Khodorkovsky: Targeting Putin’s oil and gas no substitute for weapons Ukraine needs

Mikhail Khodorkovsky, a former political prisoner and CEO of Yukos Oil Company, is the author of “The Russia Conundrum: How the West Failed Putin’s Power Gambit – and How to Fix It”.,

I applaud the good intentions of Western countries when they introduced price caps on Russian oil earlier this week, and other measures designed to target the Russian oil industry. Weakening Vladimir Putin’s ability to wage a savage war against Ukraine is critical, and a strong policy toward Russian energy is an important part of that effort.

However, I question whether such complex measures are likely to achieve that goal or undermine it through unintended consequences.

I recently spoke at a conference on the energy industry that was attended by many leading experts from investment banks and energy companies. I asked my audience a question that had been troubling me for months: If the objective is to reduce the amount of money coming into Putin’s military budget and encourage an end to Western dependence on Russian hydrocarbons, then we should value Why is there a need for a complex mechanism like a border? , and agree to impose tariffs on Russia not only for the export of its oil?

Tariffs on Russian oil exports would be simple, understandable and easily administered. It would increase Kremlin spending without a host of unforeseen consequences on global energy markets, which could trigger a price cap. Some of those results could end up being exploited by Putin, which could be detrimental to democracies trying to contain him. The complexity of the price cap raises a number of issues and opens up more than a few potential loopholes.

When I put the question to the conference, however, I got no answer. I never do

There is a belief that the price cap will help bring China and India, who are keen buyers of Putin’s oil as Western countries seek to reduce its imports, into line with international sanctions; But this seems unlikely to me. I would caution against policies that depend on the cooperation of powers that have been at worst unreliable in the fight against Putin’s tyranny and at worst complicit. These powers are likely to benefit because they will be paying Russia a lower price than the global price at which the West would buy from other suppliers.

A potential surge in global corruption will follow, as shipping industries and service providers face attempts to get around the cap through fake documents and other tricks. It would take a monumental diplomatic and administrative effort to enforce the border.

And in the meantime, Putin’s oil will keep flowing and money coming in.

We need thoughtful policy based on the emotional need to be seen to do “something,” not a knee-jerk reaction. We must be clear in our analysis of how much Putin will perceive energy sanctions. In real terms, hydrocarbon exports account for only about 20 percent of Russia’s GDP and even less when measured in terms of purchasing power parity. But when we look at Russia’s federal budget, from which money is being drawn for war, the number is about 50 percent.

Namely, 50 cents out of every dollar paid for oil, gas, or coal are diverted to bombs and bullets, killing thousands of Ukrainians, destroying Ukrainian cities, and fueling Europe’s latest refugee crisis. is given birth.

So, what should we do about it?

First, let’s be clear: It’s not about the cost of a barrel but the size of Putin’s profit. The price range focuses only on the former, but it is critical not only of undermining Putin’s oil industry business with a partial boycott but also of attacking its profits by ramping up its spending. Duty will get it. Hence also technical sanctions – by preventing the sale of technical components necessary for hydrocarbon production to Russia, we will increase its costs for the production of oil and gas.

Second, we need to realize that the hydrocarbon market is global and a significant restriction on purchases from one supplier, without reaching an understanding with other suppliers – not a democratic and cooperative club of nations – and without reducing consumption , leads to price. increases which almost completely compensates for the shortfall in supply. That’s what we’ve been seeing since the beginning of the year. A price cap, although intended to reduce global prices, can have the opposite effect.

Third, without a decisive military defeat in Ukraine, Putin will continue to use energy blackmail. It would be naïve to think that a dictator on the rampage would be brought into line by the fluctuating price he gets for his oil rather than by Ukrainian military victories. Policies targeting its hydrocarbons may be useful, but are no substitute for providing Ukraine with the weapons, hardware and training it needs to get the job done.

In both the short and long term, the West needs to develop its energy self-reliance, not manipulate it into conditions of dependence on dictatorships. This is both an ethical and practical necessity.

Even so, ordinary people and even political leaders need a more comprehensive understanding of energy supply. It is much more than electricity alone. This is heat and fuel for vehicles. It is also the “secondary” energy-dependent products, such as nitrogen fertilizers, steel, or aluminum, for which energy accounts for the largest share of production costs.

“Green energy” currently accounts for a maximum of 15-20 percent of European energy needs. The rest is coal, gas, oil, uranium and timber. Increasing the contribution of solar and wind power to 30 percent of Europe’s overall energy supply is an ambitious but worthy challenge. This is not just an industrial challenge but a cross-societal challenge, requiring rooftop solar panels, local wind generators, heat pumps and an audit of the insulation of every building. This is a monumental task and a great opportunity for Europe.

But it is not enough. If Europe really wants to lock energy away from dictators, nuclear power and LNG will have to be part of the mix. LNG will act as a “transitional bridge” in the period when the grand objective of achieving energy independence is achieved. Weakening Putin and other tyrants, as well as decarbonizing the economy, would have the bonus of addressing the climate crisis.

Can Europe do it? I firmly believe that 350 million people on the continent that has shaped our civilization can achieve anything they set their minds to. The question is: do they? And I still don’t have an answer for this.