America Lifts Sanctions On Russian Nord Stream 2 Gas Pipeline Into Europe; India Should Prepare For Rising Crude Prices

by Venu Gopal Narayanan - May 21, 2021 09:07 PM +05:30 IST
America Lifts Sanctions On Russian Nord Stream 2 Gas Pipeline Into Europe; India Should Prepare For Rising Crude PricesVladimir Putin (Twitter)
  • The Russian-American meet in Reykjavik may mark a season of rising global crude oil prices, and that would have an adverse impact on India.

    Hopefully, Raisina Hill is clued in to such goings-on and preparing contingencies accordingly.

The news of the year broke today, 20 May, with America blessing the completion of Nord Stream 2 – a set of Russian gas pipelines being laid through the Baltic Sea, from Ust-Luga near St. Petersburg, to Lubmin in Germany. The announcement was made during the course of a meeting in Reykjavik, Iceland, between American Secretary of State Anthony Blinken, and Russian Foreign Minister Sergei Lavrov.

While lathered in diplomatese, which frenzied media outlets will pedantically dissect to the last nanometer, the message is clear: this key project, which had been a bugbear for various groups since years, will now be commissioned without further drama.

The Germans were quick to welcome the announcement since the additional capacity provided by the new pipelines further satisfies their energy needs for the foreseeable future. Their energy security is energy dependency, as their other options are simply too meager to fulfill demand. North Sea gas production is steadily dwindling at such a rate that even Royal Dutch Shell was wise enough to join the Nord Stream consortium a decade ago.

(This is after Shell’s Groningen field in the Netherlands, a pimple compared to the gas reserves in Siberia, was once audaciously touted as a long-term alternative; instead, the Dutch government has now decreed that gas production from Groningen will end in 2022!)

Just as quickly, a host of interest groups raised a collective howl of protest over what they see as an American volte-face without merit.

First on the list are those who wished to use pipeline politics, to force Russia’s hand over Ukraine. They now feel that they have lost both the fulcrum and the lever, in their efforts to dislodge one more piece from the Russian sphere.

Next are the environmental activist groups, who see this as a betrayal, and a step back from the path to a world powered by clean, renewable energy sources. Of course, the irony is that many of these outfits thrive most vibrantly in Germany, in a culture of plush patronage, powered silently by gas from Russia.

Third, groups who had grown increasingly alarmed over the past decades, by the extent of Europe’s energy dependence upon Russia, and who were intent on preventing what they felt was the de facto energy colonisation of Europe by Russia, feel that the battle is now lost irretrievably.

Bringing up the rear are Democrats and others in North America, who can’t believe this news.

One: the climate change sorts, who cheered President Biden in January 2021, for cancelling the Keystone XL crude oil pipeline from Canada to America (which would have paradigmatically elevated the landscape of the oil patch there).

Two: commentators who believed Secretary of State Blinken, when he said during his confirmation hearings, that he was "determined to do whatever we can to prevent that completion" of Nord Stream 2.

And three: those Biden-watchers who bought his line during the campaign, about Russia, and not China, being the biggest global threat to American security. They have probably switched to the other end of the conspiracy theory spectrum, and joined those who warned against electing a pliable windsock as president.

For all that, the truth is that Nord Stream 2 is nearly complete, and gas should start to flow along the Baltic floor to Germany next year. This was opportunistic drama from the start, which the Russians weathered with a stoic grin, because America or no America, everyone knew that Germany couldn’t do without more Russian gas. If at all fabrication and laying work of the pipeline was hindered in 2020 due to American sanctions, it was only because the presidential race for the White House had started in earnest then.

Nonetheless, response to the announcement in Reykjavik has been muted in Russian media circles. Whether that is on account of wariness, or distrust, or self-effacement, is unclear at present, but it does hint at some sort of tradeoff. After all, Christmas doesn’t fall in May.

That begs a question: What do the Americans get in return, for so abruptly taking the heat off Russia’s most lucrative project? What do they want?

One plausible answer is higher crude oil prices.

As Swarajya has reported in the past, the simplest, fastest way to get the American economy racing is to increase output from tight oil pays. And the only way to do that is by raising crude prices, since oil extraction from tight sands in America needs that to break even. But the problem is that the world is presently trapped in an oil glut, exacerbated by depressed demand due to the Wuhan virus pandemic.

We got a hint of impending change, when crude oil prices started rising mysteriously, a week after the elections were over in America, even as global demand slumped. From around $40/barrel in early November 2020, the international prices rose to $60 by Biden’s inauguration in January 2021.

But it is not enough; if domestic American crude oil production is to really liftoff, and all of that additional production would be from tight sands, then supply by other exporters has to be cut further, and the price has to go up to $80 band. Not to mention that demand has to pick up in India and China, while analysts wonder how, and if, the rocket war initiated by Hamas on Israel fits into all this. (Readers may note that the oil price, which had dropped to $60 in early April, after a brief surge in March, has risen to almost $70 now, in step with the rising tensions in the Middle East)

Now, with Russia sitting at the head of the OPEC-plus table, and thus well placed to fix the oil price, what better sweetener might America offer, than ending the bad blood on Nord Stream 2? Besides, there’s nothing better than a price hike to cover up for the miserable losses of an epidemic-ridden year. With Nord Stream 2, Russia doubles its gas revenues from Europe, and with higher oil prices, America recoups on the back of oil exports.

If this scenario is valid, then the Russian-American meet in Reykjavik may mark a season of rising global crude oil prices, and that would have an adverse impact on India. Hopefully, Raisina Hill is clued in to such goings-on and preparing contingencies accordingly.

Venu Gopal Narayanan is an independent upstream petroleum consultant who focuses on energy, geopolitics, current affairs and electoral arithmetic. He tweets at @ideorogue.
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