Notes From the Upside Down VIII: Russian TV on the EU, in particular its hydrocarbon supply problems

Guess what: there are no quick'n'easy solutions, yet EUrocrats are doubling down on their treasonous behaviour. With no solutions offered by anyone in sight, all that remains is hope for a warm winter

Editorial note: below you’d find the translated and slightly edited-for-clarity transcript of a piece that was broadcasted by Russian media outlet Vesti7. It appeared on Sunday, 27 March, in a newscast summarising the week.

It doesn’t mean that I buy all of the things pointed out in the broadcast, but since ‘the collective West’ has more or less elected to pursue a policy of hear no evil and see no evil, I think it’s more important than ever to hear from the other side of the divide.

If you know German, there’s also a transcript by Russia-based independent journalist Thomas Röper (whose website I can highly recommend).

As always, I have added a few comments below the piece, esp. focusing on the annotated issues (indicated with the asterisks [*]). Translation and emphases are mine.

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Putin Has Put the EU in an Extremely Difficult Position

Since the beginning of the week [21-27 March], Europe* has been preparing for a series of crisis summits: the G7, NATO, and, of course, the EU. The aim was to consider new sanctions and how they could slowly exit Russian coal, oil and gas.

‘I believe that we will continue to reduce our dependence on Russian coal by early summer and abandon it altogether by autumn. We also want to reduce the quantities of oil and gas’, said German Economics and Energy Minister Robert Habeck.

A complete embargo on Russian hydrocarbons is currently not possible, because that would trigger a recession, Chancellor Scholz warned. But recession—lower growth—is a weak term, for in fact we are talking about the worst form of an economic depression. That is why everything must be done carefully.

But on Wednesday Vladimir Putin came and turned over the table on which [Europeans] had neatly laid out their plans by announcing the future sale of gas against Roubles. ‘Nobody knows how to react. Roubles have to be bought from the Central Bank. Putin is thus putting the West in an extremely difficult position, because the Western sanctions are being reduced to absurdity’, writes Der Spiegel.

The Russian currency was one of, if not the main, target of the Western sanctions. devaluation of the Russian currency, ‘starvation’ of the Euro and the Dollar, and decoupling [Russia] from the global credit market. All of which, it was calculated, would bankrupt the Russian economy. But instead of the expected panic and surrender on all fronts, the enemy is upping the ante—there is no time for calm, systematic strangulation:

The [West] had hoped that a little effort would be enough: save a bit water and electricity, turn down the thermostats a little, maybe eat a little less meat, and give up private transport at weekends. But no, now they cannot escape the reverse knockout effect of their own sanctions. All that remains is for them to ask: why us?

‘Existing contracts specify the currency in which payments will be made. Usually it is the Euro or the Dollar, and we have to assume that [this holds]’, said Olaf Scholz.

The [West] has frozen the assets of the Russian Central Bank, which are not only in Dollars and Euros, but also in their own government bonds. And now they suddenly remember contracts. Well, they can re-contract them in Roubles at the central bank's exchange rate.

‘Of course, they can tell us that they will easily replace 111.5 billion cubic metres of gas this year. But in reality, without a de-industrialisation of Europe, without a collapse of the supply system relied on by the public in Europe, it is impossible to refuse to buy Russian gas. The proposal on our part is very simple. We keep our supplies, our commitments in terms of quantities and price formulas, we do not change anything except the currency of payment. In this respect, the idea is simple. If you want to [continue to] receive Russian gas, change the contracts’, said Konstantin Simonov, director of the National Energy Security Fund.

By insisting on the former instrument [payment in Euros] for future mutual settlements, Europe de facto suggests exchanging real Russian goods (gas and other raw materials) for its unsecured bonds in the form of Euros, which can also be frozen at any time. And that is something Russia certainly cannot get involved in. This interpretation is all the more true since in a number of cases the possibility of mutual offsetting of gas in national currencies is already provided for in the existing treaties. In Bulgaria and Moldova, for example, the switch to Roubles was accepted without any qualms, for bespoke financial mechanisms are already in place. In this respect, some countries could quite unexpectedly come into possession of huge reserves of fossil fuels, which they will sell to their European neighbours for a surcharge.

Everyone understands that. This week, many had the impression that Europe is following the familiar pattern of accepting the inevitable: first denial, then anger, followed by bargaining. The German government is already no longer insisting but recommending a work-around: ‘Since it isn’t the state itself that buys gas, one can only appeal to the private suppliers to refuse to pay in Roubles’, said Finance Minister Lindner.

The price for one thousand cubic metres of gas jumped to around $1,500 on the news about the Rouble payment. Now, the market** is waiting to see what Gazprom’s European partners will decide. If they follow the recommendation of the German Finance Minister, and if Russia decides to stop deliveries [not paid for in Roubles], gas futures could return to the record level of 7 March of $3,800 per thousand cubic metres next week. That would be an unmitigated, if guaranteed, disaster.

Germany’s Bundesamt für Katastrophenschutz [i.e., the FEMA equivalent] has simulated a gas supply disruption scenario in 2019: manufacturing shutting down is not even half the problem, because it turned out that social institutions—hospitals, schools, nursing homes—would not be able to provide people with hot meals, and private households would resort to burning whatever was at hand. And that means injuries and fires, thereby overwhelming emergency services. This is a scenario for temporary difficulties, but if this becomes the norm, Germany runs the risk of reverting to the 19th century and the thriving welfare state will be destroyed. Even the heating system will cease to exist. This is not Russian propaganda, this is what Die Welt writes.

And the Green Utopia with which [party co-chairs] Baerbock and Habeck lured voters, decarbonisation, carbon neutrality—all that trillion-euro high-tech fairyland—is gone. The sanctions they themselves devised allow only one energy transition for Germany: not to renewables, but to the most traditional energy sources in the form of lignite [poor-quality coal] from the Ruhr valley.

And even if Ms. Ursula von der Leyen and the German Greens can sedate Europeans for a while longer with fairy tales of salvation through wind turbines and solar panels, they will stop believing it soon enough [if they haven’t already]: ‘That is why we as Europeans want to diversify supplies from Russia to suppliers we trust, who are our friends and who are reliable’, von der Leyen said.

It is unclear why Russia has become an unreliable supplier when Gazprom is even now pumping fuel to Europe via the Ukrainian pipeline. Yet, for von der Leyen, the US is a reliable supplier, and forgotten is the fact that the Americans diverted their liquefied gas to premium Asian markets this autumn. Biden has promised 15 billion cubic metres for this year, a tenth of what Europe gets from Russia. So that’s nothing, really. But these volumes could increase in the future, if the appropriate infrastructure is built, i.e., not very soon.

‘A liquefied natural gas terminal requires 1.5 years of planning and 3.5 years of construction. That is common practice. But what is approved on paper, Germany usually has to multiply by 3 or 4, as in the case of Berlin Airport’, Robert Habeck clarified.

Theoretically, Putin could immediately turn off the gas supply by refusing to accept anything but Roubles, but then Germany could no longer trade [for gas] surpluses with Poland and Ukraine, as it has done in recent months. Germany would have to resort to heating with coal and firewood, take in refugees, and spend a hundred billion Euros on modernising the Bundeswehr. Clearly something doesn’t add up here, so the switch to the Rouble is inevitable: if Germany won’t do it, others will.

Austria’s [oil and gas monopolist] OMV subsequently said it wanted to continue paying Gazprom in Euros, but it will probably be forced to change its mind.

In Brussels, Scholz said it had been a conscious decision by the EU not to include energy in the sanctions package because some countries were very dependent on gas, oil and coal from Russia. Karl Nehammer, the Austrian Federal Chancellor, made it clear: ‘For us, there will be no gas and oil embargo against Russia. This is not only unrealistic for Austria. Bulgaria, the Czech Republic, Slovakia and Hungary would also be severely affected’, writes Die Zeit.

Poland has called on its European partners with the greatest zeal to renounce Russian gas immediately. Poland consumes only 20 billion cubic metres a year, half of which comes from Russia, but hopes—through the small Baltic Sea pipeline under construction—to switch to Norway by the end of 2022.***

Other Europeans are equally desperate to find supplies. German Economics and Energy Minister Habeck has even made a rather humiliating trip to Qatar. Humiliating because, according to German media, the country is almost a tyranny where human rights are violated and slave labour is used, yet suddenly Habeck has to go there. Habeck has returned from Doha elated: he had succeeded in negotiating a stable supply of liquefied gas, an energy partnership, so to speak. But his joy was short-lived, for Middle Eastern matters are delicate.

Qatari Energy Minister Saad al-Kaabi has dampened German expectations of a swift replacement for Russian gas: ‘It will take years.’ He cannot imagine anyone being able to replace Russian supplies in the short term: ‘Nobody can do that. To say that you can do without Russia today and to say that Qatar or other countries can replace it is ridiculous. It’s not going to happen.’ Al-Qaabi denied reports of a long-term energy partnership between Germany and Qatar. Asked if such an agreement exists, he clearly replied, ‘no’, Die Welt stresses.

To offset the damaging effects of the fluctuating energy markets, the EU summit agreed to adjust the price mechanism: the cost of gas in the megawatt-hour price should not exceed a value yet to be determined. They wanted a market, not long-term contacts, and have arrived at a method of planned management. And they have also worked out a plan for centralised gas purchasing—for everyone at once—via Brussels and its bureaucracy. And there are problems to be expected: for example, they have already procured Covid vaccines.

Russia has not yet announced counter-sanctions, but Europe is already in trouble. This is Lorient, France. Farmers are dumping mountains of soil and manure, blocking traffic on the city’s roads. They cannot start sowing because of the price of natural gas, which accounts for up to 70% of the cost of fertiliser, or because of the lack of fertiliser.

Russia and Belarus control 40% of potash market, an indispensable ingredient of fertiliser, almost a quarter of the ammonia export market, 14% of the urea market, and the same share for phosphates. Farmers’ costs have already tripled or quadrupled. The Wall Street Journal writes that for farmers, this is a nightmare out of a horror movie. From Argentina to Indonesia, growers are drastically reducing their acreage and in Germany, greenhouses are empty. In the long term, the supply of wheat, rice, soybeans, corn, and vegetable oils will fall drastically. North Africa is facing famine due to food shortages and Europeans will see a significant drop in quality of life due to lost incomes.

Spanish fishermen burn tyres on the bridge in Ayamont. They want to prevent local seafood wholesalers from going to Portugal where they are still cheaper because diesel is not so expensive [there]. Authorities are cracking down, but diesel stocks in Europe may last only one month, even though they promise to help Ukraine.

The price of a barrel of Brent crude oil stood at $115 on Saturday [26 March]. And there is no good news that indicates price reductions. And then there is bad news: Saudi Aramco’s oil depot burnt down after an attack by Yemeni Houthis. In the Black Sea, the infrastructure of the Caspian Pipeline Consortium was damaged by a storm, taking out another 1% of the oil market’s volume on top of top.

‘To put it in numbers, these losses are about 1.1m barrels per day. According to expert estimates, the recovery could take up to 2 months, and it is really a serious trigger for the market that this volume will not be delivered for now’, Russian Deputy Prime Minister Alexander Novak said.

When the pipeline will be able to deliver again depends not only on the skill of the engineers. On Saturday morning, the first sea mine was spotted near Istanbul, laid by Ukraine off Odessa and then blown out of its moorings by a storm. No one knows how many are now floating on the waves towards the Bosporus, but for a proper assessment of the situation, these pictures are more important than all the charts and quotes about the high prices for gas and everything else.

Whether Europe will buy gas for Roubles is not yet clear, but it must be noted that, to the delight of the US president, EU political leaders and their key figures have not voiced clear objections to sacrificing the public good in a protracted economic war with Russia. Perhaps this will not last long, because in this context German polls are very interesting: according to surveys by FOCUS magazine, a majority of Germans are in favour of punishing Russia in some way, but the same majority is not prepared to pay a single cent for it.

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Brief Comments

* The main issue I have with the conflation of the EU with ‘Europe’ is that it severely distorts the mind by obfuscating the terms and their meanings. Basically, this is classic post-modernistic agit-prop, or language weaponised to confuse the public. Its effect is very problematic beyond the linguistic aspects, for it reduces the (self-) identification options to, well, the EU.

** Speaking of the EU, the main problem behind the ‘free market’ for natural gas is what is called ‘unbundling’, a set of policies that benefit energy companies and esp. the middlemen between producers and consumers. Here’s how it works (courtesy of my post from a month ago):

One of the little-known side-shows of the current energy crisis—high energy costs, rising food costs, accelerating inflation—are intimately tied to what, some 15-odd years ago seemed like a swell idea to the EUrocrats: the ‘liberalisation’ of energy markets across the EEC. The key term, which you’ve probably don’t know nearly enough about, is ‘unbundling’, which is EUrocrat-speak for ‘the separation of the activities potentially subject to competition (such as production and supply of energy)’.

Rendered into something approximating plain English, ‘unbundling’ means that companies that produce ‘energy’ (e.g., oil or natural gas) may do so, but they may neither own or operate the transportation infrastructure (pipelines) nor the processing plants (refineries), to say nothing about end-point distribution (e.g., gas stations). This was heralded a while ago by the EU Commission as another stepping-stone in their desire to (neo-) liberalise energy markets.

You cannot make this up, but I suspect you can clearly see how the EU Commission has caused the current mess for consumers some 15 years ago, and now the same institutions that brought about this set of policies is promising to save the peoples. What, pray tell, can go wrong?

*** As to ‘plans’ to substitute Russian natural gas with anything even remotely significant from other sources, such as Norway, I’m sorry to spoil Poland’s pollyannish hopes and dreams, but the below illustration (from ‘Norwegian Petroleum’, source here, and I’d encourage everyone to read the whole file) should explain—as in: dispose of any notions of—the viability of this ‘plan’

If anything, I’d say: buckle up and brace for impact.