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The Fate of Russia

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Photo: Russia is too big to get rid of and too aggressive to let it develop. Source: Collage The Gaze/Leonid Lukashenko.
Photo: Russia is too big to get rid of and too aggressive to let it develop. Source: Collage The Gaze/Leonid Lukashenko.

Ukraine's Western partners have formed the 12th sanctions package against Russia, but its economy continues to generate resources for warfare. What is the reason for this resistance? Russia is too big to get rid of and too aggressive to let it develop. This is roughly the consensus that is now being formed on Russia in the countries of the collective West. And Ukraine's foreign policy should take these realities into account.

Currently, the cluster with the largest excess of energy consumption over energy production in the regional energy balance is Asia: 1890 Mtoe (conventional megatons of oil equivalent). Europe ranks second with 835 Mtoe. In total, these two megaclusters need to import 2725 Mtoe. Who can supply them? 

There is little hope for the Pacific region, Africa and Latin America. They have free volumes of 296, 209, and 49 Mtoe, respectively. Among the largest suppliers are only the Middle East (1127 Mtoe) and the CIS countries (789 Mtoe, mainly Russia and Kazakhstan). In total, these two energy regions can produce almost 2000 Mtoe, which means that this volume does not yet cover the needs of the EU and Asia. The potential of North America (322 Mtoe) only partially amortizes the problem, but does not solve it (Canada's contribution is 245 Mtoe and the United States' 78 Mtoe). 

By the way, these figures clearly demonstrate the failure of the theory that the current energy crisis in the EU is allegedly a plot by the United States to oust Russia from the energy market as its main competitor. As we can see, the United States does not currently have the necessary volumes of free energy for the EU. 

Involvement of Iran through the signing of the so-called "Iranian dossier or agreement" between this country, the EU and the US could reduce the deficit by 78 Mtoe. Norway (185 Mtoe) is currently Europe's key domestic energy source. Theoretically, all the free resources of Australia, Canada, the United States, Iran, Algeria, and Nigeria could be redirected to Europe. We will get a total of 855 Mtoe. 

These volumes cover the needs of Europe, but expose the deficit in Asia, whose markets are supplied by Canada, Australia, and partially the United States. And this is without taking into account that oil supply will be accompanied by a shortage of coal, uranium, or natural gas.

As for Russia, it currently has an energy surplus comparable to the deficits of both China and Europe. It is noteworthy that both Europe and China have almost identical levels of deficit - just over 800 Mtoe. The Russian Federation has an energy surplus of 682 Mtoe.

Currently, the world's oil and biomass reserves are in deficit. The surplus is in oil products, natural gas, and coal. It is this palette of energy deficits that colors the globe in the colors of neutrality, hidden support for Russia, or lukewarm assistance to Ukraine. First of all, it is China and India (covert support). In the second place - Turkey, Thailand (neutrality). And thirdly, Germany, France, Spain, and Italy (support for Ukraine, despite the energy deficit). 

But South Korea, Taiwan, Japan, and the United Kingdom are guaranteed energy supplies from the United States, Canada, and Australia, and their dependence on Russian supplies can be relatively easily diversified.

Small Share, Large Resources

Russia's share of the world's GDP is approximately 2%. At the peak of its modernization phase in 2000-2007 (before Russian dictator Vladimir Putin's famous Munich speech), the share of the Russian Federation was 3.7%. But Russia's role in the global economy is determined by its natural resources. It ranks 3rd in oil production and 2nd in natural gas production. It is among the top five countries in the production of industrial metals (steel, nickel, aluminum). A leading role in uranium mining. And a place in the structure of global food security.

Today, Russia has reached the level of grain harvest of 150 million tons. Traditionally, Russians rely on wheat and barley. In one marketing year, they produce 6 million tons of sunflower oil. Total oilseeds: 15 million tons of sunflower seeds, 4-5 million tons of soybeans, and more than 2 million tons of rapeseed. Strengthening the agricultural vector in Russia is an element of the government's targeted policy. 

Prospects for growth of the Russian market segment in sunflower oil supplies to India and China may reach 2 million tons per year by 2024. The situation with corn supplies is roughly the same: the Russians have already established their basic competitiveness factor in the form of price, dumping by $15-20 per ton.

Russia is actively capturing target markets for agricultural raw materials in Iran and Turkey (corn), and in Saudi Arabia (oats and barley). It has advantages in transportation and logistics to supply agricultural raw materials to India and China.

In this context, the blockade of Ukrainian ports is aimed at destroying Ukraine as its largest agricultural competitor: Russia's share of global grain exports is 17%, and the Black Sea region exports 12% of the world's calories, and any destabilization here entails food problems in the world and rising prices.

This may be one of the elements of Russia's diversification of its geopolitical position in the context of ousting it from the world energy markets: to destroy Ukraine's agricultural potential in order to increase global dependence on Russian grain. After all, Moscow firmly believes that while sanctions may still apply to Russian metal, they will never cover Russian agricultural exports.

Europe cannot cut Russia out of the structure of its energy balance overnight. In fact, we have witnessed the "tearing out with the meat" of the model of interaction between Europe and Russia that was formed half a century ago. This dependence is now breaking down, but the process will take time to complete as the EU implements the so-called "green transition" and alternative energy sources emerge. In these circumstances, Ukraine should maintain a sense of tact toward Europeans. 

Otherwise, the political vector in the EU could be swayed, and then European politicians would be joined by supporters of Russia and Putin, such as Hungarian Prime Minister Viktor Orban. Ukraine could contribute to the EU's energy balance by increasing its gas production, modernizing its energy sector, and becoming a leader in exporting bioethanol rather than corn and biodiesel rather than rapeseed.

As for cutting Russia out of the global economy, this is an unrealistic prospect. The energy imbalance in Asia will continue to create loopholes for circumventing sanctions for a long time to come. Not to mention the agricultural component.

What Can Be Done to Reduce Russia's Revenues?

The idea of introducing a sales tax on Russian oil and gas, as well as the maximum price model, is difficult to implement, as it requires regulatory influence on a large number of markets. However, it would be possible to introduce a definition of the Russian oil and gas footprint in goods (e.g., Chinese and Indian) sold in the US and EU markets. Similar to the carbon footprint tax program under the EU's Green Deal. For example, $30 per conventional ton of oil equivalent (and the money should be transferred to a special fund for the restoration of Ukraine). 

It is quite fast, easy to implement and reduces the interest of China and India in hunting for cheap Russian oil and gas... Of course, this does not exclude the speedy transition to renewable energy sources, the development of nuclear energy, increasing production where possible, and improving energy efficiency.

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