Yet again, Russia has shut off natural gas deliveries to Ukraine. The natural suspicion is to believe that Russia is attempting to destabilizing the Ukrainian government, following Moscow’s invasion of Georgia. However, another alternative is more likely: Russia is scrambling for cash. Russia has already shaken down her former friend, Belarus, and now news that Gazprom (already in debt) has barely begun to feel the pain from falling energy prices:
Gazprom shuts off gas links to Ukraine – International Herald Tribune
Russia, meanwhile, is reeling from the fall from more than $100 in the price of crude oil since a peak last summer. Gazprom is deeply in debt even as the market is moving against Russia in a serious way.
While still high today, natural gas prices will inevitably fall and further wallop the Russian economy that is reeling from the sharp drop in the country’s other pivotal export, crude oil.
Natural gas is pegged to the price of oil, but with a six month delay. Gazprom is still receiving payments linked to last summer’s historic spike in oil prices, but they will decline sharply after the second half of 2009.
If this is true, Russia’s crushing collapse back to earth has barely begun. We may even see a second debt-default by Russia.
While Putin ousted Russia’s “Deng Xiaoping” and aborted efforts at reform, the basic problem that Russia has is that it’s too large to fit comfortably with the rest of the Central Asia states but too backwards and weak to meaningful project power on its own. Different regions of Russia should be encouraged to fall into the orbits of different economic powers, with Outer Manchuria and beyond naturally orbiting China, while the country’s western expanse is naturally a slightly bigger version of Poland.
Further, alternatives to the Russia’s wealth (oil and natural gas) should be developed. Domestically, this means pushing forward on congestion charges, biodiesel, fuel cells, and other technologies. In Europe, China, and Japan, it means encouraging our allies to reduce their consumption of oil and natural gas in ways that work best for them.
2008 was a wake-up call: we saw what happens when Russia thinks she is strong. It’s time to guarantee that will not happen again.