, Cyprus, and Greece and the construction of a major gas pipeline linking the eastern Mediterranean to a European terminal. President Erdogan has recently reconciled with Israel in order to participate in the windfall.
Putin inaugurates a new gas pipeline line in the Russian Far East, September 2011. // premier.gov.ru
It is certainly foreseeable that the energy crisis will create unrest in Europe. But the Kremlin’s hopes are likely to be dashed. Europeans are aware that war on their continent imposes restrictions that are bearable compared to the martyrdom of Ukraine. Above all, Europeans have become aware of their interdependence, and contrary to what sneers in the Russian press suggest, European solidarity is growing as public opinion becomes aware of the seriousness of the threat to Europe. “Every man for himself” propaganda dear to the populists will be less effective than in the past. The Russian-Ukrainian war has shown that much maligned European bureaucrats have been able to rise to the Russian challenge with a courage and perseverance that is often lacking in the leaders of the states of old Europe. Europe is in the process of finding itself and bridging the gap that has divided it in two, between the old, cowardly, short-sighted and mercantile Europe and the new Europe that is clear-headed and realistic about the Russian threat and aware of the price of freedom.
Thus, we can predict a difficult year for Europe. But the weaning off Russian hydrocarbons is underway, and the more Putin increases the pressure, the more Europeans accelerate the implementation of measures to withdraw from Russian gas. When the process is completed, energy prices will fall again. European economies will absorb the shock and recover.
In Russia, the situation is quite different, contrary to what the Kremlin leaders and their stooges in the West are saying, those who are trying to convince us, and not without success, that the sanctions hardly affect Russia. Time is working against the Kremlin. According to Rosstat, in May 2022, the production of cars in Russia collapsed by 97%, buses — by 77%, diesel locomotives — by 63%, glass — by 61%, washing machines — by 59%, refrigerators — by 58%, freight cars — by 52%, electric motors — by 50%. The refusal of Gazprom’s shareholders to pay dividends for the year 2021, the richest year in its history, has provoked a storm not only on the stock markets but also in the Russian population. The state, which owns 50.2% of Gazprom shares, could have received 624.6 billion rubles in dividends from the company, but Gazprom needs these funds to try to stay afloat with new large infrastructure projects. To supply gas to China, new pipelines are needed. Gazprom wants a large share of the LNG market, and now needs to develop projects from which foreign partners have withdrawn. On the other hand, Gazprom has suffered losses in investments in Nord Stream 2 which is now frozen and faces an uncertain future. Russian experts are beginning to express their concerns about the impulsive initiatives of their president. Alexander Sobko, an analyst at the Energy Center of the Skolkovo School of Business, suggests that the gas cuts to Europe should not last: “If Gazprom still plans to remain in the European market with large volumes, then these must be restored relatively quickly in, say, the course of next year, in order to pass between Scylla and Charybdis. On the one hand, Gazprom will be able to reap the full benefits of the deficit and ultra-high prices now. On the other hand, quickly reduce the exorbitant gas prices in order to block the adoption of investment decisions in new LNG projects, which will lead to oversupply in the future. Of course, Europe itself can limit Gazprom’s supplies, but it will not be possible to ban them completely.” When Europe is weaned off Russian gas, the turnaround will be difficult. Sobko notes that during the last forum in St. Petersburg, “nothing new was said about the construction of the Siberian Force-2 pipeline, which is supposed to carry 50 billion cubic meters of gas from Europe to China”, while pointing out that “this pipeline will in any case be able to redirect only one-third of standard volumes of exports to Europe, i.e., three such pipelines are needed”. He finds it encouraging that Europe refuses to sign long-term contracts with Qatar because it expects Gazprom to return to the European market.
Mikhail Krutikhin calls a spade a spade. For him, Moscow is simply sacrificing its flagship Gazprom, that is no longer an exporter. One can speak of the deliberate destruction of Gazprom. Because Russia has no alternative to its European customers. The gas pipeline to China is not working at full capacity because of the lack of local gas resources. To fill it, it is necessary to complete the construction of a gas pipeline to fields in Western Siberia, whose cost is enormous. In addition, it will take two to three years to lay a new pipeline from Western Siberia to China. At the same time, American and European sanctions are preventing the construction of gas liquefaction plants in Russia. Russia has had a vast program to develop this sector by 2035, but it will be definitively blocked because all the equipment was Western. So Russia has no room to maneuver in the gas sector. Mikhail Krutikhin does not mince words: “Without cooperation with other countries in the world, not only will you not make an airplane that meets today’s requirements — you will not even be able to make a modern, advanced electric iron without cooperation and interaction with foreign partners. Therefore, in any industry, we are heading everywhere for collapse or at least for a return to the 1980s.” […] “Russia is already in the process of ceasing to be an energy power. By planning a war with Ukraine, Putin has clearly underestimated the determination of the West. Certainly, many Russian politicians and political scientists also believed that the United States and the EU were too weak to mount a concerted collective response. What is more, Moscow is sinking deeper and deeper into the war, despite the tightening of sanctions and the damaging consequences for the economy, which is absolute madness.”
Let us also mention the destruction of another vector of Russian influence that was the pride of Putin. Having become a major agricultural power following the 2014 embargo on imports, Russia employs its grain exports in Africa and the Middle East to extend its hold on consumer countries; in 2022, as we have seen, it brandishes the threat of famine to turn African countries against the West and Ukraine by deploying its Third Worldist demagogy at full speed. However, this vector of influence is also compromised by sanctions and counter sanctions. Indeed, the yield of Russian seeds is 20 to 30% lower than that of imported seeds. In 1990, 50 million tons of wheat were harvested in Russia. In 2021, 76 million tons. Reduced to using domestic varieties, Russia will cease to be a food exporter. It will return to 50 million tons, increased by wheat stolen from Ukraine.
The scuttling of the army and the economy
The same logic of destruction is at work in Putin’s policy towards Ukraine. Far from recognizing his initial mistakes, Putin has chosen to escalate, to the point of exhausting his army in a horrible war of attrition. According to Avril Haines, the director of U.S. intelligence, “The [Russian] ground forces have been depleted to the point where it will take years to get back to where they were before the war.” But here again Putin looks like a gambler who keeps upping the ante in hopes of recovering what he has lost. The Kremlin leaves the impression of being engaged in a race against time. It wants to bring down Ukraine before the massive use of Western weapons can redress the balance of power. Putin chooses to sow terror through missile attacks aimed at civilians. He is redoubling his war effort.
The Duma is considering “special measures of economic mobilization” because of “the temporary increased need for the repair of weapons and military equipment and provision of material and technical means. Employees in a number of industries and enterprises must be prepared, if necessary, to work overtime, without guaranteed days off and without rotation.” “In addition, enterprises, both state and commercial, will not have the right to refuse state orders for the supply of goods, performance of work, or provision of services to ensure the conduct of the fight against terrorism and other operations outside the territory of the Russian Federation by the Armed Forces of the Russian Federation, other troops, formations, and military bodies.” It will be possible by order, without the employee’s consent, to require the employee to work on weekends and holidays, to work at night, to postpone paid annual leave, to split it up, to summon the employee on leave if necessary, or to replace the leave with monetary compensation.
This legislation is reminiscent of Stalinist legislation of the 1930s, according to Alexei Makarkin, First Vice President of the Center for Political Technologies: “It was mobilization of the economy and labor resources in anticipation of a large-scale eventuality.” This is only the beginning. As such, Senator Andrei Klishas has considered the possibility of reintroducing an article punishing “sabotage” into the Penal Code. According to him, this measure seems to be necessary given the “success” of officials in “import substitution”. We can even return to Lenin who, as we remember, sold the crown jewels to subsidize a world revolution. On June 15, the Duma authorized the sale abroad, to “meet urgent needs”, of precious stones and metals held in the Gosfond, the National Fund of Russia. This decision alone is an eloquent denial of the Kremlin’s disinformation that Western economies are suffering more from sanctions than the Russian economy.
The important thing for Moscow is to quickly achieve its ends before the EU has irreversibly weaned itself from Russian gas (see Sobko’s analysis above). Obviously, the Kremlin leadership does not believe that the West will maintain sanctions for long once Ukraine returns to the Russian orbit. Those in the West who are lulled into hoping that Putin will fall soon are likely to be disappointed. Putin will remain in power until he has completed his dirty work. On the other hand, as soon as Ukraine is firmly anchored to Russia, it is to be expected that Putin will be removed and replaced by an amicable “reformer” whom the West will have to support against the intrigues of the “ultra-nationalists”. How then can we demand Russian withdrawal from Ukraine? Wouldn’t this be playing into the hands of the “conservatives”? Many voices will be raised for the immediate lifting of sanctions in order to encourage Russia to reform.
Thus, Putin’s current excesses, his nuclear blackmail, his crudeness, and his ostensible inhumanity may well be part of an ulterior scenario envisaged by the “collective Kremlin”, which would provide a sham “de-Putinization”, so as to save the essential, the instruments of Russian power. Peter the Great is not only the one who “opened a window to Europe”, he is also the tsar who understood that Russia had to co-opt Europeans to build its army and fleet and to build an empire capable of defeating the Europeans. The period of forced autarky that Russia is experiencing today will very quickly return it to this policy of Peter the Great: no wonder this tsar is celebrated by the Kremlin’s propaganda.
Westerners have always tended to personalize Russian politics too much. They have repeatedly fantasized about the “reformer” who would allow a comfortable convergence between Russia and the West. With his complexes and his megalomania, Putin is certainly dangerous. But the Russian problem will not be solved by replacing him with a man from the current Kremlin circle, no matter how much his style contrasts with Putin’s. Behind the despotism of one man lies a formidable power machine whose effectiveness can be measured over the last 20 years in Russia and abroad. Replacing the figurehead will not mean the dismantling of this machine, nor the abandonment of the Russian power project. The West will have to measure change by actions, not by lovely words and concessions that cost nothing, such as the release of political prisoners. The restitution of all the territories stolen from Russia’s neighbors and the recognition of real independence for all the post-Soviet states must be the sine qua non condition for lifting the sanctions.