Raw materials have not been militarized, for now

By Javier Blas

In the 24 hours after Vladimir Putin signed a decree recognizing two breakaway Ukrainian territories, the European Union, the United Kingdom and the United States together bought 3.5 million barrels of Russian oil and refined products, worth more than US $350 million at current prices.

In addition, the West likely bought another $250 million worth of Russian natural gas, plus tens of millions of dollars worth of aluminum, coal, nickel, titanium, gold, and other raw materials. In total, the bill probably exceeded $700 million.

And so it will be, at least for now. United States The US and its European allies will continue to buy Russian natural resources and Moscow will continue to ship them, despite the biggest political crisis among former Cold War warriors since the collapse of the Soviet Union in 1991.

Both parties are aware of the contradictions. The West knows that raw materials are a source of income for Putin, fueling his imperial ambitions thanks in large part to soaring oil and gas prices, but the allies are also aware of the economic damage of reducing imports to zero.

For his part, the kremlin it may be tempted to weaponize its natural resources, which could cause blackouts in Europe. But he also knows that commodity exports are their own economic lifeline.

It’s the commodity market’s version of the Cold War doctrine of mutually assured destruction, or MAD.

With other adversaries—for example, Iran or Venezuela— the White House has been quicker to use oil as a geopolitical tool. As a result, both Tehran and Caracas cannot legally sell oil on world markets, not just in the United States. However, Russia remains free to ship its oil to the United States; and the UK also continues to buy Russian diesel.

At this time, neither Moscow nor the United States and its allies have an economic, political or military interest in militarizing oil, gas and other natural resources. However, I must underlinefor now”. The initial round of Western sanctions, and the Kremlin’s reaction, was a reflection of that current stance.

The EU and the United Kingdom they targeted five mid-sized Russian banks, accusing them of aiding the Kremlin’s campaign. But they left untouched the three giant state lenders that are key to commodity trading: VTB Bank PJSC, Sberbank of Russia PJSC and Gazprombank JSC.

Putin followed suit, telling an industry conference — the day after he recognized the breakaway republics — that Russia was planning “uninterrupted supplies” of natural gas to world markets.

Fears that the kremlin cut off the gas supply remain just that: fears. Any military problem is confined to the two breakaway territories, which are a long way from the powerful Russian oil and gas pipelines that criss-cross Ukraine from east to west: Druzbha, Soyuz, Progress and Brotherhood. The company that operates the Ukrainian gas pipeline network tweeted: “Keep calm and carry gas”.

The biggest casualty has been NordStream 2, the Kremlin-backed gas pipeline that connects Russia directly with Germany under the Baltic Sea. Berlin halted the pipeline’s administrative approval process, freezing the project.

However, it did not impose sanctions on the pipeline itself. In any case, it is unlikely that NS2, which has not yet started to work, will be approved before the summer. Berlin took no action on NS2’s sister pipeline, NordStream 1, which follows the exact same route and has been pumping gas for several years. Why not? NS2 is empty; NS1 is full.

Although NS2 is a cause célèbre for many politicians, its importance lies in diplomacy rather than the energy market. For Berlin, stopping the project sends a signal to the Kremlin without affecting Germany’s current natural gas supply. For its part, Moscow does not need NS2 if its sister is at full capacity.

In fact, Gazpromthe Russian state-owned gas giant, has not sent a single molecule of gas through its other pipeline, the Yamal-Europe, which runs through Belarus and Poland, since late December.

We may soon see Gazprom increase its gas supplies to Germany and the rest of Europe. Current spot gas prices are higher than the average for February to date, a situation that may lead European companies to maximize their Gazprom supply contracts from March 1.

If so, Europe could experience an ironic situation: simultaneously increased political tension and increased flow of Russian gas.