How Russia Could Start Another Oil Price WarHow Russia Could Start Another Oil Price War

Russian President Vladimir Putin is starting to feel the heat of the new US sanctions, as Washington puts a little more weight in its confrontation with Moscow.

At the same time, new sanctions or even a full (by proxy) confrontation are on the horizon, in the face of tensions on the Russian-Ukrainian border. Putin’s reactions are straightforward, threatening asymmetric responses to any Western pressure or military interference in the months to come.

The still nascent or downright weak reactions of Western governments, especially in Europe, are seen in Russia as a sign of weakness. While the current US and EU sanctions against Russian institutions and oligarchs are wreaking havoc, the overall situation has not changed much.

Russia’s military build-up on Ukraine’s eastern border, the unilateral decision to block the Black Sea for international maritime and maritime forces, in violation of the Montreux Convention, and the threat of increased US sanctions against the parties involved in NordStream 2, do not seem to have changed Putin’s strategic considerations. Global criticism of Navalny’s Russian treatment is seen by Moscow as outside interference in an internal problem, which should not be discussed even during Putin’s annual “State of the Union” address to the Russian people.

US President Biden, however, does not seem at all happy with the effects of the current sanctions on Russia. New, tougher measures are already planned, even after Washington’s decision last week to expel Russian diplomats and ban U.S. banks from buying Russian sovereign bonds in the primary market. So far, most of the US sanctions have been related to Russia’s interference in US elections, cyber attacks, and its appalling treatment of political opposition.

Moscow’s reaction so far has been rather cold, the Bear does not seem impressed by the threat of further sanctions. This reasonably soft Russian approach could change very quickly, however, as Putin’s State of the Union addresses issues of asymmetric responses at all levels if the so-called “red lines” are crossed.

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To the outside world, however, it’s unclear what exactly these red lines are. Moscow has already indicated that further Western sanctions or a surge in military power in the Ukraine-Black Sea arena is a red line. Analysts are now speculating on Russia’s reaction to such actions.

Western analysts mainly fear a military reaction, focusing on the Ukrainian issue at the moment. The immense military reinforcement at the Ukrainian borders could lead to direct and open involvement of Russian troops under the pretext of “protecting” Russian citizens and interests in the region, as has been done before in Georgia and elsewhere. This comprehensive approach to the Cold War is an option that should not be diminished right away, as Russia’s aggressive maneuvers have developed since the Arab Spring, with its involvement in Syria and Libya being the most obvious examples.

Others wonder if a possible Russian retaliation could be by blocking oil and gas supplies to Europe and / or the United States.

The increased dependence of the EU and the US on energy supply increases Moscow’s geopolitical influence. This situation has divided the main European powers. Germany, for example, hints at opening up to Moscow, while France and the UK take the opposite approach.

Then there is the largely undisputed nuclear option. Another oil price war. While it may seem counterintuitive to some, Moscow may decide to lower prices in order to hurt international oil and gas companies, and independent US shale companies in particular. By attacking the US oil industry, Biden’s economic recovery could suffer serious damage.

Another oil price war could destabilize the entire patch of shale in the United States, which is still recovering from last year’s oil price implosion. In 2020, Russia became the third largest supplier of oil to the United States, even overtaking Saudi Arabia. Oil analysts have noticed it, but American politicians have turned a blind eye. The power of the oil suppliers should not be undervalued, especially not when it is in the hands of a rival world power.

An aggressive decision by Moscow does not necessarily have to come at the expense of other members of the OPEC + alliance. In fact, other OPEC members could in fact benefit from a direct attack on US oil and gas export markets. Asian economies such as China or India will not be unhappy with the drop in oil prices, and Beijing might even be a supporter as it will hurt the United States at a time when Washington is expanding its sphere of influence in the South China Sea.

By Cyril Widdershoven for Oil chauffage

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