Friday, August 29, 2008

The Bear flexes his claws.
Russia may cut off oil flow to the West
By Ambrose Evans-Pritchard
Last Updated: 4:02pm BST 29/08/2008

Fears are mounting that Russia may restrict oil deliveries to Western Europe over coming days, in response to the threat of EU sanctions and Nato naval actions in the Black Sea.

Any such move would be a dramatic escalation of the Georgia crisis and play havoc with the oil markets.

Reports have begun to circulate in Moscow that Russian oil companies are under orders from the Kremlin to prepare for a supply cut to Germany and Poland through the Druzhba (Friendship) pipeline. It is believed that executives from lead-producer LUKoil have been put on weekend alert.

"They have been told to be ready to cut off supplies as soon as Monday," claimed a high-level business source, speaking to The Daily Telegraph. Any move would be timed to coincide with an emergency EU summit in Brussels, where possible sanctions against Russia are on the agenda.

...Although Russia would lose much-needed revenue if it cut deliveries, the Kremlin might hope to recoup some of the money from higher prices. Indeed, it could enhance income for a while if the weapon was calibrated skilfully. Russia exports roughly 6.5m b/d, supplying the EU with 26pc of its total oil needs and 29pc of its gas.

A cut of just 1m b/d in global supply – and a veiled threat of more to come – would cause a major price spike.

It is unclear whether Saudi Arabia, Kuwait or other Opec producers have enough spare capacity to plug the shortfall. "Russia is behaving in a very erratic way," said James Woolsey, the former director of the CIA. "There is a risk that they might do something like cutting oil to hurt the world's democracies, if they get angry enough."

Mr Woolsey said the rapid move towards electric cars and other sources of power in the US and Europe means Russia's ability to use the oil weapon will soon be a diminishing asset. "Within a decade it will be very hard for Russia to push us around," he told The Daily Telegraph.

It is widely assumed that Russia would cut gas supplies rather than oil as a means of pressuring Europe. It is very hard to find alternative sources of gas. But gas cuts would not hurt the United States. Oil is a better weapon for striking at the broader Western world.

The price is global. The US economy could suffer serious damage from the immediate knock-on effects...

They are clearly over-estimating our ability to switch to all electric cars within the decade, IMHO - especially since the best viable electric car was literally crushed by GM when they figured out they couldn't continue to milk the combustion engine industrial complex for profits if everybody switched to all electric cars.

What this means for us is the price of heating oil for the winter and gasoline/diesel for our cars is in greater danger of escalating upward than we thought. It also means Russia pretty well has free reign to conquer whatever European countries it desires, since in real life America can't do - and probably isn't willing to do - anything to stop them. The Russian hegemony has returned in full force, while the US has become weak and lost our international influence. Brilliant going, guys. You couldn't have done it better if you had planned it.

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