Weakening Weapon – Russia’s Slide in the Energy Markets
Russia’s strategy to stay afloat while almost the entire world is trying to hurt them relies solely on the energy market. Because Russia invaded Ukraine, the United States, European Union, and many other countries have placed heavy sanctions to cripple the Russian economy. Russia, however, has vast amounts of oil and natural gas that the world, and especially Europe needs. As a result, Russia has weaponized this by pausing flows to Europe and other countries that have placed sanctions on them, while Russia’s allies continue to purchase oil at a high price. This has funded war efforts, but it looks like Russia’s energy weapon is getting weaker and weaker as time passes.
Analysts and officials believe that Russia’s status as an energy superpower in the world is slowly deteriorating as its use as a financial weapon seems to be backfiring. The idea behind cutting gas flows to Europe was so that they would reduce their support for Ukraine to prevent an energy and economic crisis, but that hasn’t played out. As we are now in wintertime, temperatures have been higher than expected in Europe, decreasing the amount of energy being consumed by citizens for things like heating.
Additionally, Europe has been able to get energy from other providers like the United States and Norway, reducing their reliance on Russia both in the short term and even the long term if this can be economically viable in the future. A new wave of moves that include the EU oil embargo and the price cap set on Russian oil has placed Russia in a tough situation that they haven’t been able to get out of recently. When it comes to defense, Russia is losing export money because their two largest importers, India, and China, are both far away. Refineries in those two countries have demanded lower prices because of high shipping rates, and there is little pipeline infrastructure to send gas eastward. According to the Centre for Research on Energy and Clean Air, Russian oil and gas exports fell by 17 percent in December. These two failures create a terrible scenario for Russia in the future, losing the power they had in the energy markets before the war while also losing some geopolitical strength. As it stands, Russia is burning money in a war effort that seems to be a stalemate at best while not recouping it back in oil exports, and this could lead to the fall of Vladimir Putin or a desperate, dangerous move by him to save himself.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
