Edited by W. Joseph Stroupe with the mission of explaining world events correctly via strategic analysis & forecasting
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President Putin complained at the Valdai Club meeting that consuming nations in the West too strongly focus on their own energy interests and security while simultaneously slighting the interests and security of producers. He noted that consuming nations want suppliers to pledge continuity of supplies for the long-term, "so customers should not be able to turn around and say 'We don't need it now'. Security works both ways. We need assurances, too."
Mr. Putin explicitly stated that Russia and other suppliers want long-term supply contracts with consuming nations so that suppliers know there will be a 'stable demand' for their exports. It can easily be appreciated how achievement of such goals amounts to a tiara or coronet to adorn Russia in its key global energy position. But the very achievement (successfully concluding long-term supply contracts) that constitutes Russia's victory crown simultaneously serves as the thorny crown of the West. How so?
The long-term supply contract tends, of course, to lock the West's consumer states into deeper and longer term dependence upon Russia, thwarting moves toward diversification of supply. Russia's economic and political leverage is deepened and compounded, therefore. Additionally, open competition tends to be diminished because the consumer states are less able to shop around for their energy needs. That factor could have a negative, elevating effect on prices over the medium to long term.
There is also the distinct likelihood that as such long-term contracts multiply, the world's energy supply and even its reserves will become progressively "locked up" into private pools for consumption only by the states that are party to such contracts, thereby robbing oil and gas from the virtual global pool sustained by the traditional liberal global energy market order. Especially is that the case because, increasingly, such long-term contracts include acquisition of equity shares of the producing fields by key, energy-thirsty consuming economies in the East.
All the building blocks to support and bolster a new position of profound global energy ascendancy and dominance are steadily being put in place by Russia and its producing partners, in concert with its consuming partners in the East. Consuming states in the West are now faced with a terrible choice:
They can either lock themselves irreversibly inside 'the circle' of strategic energy dependence upon Russia and its partners for the long term, or they can refuse to do so at serious risk of being left outside of the new international circle of energy security whose parameters, principles and terms are being defined and completed by Russia and its partners.
When Russian President Vladimir Putin promises to 'play nice' with energy and other strategic resources, it must be understood that his idea of 'playing nice' isn't remotely the same as what is hoped for in the West, which has been able till now to have its cake and eat it too, almost always giving suppliers the short shrift. Those days are already over. There is emerging a new global reality as respects energy security, and the West will have to forfeit a significant measure of its economic and political independence and autonomy in return for what Russia, not the West, defines as "energy security". The West is already forfeiting along those lines.
Are global energy developments moving in that direction merely 'by chance occurrence' as Mr. Putin insists, or have Russia and China been working for a decade or more to 'cook up' such developments, and what are the implications?
Part V of this series answers those questions.
| Note: This Gold version of the analysis is significantly condensed as compared to the full text Platinum version available only to subscribers. The Platinum version addresses head-on the issue of how the bilateral long-term supply contract is altering the foundations of the current US-led global oil order in such a way that the West is increasingly at risk from potential supply disruptions. |
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