Putin Invades Ukraine - Some Initial Thoughts

Unbelievably it’s 2022 and with Putin’s decision to invade the independent democratic sovereign state of Ukraine, we seem to have regressed by a century...maybe two. Certainly this is the most aggressive and dangerous act of war in Europe since WW2 especially so as Russia holds nuclear weapons.

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.