The Gang That Can’t Shoot Straight: Western Leaders Bungle Russia Gas Supply, Barmy Oil Price Cap, and Appear Unable Even to Line Up Meetings

The Gang That Can’t Shoot Straight: Western Leaders Bungle Russia Gas Supply, Barmy Oil Price Cap, and Appear Unable Even to Line Up Meetings 1

[This post has launched early because reasons. It should be complete by 7:45 EDT]

Sadly, charging Western leaders with incompetence has become a “dog bites man” story. Nevertheless, the consequences of all these screw-ups is so high that we feel compelled to chronicle them.

We’ll put the military mess in Ukraine to one side for now. Suffice it to say that Russia is beating a military trained and equipped to NATO standards over eight year, which had the additional advantage of building extensive, layered bunkers in Donbass. Russia is wearing it down with a peacetime expeditionary force, battle-hardened local militias, the Chechens, the Wagner Group (somewhere between volunteers and mercs) and most importantly lots of ammo and missiles. Russia has depleted Ukraine’s armored vehicles, heavy weapons, and seasoned fighters, as well as draining NATO caches, while reportedly manufacturing ammo and weapons at a rate so high that Russia is keeping up with the usage in the Special Military Operation. Russia has also demonstrated superiority to the West in missiles, missile defenses, and signal jamming. Yet somehow our strategists had convinced themselves that Russia was a military paper tiger, when that is increasingly looking like projection.

Apparently, the latest state of play is that Ukraine keeps shelling some bridges and a dam in Kherson. Bridges and dams are very sturdy, so realistically the worst Ukraine is likely to do is take a roadway or railway out of commission for a bit (one of the bridges under attack may be damaged to that degree). It appears the Ukraine forces there aren’t large or cohesive enough to launch the much-bruited August offensive, at least not big enough to do more than make some short-term gains. The most credible interpretation is that this effort is yet more PR: by going (not effectively) against visible targets, Ukraine is trying to persuade the locals that they still could return.

Things look even less good for Ukraine in Donbass. Military Summary reports that Russia has broken though in the southern part of the former zero line on the front that is ultimately defending Slaviansk and Kramatorsk, the final areas to be cleared in the Donestsk oblast. Military Summary also reports that there are many video of large-scale evacuation of Slaviansk and Kramatorsk. The Russian forces also started an aggressive assault on the very-well-bunkered defenses just to the west of Donetsk city, and are reported to have broken through part of that defense line. It’s been an embarrassment to Russia that Ukraine has continued to shell civilians in Donetsk. Minister of Defense Sergey Shoigu promised a few weeks back that Russia would Do Something.

EU’s Gas Insanity

The EU and US both still appear unable to accept that having failed to kill Russia with their shock and awe sanctions, they are now caught in their own booby trap by reducing access to Russia commodities, particularly ones on which they depend like gas, oil, fertilizers, neon, titanium, aluminum, platinum, palladium….

And then they get pissy when Russia is less than fully cooperative in continuing to supply them, even as they also threaten to stop/reduce buying from Russia (admittedly on largely imaginary timelines).

Gas in the UK and Europe is already entering crisis mode, in the summer, yet all the officials seem able to do is announce unrealistic schemes. In the meantime, the shortages train is bearing down on the EU economy and its citizens. And Russia is not only winning the gas war but also the large PR war around it outside the collective West.

Recall that Germany, with Italy is one of the two EU countries most dependent on Russian gas. Recall also that the European Commission announced the EU would reduce its Russian gas buys by 2/3 by year end. DW triumphally reported, Russian gas edging toward extinction in Europe.

It now seems churlish for Europe to be mad at Russia for helping them to achieve that end. Prices of over 2200 Euros per 1000 cubic meters, the peak over the last few days, will most assuredly cut demand. That contrasts with 100 Euros per 1000 cubic meters in early 2020 and 250 Euros per 1000 cubic meters in early 2021.

Admittedly Europe did take some key moves on its own.

First, at least Germany and perhaps some other countries too were cheating on how one counted the “reduce gas purchases by 2/3 by year end” by increasing their deliveries in March and April and acknowledging they were stockpiling.

Germany stole Gazprom Germania assets, which led to Russian counter-sanctions. I have yet to see any data on how much impact that had.

Poland and Bulgaria stopped buying gas directly from Russia, allegedly because they didn’t want to play gas for roubles. Instead of buying gas from Russia at spot prices, they instead shifted to buying it from Germany at a markup over Germany’s price under long-term contract, which was lower than the old “direct from Russia” price. So it’s hard to take Poland’s sanctimoniousness about “We are not violating sanctions” seriously.

Now let us turn to the Nord Stream 1 row. Nord Stream 1 supplied roughly 55 billion cubic meters annually to Europe (I have seen varying estimates of total buys from Russia, ranging from 140 billion cubic meters to 155 billion). Russia cut the supply (first reported as “by 40%” then as “to 40%” and I still not sure which is correct) on that pipeline due its famous part taking a jaunt to a spa in Canada and then being detained there. Siemens confirmed the part was being fixed. Europeans grumble that Russia didn’t need to cut the gas so much but no one (importantly not Siemens) has said otherwise.

Putin said at least twice, starting >3 weeks ago, that there was another sick part. One can argue that Gazprom was remiss in not getting its parts serviced sooner, given that that was permitted under its contract with Siemens. But given what happened to the world-touring turbine, once can’t say definitively that Gazprom was acting in bad faith in waiting after the fate of its stranded part was in doubt.

So Gazprom has further cut its supply to 33 million cubic meters a day (yes, a different time frame) versus pipeline capacity of 160 million cubic meters a day. So a bit over 20%.

So let’s go back to the annual math. 55 billion cubic meters x an 80% reduction is 44 billion cubic meters. OMG how awful! Some of that might come back if Gazprom gets its fixes made, but the EU top brass appears to have written that off.1

The part that EU leaders and the press conveniently omit is that the EU has lost 34 billion cubic meters of thanks to no fault of Russia. That’s the annual supply that went formerly through Yamal-Europe. Bet hardly any of you recall hearing that name.

The US has to refill the strategic petroleum reserve.

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1 The odds favor Gazprom turning the taps back up at some point, for the fun of literally gaslighting Europe and to play to China, India, and the Global South: “See, we gave them more gas when we could.”

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