Gas Gambit

NEW – October 1, 2022

The explosion of three Nord Stream pipelines can only be compared in its effect and consequences to an attack on the WTC towers or an arson attack on the Reichstag. The possibility (permissibility) of an infrastructure war (undermining underwater pipelines and electrical cables) changes not just the context of the global agenda (the crisis of subjectivity). Evaluation criteria, decision-making rules, and the concept of norms are changing. The world is changing.

The United States has reminded us of an old (long-forgotten) truth: where we are talking about oil (gas, coal), we are talking about war. And in matters of control and setting rules, the key link in any model is mobility (logistics, transport, communications). From the point of view of economics, space and time are two manifestations of the same entity considered in money (costs and effects).

On the eve of the First World War, this truth was succinctly and exhaustively formulated by Winston Churchill: “Domination is the price of this enterprise!” He stated, proving the need to ensure uninterrupted supply of Persian oil to Britain. So it was and so it is throughout the entire industrial era of mankind.

Oil (hydrocarbons) is a universal commodity, and the world economy was built on its basis as an investment mechanism and the security regime that developed around it. First (investment) without the second one (security) is impossible. The essence of the mechanism is the redistribution of natural income (the primary source of value) from surplus to deficit countries. Its basic link is energy income (a driver of the global economy).

The idea is simple, but after much brainwashing to objectify the nature of money (the measurement system), alas, today it is not obvious. The Nord Stream explosion brought us back to the origins of the global market, revealing its mechanics, one-time (force majeure) and radically changed the energy, economic and political landscape of Europe and the whole world.

In connection with this extraordinary event, it is important to keep in mind the facts of the history of the attitude of the United States to the construction of Nord Stream 2. It openly shows a cynical trading interest. Motivating the introduction of sanctions that hinder construction, the United States did not hesitate to say that their LNG molecules are “molecules of freedom”, which Europeans should buy instead of Russian molecules.

Well, a rather expressive formula of political persecution of a business project. And Washington tried to condition all agreements at that time with Berlin and some other capitals by refusing Nord Stream 2.

A new phase of pressure came earlier this year, when Joe Biden promised to destroy Nord Stream 2 if the Russians entered Ukraine. The American White House is now trying its best to interpret his words in a harmless way, giving them a metaphorical meaning. But on February 8, Biden, after talks with Scholz, said at a joint press conference directly: if Russian “troops cross the border of Ukraine again, then there will be no more Nord Stream-2 . We’ll do it.” He also added: “I promise, we will be able to do it” (quotes from Interfax).

Scholz then said only that “we will act in concert” with regard to sanctions. He refrained from mentioning the gas pipeline. And no wonder. The fact that American “molecules” cannot replace Russian ones, not everyone in Europe, but understood,

By autumn, the Siemens turbines, which required repairs and got into overseas plumbing troubles, managed to stop Nord Stream 1. Under pressure from the United States, new statements were made about plans for an embargo on gas from the Russian Federation.

But having recently traveled through the Middle East, Scholz “brought” only one LNG tanker from there. The Germans worked out all the possibilities for replacing Russian gas and were convinced that it was impossible to find a replacement. And this means that it is necessary to launch Nord Stream 2, which is completely ready for operation. Otherwise, German industry will stop working. Not to mention that it is cold in winter.

And here followed the undermining of all the lines of both “streams”.

First hybrid war

Gas infrastructure explosions have left Russia in a dilemma. To fulfil its contractual obligations, it must either increase the volume of LNG supplies (which is impossible), or increase gas transit through Ukraine to cover the shortfall in supplies. Germany alone is required to buy 40 billion cubic meters of gas from Russia per year on the take-it-or-pay basis.

The reason for this situation is not the 45% increase in the cost of Ukrainian transit, which exceeds the contractual 40 billion cubic meters. The devil lies in the Third Energy Package, according to which there must be at least two suppliers in the pipe.

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If Russia agrees to increase Ukrainian transit (and the whole of Europe, Germany first of all, will beg for this), then Gazprom will be obliged to sell 50% of its gas at the “entrance” to Europe to Ukraine. Any second (independent) legal entity created by Russia will not be recognised by the West (it will bring it under sanctions). It’s the wrong time, the evaluation criteria are non-economic.

There is no doubt that Ukraine and the EU will try to use the Third Energy Package. But should we meet them halfway? Let’s speculate.

In our opinion, this will close the long combination that the United States plays in the global energy market, where Russia, Europe and Ukraine are part of the general. What is at stake is not the image of Russia as a bona fide supplier and trading partner, but such a parameter as the country’s political will, its willingness to go to the end in defending its national interests.

The Nord Stream explosion has a long history, and like any long history, it has one advantage. It allows us to assess what is happening not in abstract terms of the struggle for democracy, but in systematic categories of long-term losses and profits (costs and effects) that form a picture of the future. In the categories of hybrid wars.

The story began with the collapse of the USSR and the Ukrainian-Russian gas wars. After the “geopolitical catastrophe” of 1991, 95% of all Russian gas exports went through Ukraine. Kiev took advantage of this, not paying for gas even at a reduced price. If Russia restricted supplies, Kiev did an “unauthorised extraction”. Simply put, it stole gas from a transit pipe.

Europe has consistently blamed Moscow and Gazprom for disrupting supplies. Although Ukraine not only did not hide theft, but also recognised it as its right. In 2000, in an interview with Spiegel magazine, Leonid Kuchma stated: “Moscow annually pumps 130 billion cubic meters of gas through our country to the West. If a billion cubic meters are pumped out here, it’s a tiny fraction.”

The first gas war broke out in 1993-94, when Gazprom repeatedly limited the Ukrainian quota. The second was in 1997-98, when Gazprom stopped direct gas supplies to Ukraine, leaving only supplies to pay for transit. In 2006, all Ukrainian supplies were stopped. And the reference year (a new point of reference) was 2009, when Russia completely blocked the pipe, stopping both Ukrainian supplies and European ones, and theft.

All these “wars”, despite the chronology, had common (generic) features. Ukraine’s non-payments have always been the trigger, and the way out of the crisis has always been fraught with political consequences.

After the first “war”, Ukraine recognised Russia’s succession to the debts and assets of the USSR. After the second one, it signed an agreement on the Black Sea Fleet, leasing several bays in Sevastopol and Feodosia to Russia for 20 years (the lease was linked to debt repayment). In addition, Ukraine handed over to Russia 11 Tu-160 and Tu-95MS bombers, about 600 air-launched cruise missiles and ground-based equipment from the “Soviet legacy”.

The Third War (2006) was a direct consequence of the 2004 Ukrainian elections. Russia then put pressure on Prime Minister Viktor Yanukovich, who promised to develop integration within the Single Economic Space. In advance of this partnership, Gazprom signed a 5-year agreement with Naftogaz (until 2009) with a fixed gas price of $50 per thousand cubic meters.

Viktor Yushchenko, who came to power as a result of the Orange revolution, buried all the agreements, declaring the Euro-Atlantic vector of development a priority for Ukraine. Yushchenko began to actively work on options for gas supplies from Turkmenistan. Average European gas prices by this time exceeded $150 per thousand cubic meters, and a fixed price of $50 looked like outright nonsense.

In 2006, Russia completely stopped gas supplies to Ukraine, which gave rise to a whole series of trilateral (Moscow-Kiev-Ashgabat) negotiations. Ashgabat showed a balanced approach. It agreed to supply gas to Kiev at European prices and with the payment of a debt of $159 million. That is, it refused. Russia nevertheless agreed to supply Ukraine with gas for $65 until the end of 2006, at a contract price of $230.

In 2009, the 5-year contract concluded in the pre-election 2004 ended. Ukraine was in no hurry to sign the new agreement. On January 1, 2009, Russia stopped supplying gas to Ukraine, on January 5, it reduced the supply to European consumers, and on January 7, it completely stopped the pipeline. On January 19, Yulia Tymoshenko landed in Moscow.

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After long negotiations between Tymoshenko and Russian Prime Minister Vladimir Putin, a direct (without intermediaries) gas supply and transit agreement for 2009-2019 was signed for the first time. Commenting on the agreement, Putin stated the need for alternative routes for transporting Russian gas to Europe. In a year, the construction of Nord Stream 1 will be launched.

Common in relation

The connection of recent Ukrainian events (Maidan, coup, Crimea, civil war) with Russian gas supplies to Europe and the 2009 gas contract may seem far-fetched at first glance. Any event whose mechanism is hidden from us seems far-fetched and inexplicable to us.

No one doubts that the Russian-Ukrainian “gas wars” are linked to changes in Europe’s gas infrastructure (logistics), as opposed to the “political” link.

In 1993 (after the first “war”) An agreement was signed in Warsaw on the construction of the Yamal-Western Europe gas pipeline, which was launched at the end of 1999 (the second “war”), and it reached full capacity in 2006 (the third “war”). At the height of the second “war” (1997), the Russian-Turkish agreement on the construction of “Blue Stream” was concluded and the development of the Nord Stream 1 route along the bottom of the Baltic Sea began. And after the third “war” in 2007, negotiations started on “South Stream”, which eventually turned into “Turkish Stream”.

The infrastructure connection provokes simple solutions and creates a temptation to reduce the Ukrainian-Russian “gas relations” exclusively to bilateral ones. At the time of signing the reference contract in 2009, Ukrainian transit had fallen from 130 billion cubic meters to 98 billion cubic meters per year. By 2014 (Maidan), transit will fall even lower — about 85 billion cubic meters, and at the time of the explosion of the “Nord Streams” it barely exceeded 40 billion cubic meters.

If to stay in two-way logic, then the conflict loses all logic. Ukraine was strangling itself, and every next step led to a deterioration. Logic occurs when there is an inverse relationship. The explanation of Ukraine’s actions by the idiocy of its leadership (which dominates our media and propaganda space) reflects, to put it mildly, the peculiarities of the approach of the authors and carriers of this version, nothing more.

The explosion of the “Nord Streams” dramatically changed the disposition, raised the role of Ukrainian transit to the level of survival (not only economic) of the European Union, and Europe too. Accusing the Ukrainians themselves of carrying out such a high-tech terrorist attack, as was the case with Al-Qaeda and the explosion of the WTC towers, will not work (with Al-Qaeda it also did not work very well). The Ukrainian epic has suddenly acquired visible logic, requires a subject (interested party, beneficiary, beneficiary) to act.

Starting from the first “gas war”, it became clear that the situation was a stalemate. The status of a monopoly transit country allowed Ukraine to act outside the contract, bringing the situation into the political space. Kiev rejected from the threshold Russia’s proposals to resolve the conflict in business logic (to share the risks through participation in the authorised capital of the GTS of Ukraine). This does not lend logic to Kiev’s actions, but additionally raises the question of the presence of an interested observer.

The stalemate is only for the producer and the consumer. For the transit operator (intermediary) it is advantageous if the producer and consumer cannot force them to fulfil their obligations. Ukraine does not fall under this definition. The question of who gets in, who acts as a global intermediary with impunity, is not a Newtonian binomial.

This question was vividly and figuratively answered by US Deputy Secretary of State Victoria Nuland during Maidan: “Fuck the EU!”. But this does not mean that the EU can be excluded from the Ukrainian formula, at least based on the Third Energy Package mentioned above. The beginning of the discussion of the “third energy package” strangely coincided with the “gas war” of 2006, and its entry into force — with the “war” of 2009 and the signing of a direct 10-year contract between Russia and Ukraine.

One caveat is piquant: the discussion of the Third Energy Package started immediately after Gazprom renegotiated long-term contracts with European buyers in 2004. That is, after Europe guaranteed itself the supply of Russian gas.

There are many such nuances. For example, the expiration date of 15-year contracts concluded in 2004 coincides with the expiration date of the 10-year “Ukrainian” contract concluded in 2009. The situation looks quite conspiratorial, if we recall that the completion of the construction of Nord Stream 2 was planned for the end of these contracts (2019).

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The Third Energy Package established a single buyer of oil and gas regime, effectively closing Gazprom’s access to the EU internal market. The preparation of the “package” was carried out under constant political pressure from Ukraine (or whoever was behind Ukraine), and Russia was declared the culprit.

But the soloist of the European aria of the Ukrainian orchestra was Berlin, which, if successful, received direct access to Russian resources, bypassing the “cordon sanitaire” carefully built by the United States around Russia. Germany was becoming the main gas hub (distribution centre) in Europe with unlimited regulatory opportunities. It acquired the status of the very intermediary.

Berlin did not aim at the position of Ukraine (someone else remembers that immediately after Maidan, Hunter Biden was put on the board of directors of the GTS of Ukraine, as well as a representative of the CIA), and therefore was punished along with Europe. The Nord Stream explosion shattered German illusions about building an independent economic project without independent power support.

Once again, the explosion occurred immediately after German Chancellor Olaf Scholz’s failed trip to the Middle East in search of free volumes of gas and oil. The trip showed that there is no alternative to Russian gas and oil. Not only are there no available capacities, but the newly constructed capacities have already been contracted. Germany was faced with the need to launch the “Nord Streams” (the first and second) at full capacity.

For too long, Germany has been resting on its laurels as the “main economy of Europe”, based on cheap oil and gas from Russia. The time has come for the Germans to descend from heaven to earth. Fraulein returns from the uradel to the post-war broken trough. The EU’s construction on the basis of Germany’s economic power has come to an end.

What is the explosion about?

The explosion of the World Trade Centre towers moved the issue of the existence of a modern model of the world market from an economic plane to an anti-terrorist one. The explosion of the underwater communications of the Nord Stream brought it into the field of global security. It will not be possible to broadcast this issue to the periphery again.

I repeat, this level of sabotage cannot be attributed to the “Tora-Bora sitter”. This is not an act of aggression against a particular state (Russia or Germany). This is a claim to performing the functions of a global military-political regulator. And it should not be satisfied in any case.

The stratagem of “controlled chaos” has already stuck in the teeth, turning into a banal scarecrow in the image and likeness of the Protocols of the Elders of Zion. However, the explosion of Nord Stream clearly demonstrates the motives and methods of the ideologues of the modern model of global governance.

The overall financial model of the world, based on American institutions, requires a common decision-making system, a common asset management market (not just bank transactions and accounts). The United States failed to create such a market on the basis of mutual trust. This means that a general threat situation is being created.

Germany’s attempt to isolate itself from the general (US?) capital asset market in the field of energy caused a backlash. The main thing here is to understand that what is important for the United States is not chaos itself, but the tools and methods of managing in chaos.

Paradoxical, at first glance, construction: chaos for the sake of control. However, this design as a working (estimated) model has already been implemented in the oil market and is now being implemented in the gas market. The design is called spot pricing.

What is spot pricing in its entirety, including the stock market? This is a mechanism for interpreting the present based on ideas about the future, where the main reference point is the past. This is a struggle between market opportunities and a strategic perspective. Reclaiming expectations, a session of Ostap Bender’s simultaneous game on 160 boards in the “Cardboard-maker” Club.

Spot draws money from long-term investments into instant (here and now) speculative transactions. The design has been created, and it has been operating since 1986 in the oil sector. Today, only one country is capable of regulating this structure – the United States.

Maintaining this mechanism is the essence of maintaining US dominance both in the economy and in politics. Everything else (Germany, Europe, Ukraine, Russia, explosions, wars…) are side effects.

Leonid Krutakov

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