The recent sanctions placed on Russia have proven that the role it plays in the global economic order is much greater than is commonly thought.
The European Union has agreed on a sixth package of sanctions on Moscow after weeks of intense negotiations. The key component is the termination of Russian oil shipments delivered to the bloc’s market by sea by the end of this year.
According to Ursula von der Leyen, President of the European Commission, this will cut Russian supply to the EU by 90%, with the remaining 10% set to be cut in the future.
Although the percentage share is arguable, the assessment of European Council President Charles Michel, who proposed a ban on two-thirds of Russian raw materials, appears to be more plausible. For Russia, the most important factor so far has been quality rather than quantity.
Pipeline lines, unlike maritime ones, cannot be rerouted; a ban would have resulted in the Druzhba pipeline being decommissioned and this distribution method being lost. This did not happen due to Hungary’s tenacity, which was discreetly backed by a number of other countries.
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In the case of tankers, the global oil market is unified, and goods will be transferred to other consumers, mostly those in Asia, unless a global trade embargo against Russia is implemented (which is nearly impossible).
At the same time, the price per barrel continued to rise after the announcement of the new measures. So Russia, in terms of revenues, will continue to benefit in the near term, at least.
Even with the discounts that buyers from Asia will receive, they are always aware of the limited options available to their partners. However, the timeframe for fully implementing even Brussels’ previously agreed-upon solution is undetermined.
Due to the low volumes available on the market, industry experts have generally agreed that there is now no substitute for Russian oil in the EU. As a result, it cannot be excluded out that after the loud political announcements fade from the headlines, a cautious and slow implementation would take place. In any case, the most intriguing component of this story is the strategic side, not the tactical.
Assume that the EU sets a clear political goal of stopping energy cooperation with Russia, and that this goal can be implemented in the medium term. What impact would this have on the world order?
The fragmentation process, which was already underway, has accelerated and taken on an avalanche-like quality in recent months. The energy structure of Eurasia could be dramatically modified if the EU’s slogans come true (and the phase-out of hydrocarbons, including gas, was promised long before the Ukraine conflict).
Since the 1960s, the continent’s geopolitical architecture has been founded on growing oil and gas cooperation between the (now former) USSR and Western Europe.
For a long time, China, which was hostile to the Soviet Union and far removed from Europe in every way, was an universe unto itself, but beginning in the 1970s, it began to open up to the world, first politically, then commercially, with a concentration on the United States.
These processes became organic aspects of the global order after the Cold War ended, with the idea that a worldwide system of economic interdependence would emerge eventually. In fact, the opposite will now occur.
Although economically, this is completely impractical and generally unprofitable, the EU aims to make a conscious effort to divest itself of Russian raw resources.
Its own resources (ideally renewable technologies) plus other sources, most likely the United States and the Middle East, should suffice. Let us put aside for the time being the issue of the alternatives’ reliability and cost-effectiveness, presuming that in the event of firm political resolve, EU states will be willing to pay more and take on extra risks.
When Russia has the required infrastructure in place, surplus Russian resources will flow to Asian markets – oil immediately, gas in a few years. The Asian countries are overjoyed at this development since they will now have the advantage that Europe has had thus far:
The availability of a big, reliable, and generally inexpensive raw material supply. In addition, while Russia adapts to changing circumstances, there is a possibility to seek more advantageous conditions in comparison to the general international scenario, particularly in the near future. If the proposed strategy becomes a reality, the process of de-globalization will be accelerated.
In recent months, it has become clear that Russia’s role in the global economic order is much greater than is commonly thought.
Since the end of the twentieth century, Eurasia’s resources, the majority of which are either situated in Russia or rely on its transport and logistical skills, have become a crucial pillar of development for the world’s leading players. It’s a different thing whether Moscow has managed this role with skill and foresight.
Even after a hypothetical “divorce” from Europe and “marriage” to Asia, it will remain relevant. A shift in Eurasia’s political balance, on the other hand, will have an impact on the entire world order, and not in favor of those who benefited most from it until recently. In this context, it will be fascinating to see whether Western leaders continue to support the process, or whether a probable political upheaval in the near future would result in the development of forces with a different viewpoint.