Russia’s gas blackmail: Putin is a knife to a gun fight | Business and Economy

On Wednesday, Russian President Vladimir Putin escalated the geo-economic war between his country and the West, delivering suspended gas to Poland and Bulgaria, citing the two countries’ refusal to pay in Russian.

The move, decried by the West as “blackmail”, is yet again demonstrated by Putin’s belief that Russia’s status as a commodities exporter will be overstated and counter-crippled with sanctions imposed on its economy.

In reality, however, Putin’s move is a gunfight to a knife.

Kremlin’s long-term economic losses, but it will only increase the European economy, but it will only increase the Russian economy.

Putin’s move will not deliver the desired outcome, but it will make for his motivations at first look.

Foreign exchange reserves are worth billions of dollars, Russian imports on dual-use and computer technologies, and Western companies are pulling out of Russia or “self-sanctioning”.

Putin, however, still appears to be under the impression that he can win the economic war over Ukraine. On the surface, it looks like the Russian state shows for some reason: The Rule has more than recovered its value from the sanctions before the hit, a two-year high against the Euro on April 27, and Russia sky-high hydrocarbon prices on the back of rising foreign currency holdings.

All this, of course, belies the real state of the Russian economy. First of all, the interruptions to supply chains caused by sanctions are crippling Russia’s production capacities. In March, for example, there was a whopping 72 percent drop in passenger car production in the country. The Kremlin is all but certain that its foreign debts in the coming days, which will make financing a future rebuilding of the economy extremely difficult. Moreover, Russian wealth abroad is under threat and the most celebrated exchange rate recovery has been achieved, thanks to extreme capital controls.

The central bank of Russia and Putin’s advisers know that the financial and economic ministries are trading their over-reliance on hydrocarbon prices and continued Russian state control. Russia’s banking system on existing sanctions has already reduced. As Putin’s brutal war on Ukraine continues, sanctions are expected to expand. Washington has warned that it may still have cut-off rouble convertibility in full and there is no significant Western demand.

This is exactly why Putin has ordered European gas companies to pay for the natural gas they buy from Russia. Rumble convertibility – something the Kremlin desperately needs to do with oil prices that are likely to remain elevated permanently.

At the moment, the global financial system runs on the US dollar, and the Kremlin is aware of this. As Russia’s Security Council Secretary Nikolai Patrushev said in an April 26 interview with state media, Russia is now working to create a “dual loop monetary and financial system” in which both the gold and commodities will be backed. Real Purchasing Power parity with line in exchange rate ”. This is just one part of a major plan for Russia to pay for Europe.

But there is little reason to believe that this plan works with – or without – gas from Europe for roughage payments.

The Soviet Union already tried to do this – including a brief “golden rouble” period in the early 1920s – and, moreover, their ideological fervor, they could not make it work. Putin’s ideologically bereft state in the effort to succeed.

Putin is weaponizing his country’s gas supplies, and foregoing the profits that could be found at the point of sale in Poland and Bulgaria – which have been contracted for renewable contracts – to seek out the roughest demand.

Some European gas companies have already capitulated – four European gas companies have reportedly already made payments and others are preparing to do so, including Italy’s ENI, mostly European Union warnings.

This could be seen as a Russian victory. But even if the EU unity does collapse over the issue and the gas payments that the Rouble’s convertibility remains in place, Putin is his hand at overplaying.

Moscow has been operating for less than a year in its invasion of the European supply and pricing markets. It was beneficial EU reforms, arbitration court rulings and market liberalization. The Nord Stream 2 Baltic Sea gas pipeline project, designed to double the flow of Russian gas to Germany, was under way.

However, Russia’s recognition of its proxies in Donetsk and Luhansk in response to the pipeline project in Russia’s aggression in Ukraine has changed.

Of course, Europe will remain dependent on Russian gas for at least one to two years. But Putin’s actions have already spurred a search for alternatives – including the Baltic Pipeline linking Norway and Poland – to be expected later this year. All this will only expedite the supply of suspended gas to Poland and Bulgaria, which will permanently put the rest of the idea that Russia will not expropriate its gas exports.

About 70 billion cubic meters this year – more than 40 percent of what it received from Russia. Maximizing production at the Dutch Groningen gas fields and working with Azerbaijan and Algeria (as well as Turkey and Morocco, through which key pipelines run) could further help address the shortfall.

Before the Ukraine war, Europe had little motivation to swiftly reduce its dependence on Russian gas. But Putin’s own actions – first the illegal invasion of Ukraine and then the overt weaponization of gas exports – created the political will to address the issue.

Putin is teaching Europeans that interdependence between Russia and the West is a strategy that has failed. But his economy remains a one-trick pony, with its own serious blows rather than striving for commodities and stuck responding to dependence.

A lesson for Putin can be found in Healey’s Law holes; If you are in one, stop digging. ”

As for Europe, Healey’s law contains a corollary that applies: “When your opponent is in a hole, why would you want to take away his shovel?”

Putin may have won a short-term victory, but he is digging the grave of Russia’s economy.

The views expressed in this article are those of the author’s own and do not reflect Al Jazeera’s editorial stance.


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