It seems to have started. Against the backdrop of loud statements (including during V. Putin's “direct line” on April 16, 2015) about “stabilization” and “renewal” of the Russian economy, the real financial and economic situation shows that the economy is exhausted, and the Russian Federation itself is increasingly losing its offensive (first of all, resource) abilities under the influence of international sanctions. The signs of the process have been repeatedly mentioned in Western and Ukrainian media, in “Borysfen Intel’s” publications included.
However, so far, the crisis in the Russian economy had some local nature and its results were not systematic for the state. But since the beginning of 2015 these trends have acquired a qualitative change, as demonstrated by the failure of the main strategic directions of the Putin regime's policy. First, this regards to the energy industry, as the basis of the Russian economy as well as of global (basic) Kremlin's plans to transform Russia into a “great energy state — the world leader in the production and supply of energy carriers”.
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Russia has lost the “energy war” not only with the European Union, but also with Ukraine
In fact, Russia finally and irrevocably has lost the “energy war” not only with the European Union, but also with Ukraine. That energy war has been led by Moscow since 2008-2009 and has got intensified since the beginning of the Russian military aggression against our country. A clear evidence of this defeat was Russia's loss of ability of practical use of the energy factor as a lever of pressure on the EU and Ukraine as a result of the diversification of sources of gas imports.
This was a consequence of the European Union's targeted measures to develop the infrastructure for imports of liquefied natural gas, which opened the European market for the Middle East and other gas producers. In particular, after Qatar's appearance of this market, very soon the United States, Canada and Australia may turn up on it too. With this in mind, the EU countries have already begun to abandon the earlier planned volumes of supplies of Russian gas (more expensive than the one offered by alternative suppliers).
In particular, following the entry into force in 2014-2015 of gas terminals on the Baltic Sea in Świnoujście (Poland) and Klaipeda (Lithuania), Latvia has announced its intention to cease the import of gas from Russia (until recently, Latvia depended almost 100 % on Russian “blue fuel”). In 2015, Romania is going to abandon Russian gas imports (although, today, Russian gas supplies to Romania account for only 2 % of the total gas supply to the country) and moreover it has expressed its willingness to meet the gas needs of Moldova. Recently, Finland and Estonia have agreed to build gas terminals on their coasts of the Gulf of Finland and to connect them to the gas pipeline, which in the long term will enable these countries to abandon the purchase of Russian gas. In the future (in 2017-2018) Croatia plans to build a gas terminal (this will be the third new LNG-terminal in Europe) on the Island of Krk in the Adriatic Sea (Adria-LNG Project), from where, as is planned, through Hungary's gas transmission system, gas will be supplied to Ukrainian gas storage facilities. According to Western experts, the latter option is a very serious step, which will not just diversify the routes to Ukraine, but will also strengthen the energy security of Central and Southeastern Europe (including “problematic” ones — of Bulgaria, Hungary, Greece and a number of Balkan countries). At this, details of the new route are known to have been agreed.
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Natural gas supplies to Ukraine in 2014, thousand cubic meters |
In turn, the purposeful, consistent and quite successful steps of the Ukrainian leadership, as well as its support by the European Union, have made it possible to significantly reduce Ukraine's gas consumption, as well as to arrange a reverse gas supplies from the EU countries. Taking into account the results achieved in 2015, gas consumption in Ukraine is projected at 40 billion cubic meters, which is 10 billion less than the figure of two years ago. At the same time it is planned to reduce imports of gas to Ukraine up to 25 billion cubic meters, as well as to bring the share of the reverse supply up to 80 % (at this, in the balance of gas consumption for the current year is not incorporated a specific volume of gas imports from Russia).
This not just eliminates Moscow's political influence in Europe and on former Soviet territories, but also makes the Russian government reduce the price of gas, resulting in tangible losses for the Russian gas monopoly “Gazprom” (in 2014 it lost 40 % of its income) and for the state budget of the Russian Federation. Thus, Moscow is almost asking Ukraine to buy Russian gas at 248 US dollars for 1 thousand cubic meters and does not demand 560 US dollars any longer, as it did a few years ago. Who could imagine such a thing before?
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Dynamics of gas prices for Ukraine in 2014-2015, $/ thousand cubic meters |
Moreover, Moscow's plans to exclude Ukraine from the system of transit of Russian gas to Europe have failed. So, due to lower demand for Russian gas in the EU, the Russian gas pipeline “Nord Stream” (along the bottom of the Baltic Sea) is operating at only half of its capacity. At this, the issue of practical construction of the second phase of the project has not even been raised. This makes further development of the “Nord Stream” hopeless.
At the same time the aggravated financial problems, as well as the firm position of the EU to prevent Europe's energy dependence on the Russian Federation, made the latter abandon its strategic plans for construction of another gas pipeline “South Stream” across the Black Sea to Bulgaria and further to South and Central Europe. For the same reasons, the implementation of the alternative Russian project “Turkish Stream” through the Black Sea and Turkey to Greece is actually impossible. Its futility has been openly admitted by the official Ankara, despite the existing agreements with Russia on the new partnership. As it has become known, at present there no feasibility study of the “Turkish stream”, while “Gazprom” has not even officially registered the project.
True, in March this year the construction of “Trans-Anatolian Gas Pipeline” (TANAP) was begun in Turkey, as part of the European project “Southern Energy Corridor” to transport gas from the Caspian region, Central Asia and the Middle East to Europe, bypassing the Russian Federation.
In general, these problems, as well as the European Union's increased activity on the conduct of antimonopoly investigation of “Gazprom’s” activity (since September 2012 the European Commission has been investigating “Gazprom’s” violations of the EU rules that relate to the markets in several countries of Eastern Europe), make the Russian gas monopoly cut its European assets (in fact, scale back its presence in Europe). In particular, the evidence for this was “Gazprom’s” putting on sale in early April 2015 of its block of shares (10.52 %) of the German gas distribution company “Verbundnetz Gas” (VNG). Besides, at the beginning of April “Gazprom” withdrew its claim against Lithuania (wrongly organized against Lithuania in 2012 in the Hague's Court of Arbitration of the UN Comission on International Trade Law (UNCITRAL) to prevent the reorganization of the Lithuanian company “Lietuvos dujos” /read — getting rid of Russia's influence/ partially controlled by “Gazprom”) in connection with the reorganization of its gas sector with the strategic goal — to create a diversified gas market, meeting the requirements of the Third Energy Package of the European Union.
The essence of the main problem of relations “Gazprom”-the European Union is as follows: The European Community puts the claim to “Gazprom” concerning monopoly on the markets of eight countries in Central and Eastern Europe. So, the EU, not without reason, suspected the Russian gas holding that it restricts the free supplies to the community through the distribution of gas markets, prevents diversification of supply and sets unreasonable prices. The European Commission also considers unfair the binding of gas prices (long-term contracts) to oil prices. The punishment for this could result in a fine of 10 % of the annual profits of the company in the European Union, which is about 93 billion Euros. That is, the fine for “Gazprom” could be around 9-10 billion Euros.
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In its turn, “Gazprom” sees serious risks for itself in the new model of the EU energy security. This was announced on 13 April by the Head of “Gazprom” Alexey Miller, at the Conference “Europe and Eurasia: Towards a New Model of Energy Security” organized in Berlin by the Valdai Club. In his speech, he acknowledged that the scheme of the monopoly in Europe is falling apart, blamed for this the consumers and the EU leadership and shifted the responsibility for further consequences onto them. At the same time, he quite cynically voiced “Gazprom’s” threatening to raise the price of gas for the EU. According to A. Miller, if the European Union insists on establishing a single price for all “Gazprom’s” European customers, that price will be determined by the top-of-the-range level. In addition, for the first time “Gazprom” officially and openly voiced the threat to cut off supplies of Russian gas to Europe. In fact, it was a tough Russian reaction to the plans of the European Commission to create a European Energy Union and to develop the EU Energy Security Concept.
April 22, 2015, the European Union Antitrust Regulators officially accused the Russian “Gazprom” of violation of competition in eight Eastern European countries (Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Hungary and Bulgaria), as well as of the EU anti-monopoly legislation. The Russian company “Gazprom” does not agree with the accusation, calling it groundless. Despite this, the European Commission has pointed out that “Gazprom” has 12 weeks to respond to the allegations.
Against the background of these processes in March 2015, Russia has renewed and even somehow increased the volume of gas transit through Ukraine, which it reduced in September 2014 to put pressure on Ukraine. By this, the Russian leadership today actually acknowledges that it is unable to exclude Ukraine from the Russian gas transportation system in Europe.
A similar situation is observed in the Russian oil industry, which is more important for Moscow than the gas component of the Russian economy (the Russian state budget revenues from oil exports more than three times exceed the revenues from gas exports). First of all, the cause of the problems in this industry, which are becoming critical, is the decrease in world oil prices due to the massive use by the United States and other developed countries of new technologies for production of shale hydrocarbons, as well as Washington and its Middle East allies' coordinated actions in holding coherent pricing policy (as practical measures for distribution and consolidation of energy markets, as well as for providing tangible pressure on Russia).
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Oil prices for Urals, WTI and Brent |
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Besides, a recent report published by the Organization of the Petroleum Exporting Countries (OPEC) points out that oil production in the Russian Federation in 2015 will decrease due to the West's economic sanctions, a sharp drop in oil prices and lack of major new projects in the Russian Federation. Thus, OPEC points out that at an average price of 55 US dollars per barrel, Russia would lose about 135 billion US dollars compared to 2014. The decrease in oil prices at least by 1 US dollar will cost Russia 3 billion US dollars in lost revenue. Decrease in the oil revenues will clearly lead to a drop of Russian gross domestic product (GDP). OPEC experts believe that in 2015 it will decline at least by 3.2 % (previously OPEC predicted that the decline in GDP would be around 2.4 %). In fact, we can talk about coordinated actions of the USA, the EU and a number of OPEC countries on the issue, plus limitation of exchange options for investment funds.
Contrary to the optimistic forecasts of some Russian experts about the possible resumption of high oil prices, due to the above-mentioned reasons, the situation on the world energy market is unlikely to result in positive changes for Russia. Thus, the increase in oil prices in the first half of April 2015, was situational and, according to Western experts, was due to the sharp deterioration of the situation in the Middle East because of the vigorous activity of the Islamic extremists in Iraq, Syria and Yemen. The solution to this problem, with the participation of the international antiterrorist coalition in the nearest future will inevitably end in a new stage of decrease in oil prices.
The complication of the situation in the Russian oil industry, as well as the devaluation of the ruble in fact have led to the revision and sequestration of the federal budget of the Russian Federation, adopted in November 2014. April 10, 2015, the Russian State Duma adopted in the third and final reading the amendments proposed by the Russian government for the federal budget of 2015. The preliminary budget was developed on the basis of prices for Urals oil at 96 US dollars per barrel and the exchange rate of 37.7 rubles for 1 US dollar. The adopted amendments take into consideration a more realistic forecast — Urals at 50 US dollars per barrel and 61.5 rubles for 1 US dollar.
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Incomes of the consolidated budget of Russia, bln. rub. |
The federal budget deficit, previously planned at 0.6 % of GDP, based on the amendments has been approved at the level of 3.7 % of GDP, or 2.675 trillion rubles, which will be mainly covered by the Reserve Fund (the Reserve Fund by the beginning of 2016 will have decreased to 2.629 trillion rubles.). Besides, the main items of the budget have been cut by 10 %. In fact, this is the first RF federal budget's sequestration over the past 15 years.
To all this, Russia has a real prospect of losing its positions in the European oil market too, as it has happened in the gas sector. The reason is the decline in the EU's oil consumption and the increase in oil supply from other countries, particularly from Saudi Arabia and the UAE, expected at the end of this year, thanks to the construction of new facilities for the production and transportation of hydrocarbons to Europe. At the same time, in the nearest future it is possible that Angola and Nigeria will appear at the European oil market.
However, a true disaster for Russia could be the lifting of international sanctions against Iran this summer. In particular, these prospects are opening up thanks to the negotiations of the “International Six” with Iran, March 30 — April 2, 2015, where were achieved agreements in principle to resolve the situation around the Iranian nuclear issue. Considering the geographical location of Iran, as well as the presence of a significant hydrocarbon reserves on its territory, the reintegration of Iran into the world energy system will completely change the situation in the oil and gas world markets and in the structure of the energy security of Europe.
Thus, today, Iran is negotiating with OPEC on the return of its right to use the Iranian quota of oil production and exports, and is holding consultations with Turkey and Azerbaijan on the possibility of joining the project of the “Trans-Anatolian Gas Pipeline” (has reserve capacity of up to 15 billion cubic meters of gas per year).
Implementation by Tehran of such plans will necessarily lead to a further decline in world oil prices (according to various estimates, to 30-40 US dollars per barrel), as well as will speed up the implementation of the project of the TANAP Project.
The result of these processes will be a further fall in Russia's revenue from the exports of Russian hydrocarbons and its obvious inability to implement the Russian project “Turkish Stream” — because of its economic uselessness. At the same time will grow dramatically the possibility of bankruptcy of Russia's leading oil and gas companies, including “Rosneft”, which today is actually working for future reimbursement. The need to cover the debts of this particular company (by the way, very close to Putin) under the state guarantees has become one of the main reasons for the banking and financial crisis in Russia last autumn.
We may call illusive the Russian Federation's hopes for the possibility of reorienting its gas exports from Europe to China. According to some reports in the Russian and Chinese media, the catastrophic shortage of funds makes Russia suspend construction of one of the two promising export pipelines to China (the “Power of Siberia”), which significantly reduces the possibility of the Russian Federation's presence in the Chinese gas market. In contrast to this, at a faster pace are being built gas pipelines to China from Turkmenistan, Kazakhstan and Uzbekistan, offering China more favorable terms of gas supplies.
That is, everything just mentioned, as well as the reduced demand for Russian gas in Europe and the prospect of lifting the international sanctions against Iran, will end in the Russian Federation's losing its control over gas exports from Central Asia too. For example, in late 2014 Russia was forced to refuse to buy gas from Turkmenistan, Kazakhstan and Uzbekistan. It increased the latter's abilities to diversify routes of gas supplies to foreign markets (both, to Europe through the Caspian Sea and Iran, and to China, Afghanistan, Pakistan and India).
And, apparently, the last thing as of today: the US, Canada, EU, Japan and Australia's sanctions, providing for a ban on giving Russia advanced technologies and equipment for production and processing of energy carriers, actually make impossible the effective development of the oil and gas industry of the Russian Federation, including implementation of projects to develop new energy fields in remote and inaccessible (Arctic included) areas. With the decline of available hydrocarbon reserves, it creates a real threat of the decline in oil and gas production in Russia, even in case of continued demand for them.
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So, there are reasons to believe that because of the armed aggression against Ukraine, Russia is finally losing its potential of the “great energy state,” which it considered one of the main preconditions for the transformation of the Russian Federation into “the leading world-class center of power”. Under such circumstances, Russians' further military invasion in Ukraine will not contribute to Moscow's achieving its geopolitical goals, but will provide it with further political and economic losses of a strategic nature.
P.S. By the way, the Russian Federation has already been defeated on other fronts of its imperialist neo-war both, against Ukraine and against the entire Western world, namely:
— its attempts to influence on Ukraine's Western partners by entering counter-sanctions against the USA and the EU resulted in complete failure. Contrary to the Kremlin's expectations, such its actions had negative consequences for the most part of the Russian Federation itself (in particular in terms of reduction of the volume of foreign trade by about 40 % in 2014), while Western countries were able to quickly reorient their trade ties and even increased their exports;
— similarly in nothing ended Moscow's attempts to provide a so-called “import substitution” of critical for it products and components (those from Ukraine included) because of the failure of the Russian side to establish their production technology at Russian enterprises;
— Russia is losing on the information front too, because it has failed to persuade the international community of its “innocence” concerning the events in the Crimea and in the East of Ukraine. Russia's direct responsibility for the above-mentioned actions, as well as the presence of Russian troops and weapons on the territory of Ukraine have been officially recognized by most countries in the world which fact will actually serve as a basis for the preserving and strengthening of sanctions against the Russian Federation.
Finally, Moscow is more and more losing its positions on the front of the armed struggle against Ukraine. In fact, according to leading western and Ukrainian experts, based on their own economic, military-technical and human potentials, Russia, with the support of terrorist-separatist forces of the so-called DPR and LPR is actually able to launch some (local) force operations against Ukraine and terrorist attacks on the Ukrainian territory. Organization and carrying out of a global offensive on the Ukrainian direction with strategic goals is already beyond the real abilities of the Putin regime for both, political-economic and resource, and purely military (operational) reasons.
According to the leading Western experts, the number of the group of the “Joint Russia-separatist forces” (American experts' definition) counting now for 43-45 thousand people in the occupied territories of Donbas, 25-30 thousand people in the Crimea, as well as 50-60 thousand people on Russian territory along the border with Ukraine. It is more than enough to carry both, a large-scale offensive to create a land corridor to the southern Crimea and Trans-Dniester, and some local offensives on a number of operational and tactical (Luhansk, Donetsk, Mariupol) directions at any time.
Some experts believe that the main burden as part of creation of a land corridor to the Crimea and Trans-Dniester can lie on the shoulders of Russian troops in the Crimea (disguised as paramilitary groups of DPR/LPR), which will act in the direction of Melitopol, Berdyansk, Mariupol. At the same time, the operation (a large-scale or local) will be determined by Putin himself, depending on the characteristics of the military-political situation around Russia/ Ukraine and the domestic political situation in Ukraine.
