This is a disaster on many fronts...humanitarian, political, ecological, energy and of course for climate change. Russia is a big player on the world stage for energy providing almost 20% of the world’s fossil gas, three quarters of which goes to Europe.
I don't think military intervention from NATO is an option or would help in any way so the only realistic option is sanctions. Half of Russia’s income is generated from the export of
fossil fuels so it seems clear to me that the most effective sanctions would be to
reduce the West’s dependence on Russia’s oil and especially gas and step up the
transition to renewable energy such as wind, solar and energy storage.
It seems to me that our continued dependence on Russia's gas is the main leverage that Putin holds. We really cannot permit this to continue. Short of military action against a NATO or EU country, the ability to turn off the energy tap is Putin's ace in the pack. The message is clear...every nation needs to mobilise all resources to wean itself off fossil gas as quickly as possible to break this hold.
Of course the global oil companies play a big part
in all this. For example Exxon’s Neftegas holds a 30% stake in the vast oil &
gas project Sakhalin. The Russian government own a majority stake in the giant
Rosneft but BP also hold 20%. Shell have a 27.5% stake in Sakhalin2 which is
controlled by Gazprom. All contribute billions of dollars to the Russian
economy and of course this revenue maintains the military war machine. Many
investors will probably be unaware they hold these companies in their pensions
via global index funds.
Orsted one week movement
I think the wider markets are coming round to understanding the bigger picture here. Of course the stockmarkets were impacted by the dramatic news earlier this week but I think it was significant that when the
rest of the markets around the world were tanking, renewable energy and
hydrogen stocks were heavily in demand.
Ceres Power jumps 25%
Energy Bills
Although the UK only imports around 5% of our gas
consumption from Russia, we have been impacted by the huge increases in the
global prices of wholesale gas. As a result, our energy price cap will rise by
54% from April which will add a further £700 to the average household bill
taking it up from £1,270 per year to almost £2,000. Later in the year it could
increase further - speculation a further 50% - and we will be spending a much larger proportion of our income
on energy and obviously less on other things which will impact our economy.
We are already moving towards a low carbon energy
economy with a target for a 78% reduction in carbon emissions by 2035 but the
current crisis should make the case for the UK and EU to speed up the process.
Self Reliance
Even without this crisis, everyone is now aware of
the need to move away from fossil fuels such as coal, oil and gas to tackle the
problem of climate change. There is a broad consensus that to keep the target
of 1.5C global warming within reach we need to move to net zero emissions by 2050.
There is little doubt that the invasion of Ukraine
will sharpen up the resolve of leaders in the EU and UK to speed up the move to
become much less dependent on Russia for energy. This will involve a strategy
to firm up existing decarbonisation plans and hopefully put some real impetus
behind the roll-out of renewable...offshore and onshore wind, solar, wave/tidal
energy, storage solutions to solve the intermittency issues of wind and solar
and also including green hydrogen which has so many applications.
In addition we need to also look at reducing demand
for energy such as the simple measures of much better home insulation.
Conclusion
The conflict instigated by Putin cannot be allowed
to succeed and the UK, US and EU must stand firm in solidarity with the
Ukrainian people. In 1991, Ukrainians voted overwhelmingly for independence
from Russia, they gave up their own nuclear weapons and the thought of turning
back the clock 30 years if Russia is permitted to subjugate the nation simply
cannot be allowed. Every possible sanction must be imposed to undermine Russia’s
aggression and make it think again about its strategy.
However, I believe the most effective sanction will be related
to energy. Russia is no doubt looking for other markets for its oil and gas such as China but that will take decades to install the pipelines and infrastructure. Moving quickly to reduce our dependence on Russia’s gas which
currently accounts for 40% of Europe’s total annual consumption will not be
easy but will be essential if a long term solution is to be found. Of course
this will be painful in the short term but it will be required in any event to
address the climate change crisis which looms in the background.
This is a crazy move by Putin which is doomed to failure...I only hope when that happens he isn’t crazy enough to use the nuclear weapons option. In the meantime, all thoughts and solidarity with the people in Ukraine at this terrible time.
Feel free to share you thoughts on the crisis in the comments below.
