Elijah J. Magnier
Russia will not be able to disassociate itself from U.S. global unilateralism as long as it uses the U.S. currency as a financial medium for its business transactions. This dependence on the U.S. dollar naturally puts Moscow at the mercy of the United States of America and its sanctions. The same applies to the euro, directly linked to European politics, which has become a hostage of the U.S., as demonstrated by the measures taken during the war in Ukraine. In fact, most of President Joe Biden’s decisions were followed by Europe, despite its significant economic losses and US gains. This was evidenced by the West freezing some $300 billion of Russia’s hard currency and gold deposited in Western banks.
For this reason, Russia began several years ago to adopt local currency to exchange some of its energy and trade with China, Iran, India and Pakistan. Meanwhile, President Vladimir Putin has warned the 48 countries classified as “unfriendly” that the daily Russian gas bill, estimated to be worth hundreds of millions of euros, dollars and pounds sterling, must be paid in Russian rubles starting Thursday, March 31. The ultimatum issued by the Russian president is either pay the price of oil, gas and coal in rubles or they will not sell at all if Europe does not abide by Russia’s terms. This will inevitably lead to a global crisis or significantly increase the Russian currency, offsetting the effect of Western sanctions on Moscow. The Russian decision has caused a storm of statements from the leaders of these countries, who will face a dilemma from which they will have no way out but to succumb or suffer the consequences of severe gas and oil shortages.
President Putin clarified that this is only the beginning of Russian measures. The Russian president said that the alternative terms of the contracts would not be revised to allow for currencies other than the ruble. This means that prices will be unchanged, and buying companies will pay for Russian gas at the original dollar price, but in Russian currency.
Deputy Prime Minister Alexander Novak also said that it has become unacceptable to trade oil against the dollar and the euro, and in the future, it will be necessary to switch to settlements in national currencies for all other products.
Difficulties may arise when European institutions start looking for companies on the stock exchange from which they can buy rubles, as Europe will have to ensure that these companies are not subject to sanctions. Europe would not be able to buy ruble from the already sanctioned Central Bank of Russia, with half of its gold and foreign exchange reserves frozen.
Reactions came from the European continent, which initially rejected the “blackmail” imposed by President Putin and requested that the gas bill not be paid in Russian currency. The first reaction came from French President Emmanuel Macron, who said that Europe cannot handle the ruble and that contracts with Russia do not provide for this condition, considering it a violation of the gas agreement. This was followed by several statements by the leaders of Eastern European countries, who categorically refused to deal with the Russian currency but did not offer an alternative to meet their needs.
Western countries cannot assume that Russia will remain passive after challenging Moscow on many fronts. Europe has been sending weapons to kill Russian soldiers on the Ukrainian battlefield. The EU has frozen Russia’s financial assets in its banks and joined the US in imposing the most severe economic and financial sanctions. In fact, President Putin will not back down or show any sign of weakness for fear of losing his credibility and consistency in this war. Thus, the Russian President ensures that the sanctions are painful for both Russia and the West. Therefore, President Putin will not give up so quickly and will defend his country’s economy in the long run by inflicting some pain on nations that are no longer considered friends of Moscow.
President Joe Biden said that he “knows that sanctions against Russia will not deter war, because they never have. On the contrary, the purpose of sanctions is to increase Russian pain.” Indeed, the Russian leadership will suffer from these sanctions because Moscow did not anticipate all the numerous steps taken by the West since the beginning of the war. However, the world will share some of the pain.
It is natural that Europe will not be able to buy the ruble – which is expected to become an international currency – off the market so quickly, nor to change old agreements with Russia. This indicates that a real crisis will hit the European continent hard unless it chooses to release the frozen Russian funds as a trading card that the United States will no doubt reject. This may indicate a weak or complacent position on President Putin’s front.
Thus, a significant energy crisis is looming on the horizon, including the Russian economy, which will be deprived of billions in foreign exchange (dollars and euros) it receives monthly from Europe. The old continent cannot expect Russia to pity it or consider its need for oil and gas because all these countries – even if they are reeling under American coups – contribute to prolonging the war that Moscow has decided to fight.
In addition, Europe has decided to diversify its sources of oil and gas purchases and turn to the United States and other gas-producing countries to buy the more expensive liquefied gas (LNG). Europe has complied with the United States’ request to prepare supplies and tankers for liquefied gas. The European Union countries – which import natural gas through pipelines that deliver the gas at much lower prices than what they will buy from the U.S. and other countries – are not well positioned. President Biden has pledged to supply Europe with 15 billion cubic meters of the expensive liquid gas to replace 10 percent of the 40 percent that Europe imports from Russia.
“We are coming together to reduce Europe’s dependence on Russian energy,” President Biden said at a joint press conference with European Commission President Ursula von der Leyen, “to punish Russia and its economy. This is the price Russia is paying and will pay in the long run for defying US global unilateralism in the Ukrainian scenario.
Von der Leyen spoke about the U.S. commitment to provide alternative gas. Meanwhile, the final text of the joint U.S.-EU statement says that the United States “will work with international partners and ‘strive to ensure’ that these shipments find their way to the European Union this year.” So the promise of 15 billion cubic meters this year is a compromise to try to persuade companies in Asia or elsewhere, who are expecting shipments next winter, to agree to redirect them to Europe. This means that the US pledges are not binding, but rather an expression of intent to help. The possibility that Asian countries will refuse to reduce their energy needs cannot be ignored.
The International Energy Agency (IEA) has warned that preventing the European Union from benefiting from Russian gas will have serious consequences. LNG markets are exceptionally tight, and prices are very high. Thus, attention is focused on Norway, Azerbaijan, Algeria, Qatar, and Iran (if the U.S. responds to Iran’s requests to lift all sanctions), hoping that these countries will agree to increase production to satisfy the thirsty market.
Italy turned to Algeria for alternatives, and the European shuttle began with Qatar for liquid gas supplies. However, Doha announced that it could never replace Russia’s supply to Europe with the quantity needed. Its obligations to its current customers prevented it from meeting immediate demands elsewhere.
Germany has halved Russian coal imports, oil imports from 35% to 25% and gas imports from 55% to 40%. However, this does not mean that Germany and other European countries can abandon Russian gas for a year. Moreover, Russia is one of the world’s largest coal suppliers, second only to Indonesia and Australia. As of 2019, Russia has been the largest supplier of coal to the European Union, with a 47% share.
Europe is exposing its neck to the US, which has achieved its main goal in this Russia-US war on Ukrainian land, pushing Europe to align itself politically and pressuring the EU to send weapons to Ukraine and to be classified by Russia as a hostile country. In addition, the US forced Germany to abandon the “Nord Stream-2” even before its inauguration. Washington had long planned to disrupt the new Russian gas line to the EU and managed to become the nominated liquefied gas supplier to the EU at much higher prices than Europe was paying for its gas from Russia.
The US has expressed its intention to sell more than 50 billion cubic meters of gas annually to Europe, which will increase its import of American liquefied gas from 16 percent in 2018 to 44 percent in 2021. Europe imports 20 percent of its total liquefied gas needs from America, Qatar, Nigeria, Algeria, and several other countries in smaller quantities. Meanwhile, Russia meets 40 percent of Europe’s gas, oil and coal needs, ranging from 200 to 800 million euros per day. Russia receives the price of its energy exports in hard currency: 58% in euros, 39% in dollars, and 3% in British pounds.
The reality of the U.S. promise to supply 50 billion cubic meters of future annual U.S. LNG shipments is based on the premise that prices should reflect long-term market fundamentals and the stability of supply and demand. This means that European countries must sign contracts to buy American gas by 2030 and build more infrastructure to receive LNG, which is much more expensive than Russian gas. This will eventually lead to the construction of an LNG pipeline from Europe to the US in the future.
German Chancellor Olaf Schulz has promised to build LNG terminals much more quickly than he has done. The Netherlands signed a five-year contract to lease a floating LNG import and storage terminal later this year. Germany (which gets 55 percent of its gas from Russia), Italy (46 percent), France (24 percent) and Britain (4 percent) must look quickly for other sources because they are totally at the mercy of President Putin’s decisions.
Whatever Europe does, President Putin will remain in control of the flow of gas to Europe over the next year, especially since he delivers to European countries about 153 billion cubic meters to 104 billion cubic meters annually via pipelines. Naturally, gas prices will remain high due to high demand. If the Russian president insists on being paid in rubles, then the dollar will inevitably lose its status as a purchasing value in the medium and long term. Suppose the Russian army can end the war in a time frame compatible with Russian interests and split Ukraine in half, cut off by the Dnieper River. In that case, the consequences are expected to be significant. Russia is expected to make many gains and not only from Western sanctions.
It is a matter of re-engineering the international economy once again. Energy and food security will be unstable. The consequences of the Russia-US war in Ukraine are indeed multi-directional. It is too early to speak realistically about its repercussions on Russia, America, Europe, and the rest of the world, which are badly affected by the ongoing war and global price inflation.
Russia will undoubtedly suffer, but will not starve. Europe is punishing itself and trying to shift its energy dependence from Russia to America. Global markets will remain very concerned in the hope that the war will not last and not move to a more dangerous or critical level. Russia becomes an unreliable source for the West, and Europe becomes an unreliable customer, subject to the dictates of the US. This is nothing new because the nuclear deal with Iran had already proven that Europe did not respect its commitments since 2018, when U.S. President Donald Trump tore it up.
Russia will undoubtedly seek different markets. China cannot buy everything, despite the start of work on a second major Soyuz Vostok pipeline between Russia and China through Mongolia, which will supply up to 50 billion cubic meters annually.
Russia must have expected to pay the price for defying U.S. plans in Ukraine, aware that this was exactly where Washington wanted Moscow’s troops to be. Putin has initiated a second step to move his country away from the dollar, the euro, and the global unilateralism of the United States. The vice chairman of Russia’s National Security Council, Dmitry Medvedev, said, “the unipolar world is over, and the United States no longer rules the planet.”
After the U.S.-Russian war in Ukraine, there is no doubt that the U.S. has managed to tighten its grip on Europe. U.S. hegemony extended over Europe since World War II and beyond the continent right after Perestroika in 1990, when Russia withdrew and “decided” to fall into deep hibernation. The Russian awakening began in earnest in 2015, when it was called upon to intervene in Syria by the central government in Damascus. But the US was able to achieve great goals at minimal cost.
American control over the West is confirmed, but Washington is gradually losing its monopoly over other continents. European countries – like Russia – will suffer economically and politically because the declared economic war against Russia will strengthen the U.S. position and the EU’s dependence on Washington. European leaders will have to endure geopolitical defeat for a long time because the appropriate opportunity to dismiss the United States and withdraw its influence from the old continent has been lost.
But the world is not only composed of the West. Therefore, the situation is no longer the same as it was before the war in Ukraine. The world is waiting impatiently for the results of the war to choose its place of alignment and sees a new world – currently on the brink – undergoing complex and critical work. If Russia emerges with as few losses as possible, it will have waged war with the U.S. on behalf of China, Iran, and all countries that want to get rid of American hegemony.
However, the United States has not given its last word. It may not be satisfied with what it has achieved so far. Its fundamental goal, besides Russia, is China.
Elijah J Magnier is a veteran war correspondent and senior political risk analyst with more than three decades of experience.
INTERNATIONALIST 360° 