The Russian soul is an inscrutable thing on a clear day. And this isn’t a clear day. I recently read Dostoevsky’s Crime and Punishment and only just managed to get through it without slicing my wrists. Which is no mean feat. It’s a nation of contradictions: rampant drug abuse combined with a national sport of chess. Yet Vladimir Putin’s foreign policy looks more like that child’s game of global domination, “Risk.”
Invented by a Frenchman, of all people, the game has simple rules, but to win you have to develop complex strategies. Through that paradigm, I understand Moscow’s motivation: I was always invading Ukraine. As in life, though, boldness might gain you territory, but winning the long game is a little more complicated than that.
Vladimir Putin may still be bluffing. He is known as a shrewd calculator, he’d have to be. The old guy also has a lonely child’s desire to hold court and be told that he is special. Despite catastrophic consequences for Europe and his own country, his motivation might be as simple as that. Right now, his complaints are being heard and he has what is called “escalation dominance” – that position where he has the ultimate power of escalation, stepping back, or a lateral move – no one can say what will happen next. And if this is all ego-driven, chances are neither can Putin. What is clear, however, is that the situation has deteriorated this week. Putin may has the initiative, but whether he can see it or not, the pieces on the board are not arranged entirely to his advantage.
Moscow has recognized the two break-away republics on Russia’s border and, depending on who you ask, has either sent troops in as “peacekeepers”, or admitted to the ones that have been there for years. Without a Ukraine determined to fight for the region (and they don’t appear to be) it’s hard to see how he’s not going to win the opening gambit.
Putin’s saber-rattling over the Ukraine has already caused a spike in oil and gas prices. JPMorgan has forecast higher prices would lead to Russian state-owned Gazprom making $90 billion in gross profit this year. To make all that money, though, the commodity has to get to its market.
To put it mildly, Putin’s long game has problems. In the 1970’s OPEC used the “oil weapon” to some effect, but you can only play it once. True, Europe is overly dependent on Russian energy, mostly liquified natural gas (LNG). On the other side of the transactions, the EU accounts for 25% of Russian exports and that relationship hasn’t gotten any better lately. Since 2009, the EU has banned efforts by Gazprom to stifle competition in energy markets. In the current crisis, German Chancellor Olaf Scholtz said that in the event of a full-scale invasion, he won’t allow the Nord Stream II energy pipeline to operate through his country. There goes cheap European heat along with the Russian economy – not exactly equal sacrifices.
The idle capacity for LNG in Europe, if turned full bore, could make-up for about two thirds of the Russian imports. A process that was started when prices went up three-fold between October and December when vast amounts of LNG were diverted from Asia to off-set Russian supplies. Jaime Concha of Energy Intelligence, an industry publisher, reckons that – using Q42021 prices – a complete shut-off of Russian gas would cost the country about $203-$228 million per day. So, a three-month shut-off (until spring, where Moscow would lose leverage with the warming weather) would cost about $20 billion. Russian does have about $620 billon in central bank deposits, what technocrats call as “fortress economy”, so the government could weather the short-term loss.
Going forward, however, Gazprom will face a massive commercial fallout with penalties paid to customers, freezing dollars in Russia (from transnational payments), and finding it hard to secure future long-term contracts. The crucial Nord Stream II would be shelved permanently. In short, the country’s already rickety economy would crater. And that, more that whether Putin can terrorize Ukrainians or shame NATO, is what will cause Russians – from the elites down the line – to push back.
China is importing Russian gas, but only cautiously, and have voiced concern about Moscow’s unreliability. They might take up the slack to help their lieutenant out, but the prices and terms will set by Beijing, and it won’t be the wind-fall Putin needs. (China helped Venezuela out in of an oil market bind a few years ago and look what happened to them.) Chinese state energy forms are taking advantage of rising prices are eroding what energy leverage Moscow has. In the end, Beijing likes its partners servile.
Meanwhile, stateside, the US is introducing sanctions, but not the crippling ones that have been threatened. Those, Biden says, will come with a full-scale invasion. As long as the EU/US remain a united front (also tricky these days), the crisis can be contained and the West will likely win. Although whose pieces will be in Ukraine at endgame is anyone’s guess.
Hell, the guy just might be may be playing chess.