In Geopolitics Today - Tuesday, March 15th
Russia Exploring Energy Deals with India, Alternatives to SWIFT and a Weakening of the Petrodollar, LNG Cannot Wholly Replace Russian Gas Supplies to Europe
Russia Exploring Energy Deals with India
While some countries have completely shifted their defence and energy policies in reaction to a Russian escalation of the use of force in Ukraine, India continues to maintain a relatively neutral stance toward mounting international pressure. But to join the US-led sanctions regime would lead to drastic repercussions for any sitting government in New Delhi because India is the third-largest oil importer in the world.
The country’s longstanding ties with Russia, cultivated primarily through mutually-beneficial military and energy cooperation, has created a long-standing mutual dependency between the two powers that satisfies their respective national interests. Even the imposition of US-led sanctions will likely not be enough to disrupt relations between Moscow and New Delhi, and this is especially the case regarding energy. Despite Russia’s inability to use the SWIFT payment system, there remains an apparent willingness from both India and Russia to deepen energy ties. To achieve this goal, Russia’s Deputy Prime Minister Alexander Novak and India’s Minister of Petroleum and Natural Gas, Hardeep Singh Puri, met last week seeking to strengthen bilateral cooperation in fuel and energy deliveries.
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Alternatives to SWIFT and a Weakening of the Petrodollar
The sanctions imposed on Russia illustrate the overwhelming economic power of the United States, demonstrating its ability to cut off another power’s capacity to conduct international trade, and working to apply immense pressure on Russia’s elites. Yet at the same time, the use of such economic instruments of power may have the effect of diminishing their value going forward. The certainty of the US controlling the global trade currency may have been demonstrated, but this may prompt alternative currencies to emerge as others witness the seizure of Russian assets.
Russia may find alternative avenues of trade, even if they yield less profits and are more costly to maintain. Moscow may choose to react to its banning from the SWIFT payment system by choosing to incorporate Chinese banking structures. Russian commodities and energy goods may be sold in the Chinese Yuan in order to mitigate some of the impacts of the SWIFT ban. However, regional integration between Russian and Chinese transaction systems may be difficult as neither country has effectively demonstrated the viability of non-Western banking structures as a viable alternative. Until the Chinese Yuan reaches further internationalization, Russia’s international trade requirements may be difficult to conduct without SWIFT. Though there are signs that the long-standing dominance of the US Dollar as a reserve currency may be coming to an end, particularly as Saudi Arabia is rumoured to begin accepting the Chinese Yuan for its oil sales.
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LNG Cannot Wholly Replace Russian Gas Supplies to Europe
While a harsh set of sanctions continues to fall on the Russian government and those individuals associated with its effective operation, one consequence of the ongoing economic war has been the changing nature of Europe’s energy landscape. European governments are joining a set of wide-ranging sanctions against Russia, but those entities which ensure an uninterrupted flow of Russian natural gas to European capitals have not yet been sanctioned.
Europe’s drive to diversify from Russian natural gas continues to intensify, but are shutting out all Russian energy for alternative sources a viable strategy to pursue? It is unlikely that alternative gas supply in the kind of volumes which Europe annually takes from Russia will be affordable to many countries in Europe. Europe imports more pipeline gas from Russia than the entire Liquefied Natural Gas (LNG) export capacity of the US or Qatar, and with terminals already occupied New LNG capacity will be difficult to purpose. Europe’s choice basically boils down to keep buying Russian gas or severely limit gas use. In the near-term, Algeria may contribute to remedy some of the supply shortages, yet this won’t be enough to ease the current situation, it would only prevent it from getting worse.
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