What effect would the dismemberment of Russia have to European security of Gas Supply

Here is a warning - this article is speculation as many others in this blog were so far. Indeed, everything on the future is speculation as the misfirings of our forecasters about the oil price in 2014 have shown. But sometimes, even the most outlandish speculation comes to happen.

Shall we?

In December 1991, the world was shaken. One of the two superpowers – that have held the world in a nearly half a century lasting scare – suddenly collapsed and was no more.

I remember those days well as I was just 22 years old and just 3 years earlier, in 1988 during my military stint, I was the laughing stock of my friends as I had claimed that the Soviet Union would collapse before 2000. That was at a time when there was no visible sign of any dismemberment on the horizon. At least not for the majority of us.

Tons of books were written on the demise of the Soviet empire but to me, there was just one reason that made sense. They pushed their structure to the point where it could not be financially sustained anymore. Strangely, most economies that are badly run start pretty quickly with scratching their soils out and put anything anyone is willing to pay a buck for up for salvage.

Basically, healthy economies dig up their subsoil for resources as well but in those countries, revenues from the soil is a tiny sliver that is barely noticeable in the overall economic machine.

If it fetches some cash - pump it out ...

If it fetches some cash – pump it out …

The Soviets depended on resources sales from the soil and when those market prices go down significantly, sellers are in for a hard time. The money did not come in anymore as was always expected and then the fragile fabric unraveled at astonishing speed.

When Russia took over from the Soviets, everyone was aware that it was a basket case which is why disintegration continued – especially in the Caucasus. But then, a little after the year 2000 resource prices started to rise again which made the fortune of the Russian government.

With all that oil (and other resources money) gushing in, Russia was able to afford to stop even the slightest whiff of reform as it all was drowned in huge dollops of cash. Russia was back on the world stage making everyone believe that the original disease – that had brought the Soviets to their knees – had finally gone away. However, it had not. It lingered in the background and was overshone by all the glamor of the resource boom. The signs though, were just about everywhere.

If one just ventured outside Moscow or St. Petersburg, one quickly saw how things were. Inside the megacities, it almost looked like the better parts of Europe. Outside the cities, it is and always was more like Subsaharan Africa. Russia carried the mortal disease that had killed the Soviet empire in its fabric for all those times so now that the resources boom is history, the old wounds likely will open up again with a vengeance.

Russia still has a smoldering problem at its Caucasian borderlands. Installing a strongman there and pampering him with generous cash did nothing to heal the fundamental rift that goes through those borderlands. Pull the money out and we will see how deep loyalty goes. However, that’s not the only region where resentment festers.

Tatarstan had introduced Latin script more in line with their own traditions just to see this measure repealed by federal laws. Bashkortostan has behaved like an independent country than a subject of Russia more than once. Russia still militarily occupies parts of other ex-Soviet republics where resentment lingers and there are other people like the Karelians, the people from the Urals, Yakutia, and the Far East resent sending the lions share of the resources in their soil to Moscow. Especially now as cash gets scarce and the spoils are wearing thin.

That was considered impossible too ...

That was considered impossible too …

In July 2015, the Economist newspaper published an article examining the possibilities for an accidental breakup of Russia. They had concluded that Russia today is much weaker than most like to believe and that Putin has shown that the old order (frozen after the breakup of the Soviet Union) does not count for anything anymore. The annexation of the Crimea has exposed the subterfuge of inviolable borders for what it always was.

I have spent a lot of time on the prospects for Russia as a country and even if you don’t believe it, this is not our main concern here as this is an energy blog and not a geopolitics feature. But you know, the two are intertwined more often than not.

Russian Gas for Europe comes from two main locations inside Russia – the old fields of northern Urals Urengoy and Yamburg (plus some small fry in between) and also the Yamal peninsula with its giant Bovanenkovo field. Those regions belong to the Ural Federal District and more specifically to the Yamal Autonomous Okrug. It’s not the most restive region of Russia but if the much more independent-minded Republic of Yakutia goes more independent, all bets are off.

Is it likely that Yamal will break free of Moscow’s grip soon? Not really! Is it impossible – well the implosion of the Soviet Union itself has shown us that those things happen at astonishing speed when they actually do happen and the ingredients for a fresh round of disintegration in Russia are clearly festering. Who would have thought that one European country could be invaded by another in this century? Who would have thought that borders would be changed by force again in our neighborhood? Who would indeed have thought that the Soviet Union would disband so quickly in 1988 or that the civil society would hold some age old dictators in the Arab world responsible after decades of iron-fisted rule?

History has a way of doing away with age-old certainties overnight and then we are left puzzling and running for our shirts.

If a new Siberian Republic (let’s call it that for the sake of argument) rises from the ashes of Russia, then there would be some form of rest Russia which would probably be much more European and much less Asian in outlook and composition. It would suddenly become an energy importer and loose exporter status and look much more like Ukraine today. It would immediately become a transit country for Ural gas on its way to Europe and it would all happen in a price depressed period leaving less cash on the table for everyone.

Shall we run for our shirts in panic? Hell no but a little thought about a contingency plan for such a scenario will sure not be wasted time. And if it proved to be wasted – we have wasted time and money on worse than a contingency plan for how to keep apartments in Europe warm and lights on if Russia falters.

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