Publications: Notes at the Margin

Putin's Stranding of Fossil Fuels; The West's Strategy to Minimize Russian Revenue and Keep Oil Prices Down (Feburary 28, 2022)

 

Russia invaded Ukraine this week. Everyone has lambasted the attack—well, everyone except Donald Trump and his obsequious Republican backers and former Chancellor of Germany Gerhard Schroder, who stands to make millions from Russia. The European and US response has been surprisingly sophisticated. They are attempting to hold oil and gas prices down—something most energy analysts fail to understand—to prevent Russia from profiting from oil or other commodity exports.

 

In the short term, there will be pain worldwide due to food and energy supply disruptions caused, if not by sanctions, then by the unavailability of credit or the lack of transportation as shipowners eschew anything with a “Made in Russia” label. There may, though, be many long-term benefits from the war. Putin’s actions will likely radically accelerate the move off fossil fuels. Europe, already affected by Russia’s energy squeeze, will act first. Other countries will be dragged along as the region implements and promotes, among other policies, a carbon border adjustment mechanism (CABM). Indeed, the threat of the CABM may be one motive for Putin’s aggression.

 

Thanks to the Ukraine invasion, the oil and natural gas reserves stranded by 2050 will probably be much larger. Analysts who follow oil and gas, their consultants, and certainly oil company executives have not recognized this risk. However, the quicker demise of fossil fuels could occur as the Europeans first and then other countries act more expeditiously to end their fossil-fuel dependence.

 

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