Vladimir Putin’s plans are falling to pieces. Slowly but surely, Russia is losing its war against Ukraine. At the same time, it is losing nearly all of its most key political and economic allies, and losing a decent chunk of the market for its energy exports, which serve as the backbone of the Russian economy. Euractive has called Russia’s illegal invasion of Ukraine a “profound miscalculation” and states that “at the political level, Putin is trying to influence the UN agenda but has succeeded in being little more than a pariah."
This doesn’t mean, however, that the war is over. Experts estimate that Russia still has approximately 1.3-1.5m tons of Soviet-era munition stored away. This hoard would be enough to last until May or June of this year at the present bombardment rate. And then there’s the country’s annual munitions production capacity of around 500,000 tonnes per year. “Putin might not escalate, reports Euractiv, “but buying time will support a war of attrition rather than accept failure.”
Of course, Russia is threatening to escalate. As world leaders converge to arm Ukraine in support of the besieged country, Putin has made threats to flex the Kremlin’s considerable nuclear might. Defense Minister Sergei Shoigu has also said that Russia will not be backing down, but rather be deploying more soldiers and more military infrastructure. However, many experts believe this to be the empty rhetoric of a losing team. Put simply, it’s not clear whether Russia has the funds to continue to draw out this war. "Shoigu's announcements since December have been a little surreal to see," said Dara Massicot, a senior policy researcher at RAND Corporation, was quoted by CBS News. "[His] statements of more billets and more divisions will need more people and equipment to populate them (even if they fall short of targets). This is a tall order to achieve by 2026 without major changes to the Russian economy and personnel system."
The fact is that Russia is running out of money. An unseasonably warm winter in Europe has so far foiled Putin’s plans to ratchet up oil and gas prices to fund the nation’s considerable military expenses. Last month, Russia’s fossil fuel export revenues fell 17%, marking their lowest level since before the invasion of Ukraine early last year. The European Union’s most recent round of sanctions, buoyed by the warm weather, have also hit the Kremlin where it hurts: since December, Russia’s net energy export revenues declined a whopping €160 million ($172 million) a day.
Yes, gas prices are still high, but the punishing prices and shortages predicted have not materialized, and Europe’s natural gas storage has been refilled. There’s still the chance that an extreme and prolonged cold snap in the coming months could tip the scales back in Russia’s favor, but as of now the projections are rosy for the European bloc. “Most industry predictions are now for the spring and summer gas storage refill season to start from a high base,” reports the Financial Times, “calming fears that winter 2023/24 could be a bigger challenge given the much lower Russian flows compared with the first half of last year.”
What’s more, other oil and gas producers are stepping up to fill the gap left by flagging Russian imports. According to Quartz, “the US is surpassing Russia as Europe's top energy supplier,” while also warning that the market is set to tighten later this year, meaning it may be a bit too early to celebrate. China is a major factor in volatile energy prices, and the country’s return to the world economy after finally ending its zero-Covid policy could majorly upend the market once the current Covid surge is under control.
Considering this, it’s important that Europe keeps its eye on the horizon. Even if this winter continues to be mild, there’s no guarantee that Russian energy exports will remain sufficiently suppressed to bring about an early end to the war. The only real way to win the energy war, according to the Financial Times, is to divest from fossil fuels and bolster domestic energy production capacity through longer-term climate-resilient solutions such as nuclear, wind, and solar.
By Haley Zaremba for Oilprice.com
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