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President Putin

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The “Oil War”

“Did you know there’s an oil war? And the war has an objective: to destroy Russia,” said Venezuelan President Nicolas Maduro in a live television speech last week. “It’s a strategically planned war … also aimed at Venezuela, to try and destroy our revolution and cause an economic collapse.” It’s the United States that has started the war, Maduro said, and its strategy was to flood the market with shale oil and collapse the price.

Russia’s President Vladimir Putin agrees. “We all see the lowering of oil prices.” he said recently. “There’s lots of talk about what’s causing it. Could it be an agreement between the U.S. and Saudi Arabia to punish Iran and affect the economies of Russia and Venezuela? It could.” The evil Americans are at it again. They’re fiendishly clever, you know.

We are hearing this kind of talk a lot these days, especially from countries that have been hit hard by the crash in the oil price. Last Thursday Brent crude hit $55 per barrel, precisely half the price it was selling for last June. The Obama administration’s announcement last week that it is preparing to allow the export of some US oil to foreign markets may send it even lower. (US crude oil exports have been banned since 1973.)

When the oil price collapses, countries that depend very heavily on oil exports to make ends meet are obviously going to get hurt. President Putin, who has let Russia get itself into a position where more than half its budget revenue comes from oil and gas sales (some estimates go as high as 80 percent) is in deep trouble: the value of the rouble has halved, and the economy has already slipped into recession.

Venezuela, where government spending is certainly more than 50 percent dependent on oil exports, is in even deeper trouble – and, like Putin in Russia, President Maduro of Venezuela sees this as the result of an American plot. Various commentators in the West have taken up the chorus, and the conspiracy theory is taking root all over the developing world.

So let us consider whether there really is an “oil war”. The accusation is that the United States is deliberately “flooding the market” with shale oil, that is, with oil that has only become available because of the fracking techniques that have become widespread, especially in the US, over the past decade. Moreover, Washington is doing this for political purposes, not just because it makes economic sense for the United States to behave like this.

In order to believe this conspiracy theory, however, you really have to think that a rational US government, acting in its own best economic interests, would do the opposite: suppress the fracking techniques and keep American oil production low, in order to keep its imports up and the oil price high. But why on earth would it want to do that?
You will note that I am going along with the notion (a necessary part of the conspiracy theory) that all important business decisions in the United States are ultimately made by the US government. That is ridiculous, of course, but we don’t need to refute this delusion in order to settle the question at hand, so let it pass.

Hydraulic fracturing (“fracking”) as a means of recovering gas and oil, particularly from shale formations, has its roots in early attempts dating back as far as 1947, but it was the development of cheap and reliable techniques for horizontal drilling in the late 1980s that slowly began to transform the US oil industry.

By 2012, over a million fracking operations had been performed in US wells – but in 2012, last year’s events in Ukraine were unforeseen and the United States and Russia were still on relatively good terms. Many oil-exporting countries were worried by the prospect that rising US oil and gas production would shrink American imports and thereby cut their own profits, but it was still seen as a supply-and-demand problem, not a strategic manoeuvre.

The operators wanted to make a profit, and Washington liked the idea that rising US domestic oil production might end the country’s dependence on imported oil from unstable places so much that it gave tax breaks and even some direct subsidies to the companies developing the fracking techniques. But that’s no more than what any other government of an oil-producing country would have done.

So did the US develop fracking to hurt its enemies? The dates just don’t work for Russia: fracking was already making US production soar years before Washington started to see Moscow as an enemy. As for Venezuela, it continues to be the fourth-largest exporter of oil to the United States, at a time when the glut of oil on the market would let Washington cut Venezuela out of the supply chain entirely.

And Barack Obama is not opening the flood-gates for massive American oil exports that will make the oil price fall even lower. The US still imports a lot of oil, and will go on doing so for years. He has only authorised the export of a particular kind of ultra-light oil that is in over-supply on the domestic market: only about one million barrels of it, with actual exports not starting until next August.

If this is a conspiracy, it’s a remarkably slow-moving one.
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To shorten to 725 words, omit paragraphs 8, 9 and 12. (“You…industry”; and “The operators…done”)

Putin Backs Down?

By Gwynne Dyer

Did he just blink? I think he did.

Only one week ago, Russian President Vladimir Putin’s spokesman said that in the present circumstances he regarded the presidential election scheduled by the Ukrainian government in Kiev for 25 May as “absurd”. Last Wednesday, however, Putin conceded that the election could be “a move in the right direction.”

Putin also said that he was going to pull back the 40,000 Russian troops who have been doing “military exercises” close to Ukraine’s eastern border. He even asked the heavily armed pro-Russian separatists in Ukraine’s eastern provinces of Donetsk and Luhansk, who have seized government buildings in a dozen eastern cities, to postpone the referendum on independence or unification with Russia that they had scheduled for this Sunday.

So a lot of people hope that he has decided to call off the confrontation. Maybe he has, but you have to read the fine print.

What Putin actually said about the presidential elections that the government in Kiev has called for the 25th was less than enthusiastic: “I would like to stress that… while they are a move in the right direction, [they] will not decide anything if all the citizens of Ukraine fail to understand how their rights are protected after the elections are held.”

Moreover, a “senior source” close to President Putin subsequently said that he would support the Ukrainian presidential elections on 25 May IF talks started between the government in Kiev and the armed separatists in the east, and IF Kiev stopped trying to take the towns they control back by force. That leaves him room to welsh on his promise.

As for Putin’s request that the separatists call off their referendum on independence, they rejected it the next day. Russian agents have been heavily involved in orchestrating the seizure of government buildings in eastern Ukraine from the start, so it’s hard to believe that he couldn’t get the separatists to cancel the referendum if he really tried. And though he has promised to pull his troops back from Ukraine’s border, they have not actually begun to move yet.

So you have to wonder whether he is really going to call off the confrontation. Maybe he is just trying to stave off further Western sanctions while his plans to destabilise the government in Kiev, disrupt the presidential elections, and maybe even take over eastern Ukraine continue to unfold.

Nobody can read Putin’s mind, but there is reason to suppose that his change of tone might be genuine, because he is saying he will do exactly what level-headed strategic advisers in his entourage would be urging him to do. If this confrontation continues down the road it has been travelling recently, it will hurt Russian interests, and even his own political interests, a lot.

Putin has little to gain from a local victory in Ukraine. Seizing the country’s eastern provinces would simply land Moscow with the permanent job of spending a great deal of money to support an industrial museum. And taking control of all of Ukraine might lead to a long counter-insurgency war against Ukrainian nationalists.

The external costs of “victory” would be even higher. Already NATO is moving troops into the Eastern European members of the alliance to reassure the local populations, who live in permanent fear of another Russian take-over. (Previously it did not station foreign troops in those countries, in order not to frighten the Russians.) Even the Swedes and the Finns, who are neutrals, are discussing closer cooperation in defence matters.

The next round of Western sanctions will really hurt the Russian economy, and that would undermine Putin’s political popularity at home. And if it really turns into a new Cold War, Russia would lose far faster than it did last time. The Russian Federation has only half the population of the old Soviet Union, and considerably less than half the industrial resources and technological prowess of that former superpower.

It would make sense for Putin to end this confrontation: he has already taken Crimea, and that is victory enough. Russian-speakers are not at risk in Ukraine, and never have been. Ukraine is not going to join NATO or the European Union no matter who wins the elections on 25 May. Neither organisation would let them in. But he can’t just throw his cards on the table and walk away: he has to save face.

That may be enough to explain why his statements and actions this week have been shrouded in a good deal of ambiguity. Alternatively, he may just not be listening to his advisers, or they may be too intimidated to tell him what they really think, in which case he hasn’t really changed course and all this talk is a ploy to gain time.

But Putin has been running Russia for fourteen years, and in all that time he has not made a major strategic error. He is not stupid, and he has shown no signs of being delusional. My guess is that he has decided to shut the confrontation down.
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To shorten to 725 words, omit paragraphs 6, 8 and 11. (“Moreover…promise”; “So…unfold”; and “The external…matters”)