Daniel Yergin on Energy Markets

Get your fill.
  • The price of gasoline is determined by the price of crude oil. The world oil market is fine tuned and all prices are registering the “fear factor”.
  • People are “self-sanctioning” and rejecting Russian oil. USA natural gas now competes with Russian natural gas.
  • “The Big Three”: #1 is the USA by far (it’s self-sufficient), #2 is Russia and #3 is Saudi Arabia.
  • Even before the current crisis oil prices were rising because of low supply.
  • In 2003 it was thought thought that the USA would start importing more natural gas but then fracking started.
  • LNG (Liquified Natural Gas) is a very expensive process, it costs 10 billion to build a facility.
  • Putin shouted at Yergin at an oil conference Q&A because he didn’t want the USA to do fracking/shale and compete with Russian LNG.
  • Putin regards the energy business as his business and has a level of mastery over it (knowledge, savvy).
  • BUT he miscalculated in thinking that there was limited supply and that Europe would bend in the context of Ukraine.
  • The German view (Merkel’s view) is/was peace through trade.
  • LNG is a process where gas is frozen into liquid, then transported and finally unfrozen and put into the importing country pipelines.
  • LNG/shale has been a huge strategic boon for the USA. The USA is going to be the biggest exporter of LNG.
  • The oil market is a truly global market and has been for many decades. Natural gas was a much more regional market (Europe had a Dutch gas field for ex.).
  • But there’s been LNG innovation and increasingly it is a global market.
  • The shale revolution made Iran sanctions work as Iran didn’t understand that there wasn’t unlimited demand for their oil.
  • Until the early 1990’s China was an exporter of oil and then they became an importer (now import 75% of oil). They have developed energy companies that are world players. China’s status as an importer is the basis of the Xi-Putin alliance.
  • The intimate Xi-Putin relationship has its basis in overturning the world energy balance. Putin has said “the future is in Asia” and he calls Europe and USA decadent countries in decline. Do the Chinese step back from Putin’s behaviour?
  • The Russians have dethroned the Saudis as the #1 oil supplier to China.
  • That said, China is signing long term contracts for USA LNG.
  • The Chinese and USA economies are integrated (prescription meds etc.). China is the “workshop of the world”.
  • That said, the language and feeling of the China-USA relationship have changed.
  • There was once the notion of peeling Russia away from China but it’s over.
  • “So often history is writing about people’s miscalculations”. Putin miscalculated with regards to European determination/resolve.
  • Putin has “taken steps to impoverish Russia”.
  • Oil and gas had been as high as 46% of Putin’s budget and he will not have those earnings. Russia’s infrastructure is built into Europe so India/China are not as easy to sell to in any event.
  • Russia’s days as an energy super power are over and Putin “signed the death warrant”.
  • Canada is the largest supplier to the USA.
  • The Ukrainian military gets diesel fuel from Russian oil (or at least it’s critical).
  • It takes 7 years to get a permit for an on shore wind turbine (according to one wind turbine executive).
  • Solar costs have dropped dramatically but China is the manufacturer. China also controls the supply chain for electronic vehicles. Electronic vehicles use lots of plastic (a petroleum product). Electric vehicles use a lot of copper.
  • It’s hard to open a new mine in the USA.
  • The view of energy politics and policy should be of a “war footing”.
  • Batteries and energy storage are key for renewables.
  • The USA could be exporting more natural gas to China, displacing coal.

Ukrainian nationalism, the far-right and Maidan

“More importantly, they had the force of an organized minority: they had a clear ideology, they operated efficiently, established their own ‘hundreds’ within the self-defence structures. They also succeeded in mainstreaming their slogans: ‘Glory to Ukraine’, ‘Glory to the Heroes’, ‘Death to the Enemies’, ‘Ukraine Above Everything’ an adaptation of Deutschland ├╝ber Alles. Before Euromaidan, these were used only in the nationalist subculture; now they became commonplace. Probably everyone who used the central metro station in Kiev in December witnessed a scene like this: a group of nationalists starts to chant ‘Glory to the Nation! Glory to Ukraine!’, and random passers-by on their way to work or to their studies chant back: ‘Year Glory to the Heroes! Death to the Enemies!’ Everyone now knew how to respond, what was expected of them.

Of course, not everyone chanting ‘Glory to the Heroes!’ was a far-right sympathizer-far from it. The majority chose to interpret the slogans a certain way, as referring not to the heroes of Bandera’s Organization of Ukrainian Nationalists, but to the heroes of Maidan. Still, this was a real success for the far right, something neither the liberals nor the small numbers of leftists who took part were able to achieve. Why these slogans rather than other, not so questionable ones? Why not some socio-economic demands? It shows who was actually hegemonic in the process. Numerically, yes, the far right had a minor presence, but they were dominant on the political and ideological level.”

“Yes, Ukrainian nationalism now mostly has these right-wing connotations, and the emphasis on the figures you mentioned has clearly overpowered the leftist strands. But when it emerged in the late nineteenth century, Ukrainian nationalism was predominantly a leftist, even socialist movement. The first person to call for an independent Ukrainian state was a Marxist, Yulian Bachinsky, who wrote a book called Ukraina Irredenta in 1895, and there were many others writing from Marxist positions in the early twentieth century. But any attempts to revitalize socialist ideas within Ukrainian nationalism today have been very marginal. Part of the problem is that it’s not so easy to reactualize these ideas: the people in question were writing for an overwhelmingly agrarian country, something like 80 per cent of Ukrainians were peasants. The fact that the working class here was not Ukrainian was, as we know, a huge problem for the Bolsheviks, intensifying the dynamics of the Civil War in 1918-21 because it was not just a class war, but also a national war; petty bourgeois pro-Ukrainian forces were able to mobilize these national feelings against a working-class movement that was seen as pro-Russian. Today, of course, Ukraine is no longer an agrarian country but an industrialized one, and since roughly half the population speaks Ukrainian and half Russian, it is no longer so easy to say who is the oppressed nation and who is the oppressor.

Then there is the fact that the right has worked to reinterpret figures such as Makhno along nationalist lines-not as an anarchist, but as another Ukrainian who fought against communism. In their eyes communism was a Russian imposition, and anarchism too is depicted as ‘anti-Ukrainian’. At the Maidan, the far right forced out a group of anarchists who tried to organize their own ‘hundred’ within the self-defence structures. They also physically attacked leftists and trade unionists who came to distribute leaflets in support of the Maidan-one of the speakers on stage pointed them out, saying they were communists, and a rightist mob surrounded and beat them.”

Why is Ukraine the West’s Fault? John Mearsheimer (viral Youtube lecture notes)

-What are core strategic interests? Areas of the world where you’re willing to fight and die. For the USA: Europe, northeast Asia and the Persian Gulf.
-Through WW2 the USA was Europe-first, the great powers in Europe were more important than the great powers in northeast Asia.
-The Persian Gulf is important because of oil.
-“Since the beginning of this country Europe has been #1”
-But a fundamental shift towards Asia is taking place where northeast Asia becomes the most important region thanks to the rise of China.

-The Persian Gulf is still important as it’s connected to Asia because of oil flowing to India and China.
-The USA is leaving Europe behind and that’s important because Ukraine and NATO concern Europe.
-France, Germany, Poland, Ukraine and Russia are the big countries that matter in Europe strategically speaking.
-They are connected: Ukraine is right next to Russia, Poland is right next to Ukraine, Germany to Poland, France to Germany.
-Ukraine is a badly divided country and what’s taking place in Ukraine can be called a civil war, roughly between the east and west of the country.
-The east-west divide in Ukraine is by language: Ukrainian speakers in the west and Russian speakers in the east.
-In the 2010 election Viktor Yanukovych was elected and the voting pattern look like the voting pattern in the 2004 election (east vs. west).
-The divide is also at the level of economic orientation (a customs union with Russia vs. preferring the EU). Ukrainians are also divided about joining NATO or not.
-Europe is dependent on Russian gas. Many of the countries in Eastern Europe and Germany are heavily dependent on Russian natural gas which gives Russia huge leverage and makes it difficult for the USA to put pressure on the Russians.

CAUSES OF THE CONFLICT: Mearsheimer’s View
-There are three different levels of causes: deep causes, precipitating causes (ie. things were not terrible until Feb 22nd 2014 so what caused it then?), and the Russian reaction (why the Russians do what they did with regards to Crimea and eastern Ukraine?).
-Bottom line: the west is principally responsible for this mess, not the Russians.

-The aim is a western bulwark on Russia’s border and Russia says “we will do everything to prevent that”.
-The first part of this strategy is NATO expansion. We have been moving NATO eastward to Russia’s border (big “NO NO” for Russians).
-EU expansion is all about integrating Ukraine into the west (in this case economic integration as opposed to military via NATO).
-The USA fostered colour revolutions like the “Orange Revolution” which meant promoting democracy in Ukraine and in others places. The USA “runs around toppling regimes” and puts in place democratically elected leadership.
-In Moscow and Beijing they don’t like democracy promotion.
-The Chinese believe that the USA was behind the protests in Hong Kong with the goal of promoting democracy and getting leaders who are pro-American (this is the USA strategy with democracy promotion).
-There were two tranches of NATO expansion in recent years: 1999 (Poland, The Czech Republic, Hungary) and 2004 (Baltics, Romania, Bulgaria).
-The Russians made it clear from the mid 1990’s that they were adamantly opposed to NATO expansion. However, they were too weak to do anything and it didn’t involve a major state on their border. The Russians were willing to live with smaller states in NATO.
**Key moment: NATO Bucharest summit in April 2008. NATO’s final declaration was: NATO welcomes Ukraine’s and Georgia’s euro Atlantic aspirations for membership in NATO. We agreed today that these countries will become members of NATO**. The Russians made it perfectly clear this was unacceptable.
-Putin said at the time that Georgia and Ukraine becoming a part of NATO is a direct threat to Russia.
-The August 2008 war with Russia was a consequence of this. Georgians thought that that the USA was sending them a signal that could get “uppity”.
-The Russians clobbered the Georgians and Georgia is in deep trouble today.

-Key events leading up to the coup.
-The coup of Feb 22nd 2014 is of enormous importance. That’s what really throws the crisis into gear, “the coup”.
-What causes the coup? It all starts in November 2013.
-Yanukovych is negotiating with the EU to form an association agreement that brings the EU and Ukraine much closer together.
-Putin was not willing to countenance Ukraine going with the EU only, so he offers a very sweet deal (the question of corruption is relevant here, the EU wants to eliminate corruption and the Ukrainians don’t really want to).
-Jan 20th the first two deaths.
-Feb 18-20 lots of people die on the streets.
-On Feb 21st a deal is worked out for May elections that will remove Yanukovych from power. But protestors refuse to accept the deal and there are significant fascist elements amongst the protestors. More violence ensues.
-Yanukovych flees for his life to Russia on Feb 22nd.

-Feb 23rd the Ukrainian parliament votes to repeal minority language laws.
-Feb 27th Russian units begin seizing checkpoints in Crimea.
-Feb 28th Russian forces begin moving into Crimea.

-Key point for Mearsheimer: the Russians didn’t invade Crimea, they were already there because they had a leasing agreement with a naval base and had military forces there. Russian units were already in Ukraine.
-On March 6th the Crimean parliament votes to join Russia and hold a referendum on the matter.
-March 16th referendum is held in Crimea.
March 18th Russia incorporates Crimea.
-Fighting then breaks out in eastern Ukraine. Is Russia involved? Not sure, but Russia is certainly intent on support them.
-Bottom line: Russia took Crimea and they’re not giving it back.
-What some say is that Putin wants to conquer Ukraine. They say Russia wants to run rampant and recreate the Soviet Union. Not going to happen, Putin is too smart.
-If you really want to wreck Russia you should encourage it to conquer Ukraine.
-Putin is wrecking Ukraine and saying to the west you have two choices: either back off OR continue to trying to make Ukraine a western a country on our doorstep in which case we keep wrecking the country.
-The name of the game from a Western perspective is to make Ukraine a part of NATO and in that case Crimea would be a NATO base, NOT HAPPENING from Russian POV.
-Do you want a frozen conflict or do you want to wreck Ukraine?
-Russia’s motivation: it’s a great power and has no interest in letting a major country on its border be incorporated it into the west.
-For the USA the Monroe Doctrine dictates that the western hemisphere is “our backyard”. We went crazy at the idea of the Soviets putting military forces in Cuba.
-What if China were massing troops in Canada and Mexico? How would we react? No one should be surprised about Russia’s reaction. They told us after Bucharest and we didn’t listen
-Was Russia’s response surprising? For some reason Obama and all the elites in the west were surprised, perhaps because they are 21st Century people and think the balance of power politics doesn’t matter anymore (joking, laughs).
-If we’re having trouble with the Russians think about how much trouble we’re going to have with China. “I’m at home” in China because they are 19th century people.

-Putin is the main cause. He’s crazy and irrational. He’s bent on creating a greater Russia and bears resemblance to Hitler.
-But the idea that Putin bears any resemblance to Adolf Hitler is absurd.
-If Putin could create a greater Russia he would do it. He can’t do it because Russia is a declining great power.
-If you want to wreck Russia, tell them to create a greater Russia, it will lead to no end of trouble.

-Putin is much too smart for that and is in the process of wrecking Ukraine so the West can’t have it. Putin is very strategic, not irrational and not the main cause of the crisis.
-The USA sees itself as a benign hegemon seeking to promote stability in Europe. Japan, Poland and Germany see the USA as a benign hegemon.
-Russia, China and Iran DON’T SEE IT THAT WAY. Because they don’t see it that way, when you take measures that you think are going to be interpreted as benign, the other side will not agree. They see them as threatening (take democracy promotion, they don’t understand it. You have to put yourself in their shoes).

-Conventional wisdom: Putin’s behaviour proves that it was wise to expand NATO eastward to include Ukraine and Georgia.
-But, there’s no evidence that we thought Putin was aggressive before the crisis.
-There’s no evidence that we were expanding NATO because we had to contain Putin. We were thinking like 21st Century men and women, we did not think that Russia was aggressive (after Feb 22nd we then decided that Russia was aggressive, before “the crisis” there was no notion of containing Putin so the West had no clear notion/strategy even by the anti-Putin logic).
-Putin is a 19th Century man.
-President Obama and all of Washington were caught with their pants down, they did not see it coming.
-We’re doubling down, getting tougher and tougher with the Russian’s because we never do anything wrong. We’re a benign hegemon and this is the 1930’s all over again.
Can we succeed? My argument is we’re playing a losing hand. The mindset is you can punish the Russian’s economically, but when core strategic interests are at stake countries will put up with a lot. Ukraine is not a vital strategic interest for the West.
-Lets assume we’re backing Putin into a corner, is this good? We’re talking about a country that has 1000’s of nuclear weapons and the only circumstance where they choose that option is when they are desperate, when they think their survival is at stake. All this over a country that is not a vital strategic interest to the USA.
-When you incorporate Ukraine into NATO you give them an Article 5 guarantee. What sense does it make to give an Article 5 guarantee to a country that is not a vital strategic interest?
-Afghanistan, Iraq, Libya and Ukraine. The USA has a reverse Midas Touch.

-Create a neutral Ukraine that is a buffer state between NATO and Russia.
– We have to explicitly abandon NATO expansion and fashion an economic rescue plan for Ukraine that includes Russia, the IMF and EU.
-We have to guarantee minority rights esp. language rights in Ukraine.
-We have to dampen down the conflict in Ukraine, give the east autonomy and protect minority rights. Are we going to do any of this? NO.
-Will there be a new Cold War? No, Russia is not the Soviet Union and China is going to be something like we’ve never seen.

-We need SOUTH KOREA, JAPAN, VIETNAM, TAIWAN, SINGAPORE, INDIA and RUSSIA to balance vs. China. We’re driving the Russians into the arms of the Chinese and we need the Russians on Iran also.
-Will the United States pivot to Asia? Yes, it’ll only take one big crisis in the South China Sea. Russia is not a peer competitor.

-The Japanese wonder whether we’re going to be there for them because if we have trouble with Ukraine and fighting ISIS can we really pivot to Asia?
-If the USA does pivot can they be trusted? Do we want to depend on them?
-Also, Iran and Syria (we need the Russians on both).

-People in the West think my position is deeply immoral because Putin has authoritarian or thuggish tendencies.
-But the West is leading Ukraine down the “primrose path”, with the end result being Ukraine is going to get wrecked.
-We ought to create a neutral Ukraine and build it up economically. Getting it out of contention is the best thing that could happen to the Ukrainians. We’re encouraging the Ukrainians to play tough with the Russians, we’re encouraging the Ukrainians to think they will become part of the West.
-The Ukrainians are almost completely unwilling to compromise with the Russians and want a hardline policy but their country will be wrecked and we’re encouraging that outcome.
-It would make much more sense to create a neutral Ukraine.

-The Republicans and Democrats are the same on foreign policy.
-We have huge power so we are free to do foolish things, we’re allowed to pursue foolish polices. In that context it’s hard to make arguments against the establishment.
-China’s rise will force the United States to think more strategically.
-We’re the most secure great power in the history of the world.

-Yugoslavia, Czechoslovakia and the Soviet Union all broke up because they contained different nations. Inside Ukraine do you have a similar situation?
-The majority of Ukrainians in both the west and east want to maintain the integrity of Ukraine, they don’t want to split Ukraine. We should maintain that attitude amongst the Ukrainian people.
-But as time goes on there might be enough bad feeling to break the country.
-The idea was to press Western European institutions eastward and make the East like the West over time. Many are now pessimistic about where Europe is headed. There’s no optimism now like in the early 1990’s.
-Three things about China: Taiwan, South China Sea “rocks” in dispute with Japan and the Japanese are very worried about China.
Nationalism is very important in the Chinese case: communism as an ideology no longer has much legitimacy and they had to find substitute and it’s nationalism. At the core of Chinese nationalism is the century of national humiliation 1850-1950. China was humiliated by the European powers, the USA open door policy and Japan.
-Because nationalism is so important this narrative is front and centre.
-There’s the possibility of Chinese and Japanese nationalism being at odds and spinning out of control.

-Angela Merkel said that bringing Ukraine into NATO is a prescription for disaster. Based on that I thought the Germans would play a key role in tamping down on the USA.
-The Germans are scared to look themselves in the mirror, they are scared of taking the lead on anything.
-Since 2014 Russian nationalism has ramped up and that’s shored up support for Putin.
-What’s going on inside Ukraine is inextricably bound up with WW2. There are some fascists involved in Ukraine which spooks the Russians.