Russia vs. Ukraine: Lessons Learned
Europe proved to be vulnerable, as European countries relied on Russia for up to 30% to 100% of their gas supplies. Although Russia claimed that supplies to Europe would remain uninterrupted, European countries reported that gas received was not at normal levels. The United States expressed concerned of course and chided Russia for their actions, noting that other transitions were available to get Ukraine to pay market rates rather than increasing natural gas prices 4X the old price in the 3 month period. In the end, the embargo ended after a few days under a new deal, Russia will sell natural gas to an intermediary company at $230 per 1,000 cubic meters, while Ukraine will buy gas from that company as it comes into the country for $95.
So why does any of this matter? I think the Ukraine/Russia situation shows how vulnerable any country is to political instability and supply disruptions in other countries. It shows the immediate importance of not only diversifying our energy mix but also shifting over to a new energy economy completely before we caught up in a global war for quickly depleting natural resources. Most of the time Americans like to think of themselves as an island but the realities of global economic and energy interdependence are right there in front of us. Iraqi’s are feeling the effects of oil field bombings and attacks within their own country. In 1973, the US felt the effects of the OPEC Oil Embargo, and all Americans were witnesses to the havoc Hurricane Katrina causes on retail gas prices.
We’re vulnerable and we’ll remain vulnerable in the future to natural disasters and political instability in the Middle East, especially Saudi Arabia. 60% of the remaining recoverable oil reserves reside in the Persian Gulf and if political instability broke out in Saudi Arabia or other OPEC oil countries, dramatic price increases and swings would occur. Supply disruptions might also occur out of necessity. There are many concerns about the United States large reliance on our good neighbor, Canada, for our natural gas supplies. Guess what? Canada won’t be able to satisfy the United States unmitigated demand for natural gas resources in the future, due to capacity reasons, but also for the simple fact that they’ll need the gas to support their own economy and citizens. They’ll also need it to mine their unconventional oil reserves (i.e tar sands) and at some point, won’t be able to put the needs of the Unites States before their own. I expect the same situation to happen in other countries, where the United States imports petroleum resources.
So while the lesson learned from the Ukraine/Russia dispute might be Europe needs to diversify it’s energy resources, while diversification is good, it still won’t fully mitigate severe supply disruptions that are likely to occur in the future. It’s no wonder that the United States goes to such lengths, such as creating a war with Iraq based on misinformation, to be able to police areas of the Middle East, secure energy supplies and keep the oil flowing to benefit US interests.