For much of the past year, and since his invasion of Ukraine last February, Russian President Vladimir Putin has been at the height of his supposed energy. omnipotence, subjecting the world economy to their whims. Since last summer, Putin has cut off the supply of natural gas to Europe, expecting that the Europeans, shivering and without heat during the winter, turn on its leaders and make it politically unfeasible to continue supporting Ukraine.

The threat was powerful: in 2021, a huge 83 percent of Russian gas was exported to Europe. Russia’s total global exports of 7 million barrels of oil per day and 200 billion cubic meters (bcm) of pipelined gas per year accounted for about half of its federal revenue. Even more important, Russia’s commodity exports played a crucial role in global supply chains: Europe relied on Russia for 46 percent of its total gas supply, with comparable levels of dependency on other Russian products, including metals. and fertilizers.

Now, as we approach the one-year anniversary of Putin’s invasion, it is clear that Russia has permanently lost its former economic might in the global marketplace.

For much of the past year, and since his invasion of Ukraine last February, Russian President Vladimir Putin has been at the height of his supposed energy. omnipotence, subjecting the world economy to their whims. Since last summer, Putin has cut off the supply of natural gas to Europe, expecting that the Europeans, shivering and without heat during the winter, turn on its leaders and make it politically unfeasible to continue supporting Ukraine.

The threat was powerful: in 2021, a huge 83 percent of Russian gas was exported to Europe. Russia’s total global exports of 7 million barrels of oil per day and 200 billion cubic meters (bcm) of pipelined gas per year accounted for about half of its federal revenue. Even more important, Russia’s commodity exports played a crucial role in global supply chains: Europe relied on Russia for 46 percent of its total gas supply, with comparable levels of dependency on other Russian products, including metals. and fertilizers.

Now, as we approach the one-year anniversary of Putin’s invasion, it is clear that Russia has permanently lost its former economic might in the global marketplace.

Thanks to an unusually warm winter in Europe, Putin’s peak of influence has passed without incident and, correctly forecast Last October, the biggest casualty of Putin’s gas gambit was Russia itself. Putin’s natural gas leverage is now non-existent as the world, and more importantly Europe, no longer needs Russian gas.

Far from freezing to death, Europe quickly secured alternative gas supplies by turning to the world market. liquefied natural gas (LNG). This included an estimated 55 bcm from the United States, two and a half times more than US LNG exports to Europe before the war. Along with increases in supplies from renewable sources, nuclear and, meanwhile, coal, these alternative supplies have reduced Europe’s dependence on Russian gas to 9 percent of its total gas imports. In fact, Europe now buys more LNG than Russian gas.

Furthermore, Europe’s unusually warm winter means that not only have worst-case scenarios been avoided, but Europe’s full storage tanks have barely been depleted and can continue until next winter. In January, German storage tanks were a record 91 percent completeup from 54 percent last year, meaning Europe will need to buy significantly less gas in 2023 than in 2022.

The implications are tremendous. Europe is now assured of a sufficient energy supply well into 2024 at the earliest, providing enough time for cheaper alternative energy supplies, both renewables and bridging fuels, to be fully integrated and operational within Europe. This includes the completion of an additional 200 bcm/yr in LNG export capacity by 2024, enough to fully and permanently replace Russia’s 200 bcm/yr gas exports once and for all.

Furthermore, the days of expensive energy globally amid “Russia-driven supply squeezes” are over for good. In addition to the lower expected demand for LNG in Europe, China is pivoting away from global LNG in favor of domestic sources. Coupled with rapidly increasing LNG supply, it is no surprise that the gas futures market is now pricing gas to be more economical than pre-war levels in the coming years.

Putin, on the other hand, has zero leverage left and no way to replace his former top client; is finding out the hard way that it’s much easier for consumers to replace unreliable suppliers of staples than it is for suppliers to find new markets. Putin no longer makes virtually any profit from gas sales, as his previous sales of 150 bcm of piped gas to Europe have been replaced by a wretched 16 bcm to China and pocket change on global LNG sales, barely enough to break even. No markets for Putin to replace anything close to that 150 bcm deficit: China lacks the necessary resources pipeline ability to take more for at least a decade and prefers domestic and diversified energy sources, however, while Russia’s lagging technology does impossible scale LNG exports beyond a slow trickle.

Putin’s oil leverage is also waning. Gone are the days when fears of Putin pulling Russian oil supplies off the market sent oil prices skyrocketing. 40 percent more than two weeks. In fact, when, in response to last month’s launch of the G-7 Oil Price Cap, which we helped develop: Putin announced a ban, effective February 1. 1, we oil exports to countries who accepted the price cap, oil prices actually under.

Why? Because it is now clear that the world is no longer dependent on Putin’s oil. The oil market is returning to favoring buyers, not sellers, amid increasing supplies, more than enough to offset potential declines in Russian crude output. (In December, Russian Deputy Prime Minister Alexander Novak saying Russian media that the government was prepared to reduce crude production by up to 700,000 barrels in 2023). Oil prices are lower now than before the war, and only in the second half of 2022, was there a increase supply of 4 million barrels per day from producers such as the United States, Venezuela, Canada and Brazil. with even more expected new supply this year, any lost Russian crude will be replaced smoothly and easily within weeks. And this time Putin cannot coerce Saudi Arabia will come to the rescue by slashing OPEC+ production quotas as it did last October. That’s because the United States now pause crucial Saudi arms and technology transfers amid international surge scrutiny of the significant unused spare capacity of OPEC+.

Putin’s influence has also evaporated because the G-7 price cap gives him a lose-lose option, which eroded Russia’s energy position no matter what it does. China and India, without explicitly participating in the cap, are taking advantage of it to push for a tough deal with Russia, with discounts up to 50 percentso although india is buying 33 times more Russian oil than it was a year ago, Russia isn’t making much of a profit, given its $44 cover costs production cost plus more expensive transportation. But if Putin cuts production further, as he has threatened to do, he will lose a very important share of the oil market. putin has long been obsessedamid an increasingly oversupplied oil market and further cutting his own income when he is already hungry for cash.

Even Putin’s other commodity cards are sold out. His tactic of assembling the food failed abjectly when even their nominal allies became in it. And in certain metal markets where Russia has historically dominated, such as nickel, palladium and titanium, buyers fearful of blackmail combined with higher prices have accelerated relocation and revitalized idle public and private investment in the supply chain of critical minerals and mining projects. These are found mainly in North and South America and Africa, home to many untapped mineral reserves. In fact, in several crucial metals markets, such as cobalt Y nickelthe combined output from new mines opening over the next two years adds up to more than enough supply to replace Russian metals within global supply chains permanently.

putin has failed economic tactics they are another set of miscalculations to add to an ever-longer list, from his underestimation of the people of Ukraine to his underestimation of the collective unity and willpower of the West.

Of course, Putin’s failed economic and energy war has not been without its consequences. The spillover effects have impacted many lives, transformed supply chains, changed trade flows, and consumers still feel the pressure of higher prices as it takes time for the new lower prices to work in the economy.

But what matters is that the end is in sight. Never again will Putin be in a position to cause such chaos and disruption to the global economy, because it has permanently weakened Russia’s mightiest hand, its energy and its commodities, beyond repair. The war on the battlefield is still raging, but at least on the economic front, victory is in sight.

By sbavh

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