Ukraine and Venezuela: Energy Geopolitics as strategic weapons?

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 By Professor Anthony Bryan

 
                                               
 
After weeks of rioting in the Ukraine, Crimea is solidly under Russian control.
 
Meanwhile, amid the violence and student street protests in Venezuela since the second week of February, the government of President Nicolas Maduro shows no signs of being dislodged.
 
One remarkable aspect of both these events is the muted criticism from neigbouring countries and those that could be most affected by the crises in the longer term.
 
The European Union has been reluctant to communicate a unified, tough and explicit commitment to Ukraine’s sovereignty, independence and self-determination.
 
Caricom members have been barely audible in any criticism of the Venezuelan government, going only so far as to call for a peaceful resolution of the conflict by both parties.
 
Clearly the EU could have been more punitive with sanctions and other diplomatic avenues against Russia. But it would be difficult for the Caricom region to take any strong action and it might be left to Latin American regional bodies, such as the OAS, Alba and Unasur, to take more positive roles in de-escalating the crisis. 
 
The elephant in the room in both of these crises is the power of energy geopolitics – and the willingness of those providing energy to others to wield such power.
 
Russia and the Ukraine
 
How did Russia and Ukraine reach this point of crisis?
 
Public protests in the Ukrainian capital, Kiev, began in November 2013, when President Victor Yanukovych rejected a deeper association with the European Union, turning instead to Russia for needed financial support.
 
His government collapsed when he attempted to clear the Maidan square in central Kiev by force.
 
The ousted president fled to Russia, leaving a weak caretaker government in Kiev. Russian occupation of the Crimean peninsula was a strategic move, based on a mutual history.
 
Crimea was part of the Russian empire for 300 years before President Nikita Khrushchev handed it to Ukraine in 1954.
 
Russia’s Black Sea naval fleet is headquartered in Crimea. Since Russia and Ukraine negotiated a new lease agreement for the Russian base in 2010, the government of Vladimir Putin is unwilling to risk the security of the base.
 
With Crimea completely under Russian control, the only question going forward is whether Russian-speaking areas in Eastern Ukraine will break away in the future and spark a civil war.
 
Some experts say that Russia’s aggression in Ukraine should not be seen as a power grab, but rather as an attempt at political, cultural and military resistance to the West.
 
Putin also wants to topple the new regime in Kiev and integrate the eastern part of Ukraine into a confederation with Russia.
 
He will probably get what he wants. 
 
 
Weakened EU
 
Russia’s willingness to violate Ukraine’s territorial sovereignty is one of the strongest challenges to the European order in 50 years. But the weak EU response is conditioned by energy geopolitics.
 
Russia supplies natural gas to Europe. In the past, 95% of the gas travelled through Ukraine.
 
Today that figure has declined to 50%, because of the construction of new bypass pipelines.
 
The Europeans have learned an important lesson.
 
A 2009 Ukrainian pipeline closure spurred widespread shortages across Eastern Europe during cold, winter months, highlighting the delicate nature of the region’s dependence on Russian reserves.
 
While another gas cut-off is clearly a concern, there are fears that stronger EU actions in response to Moscow could spur a rapid Russian response, jeopardising the region’s ability to meet its energy needs.
 
But a cut-off may not now be good politics or economics, because a lot has changed since 2009.
 
The impact on Europe would be muted today because of measures taken since then, including new infrastructure investment and production agreements, as well as expanded storage and more pipeline interconnections within the EU. All of that makes Russia’s influence over the region’s energy security a less effective means to an end.
 
Ironically, the issue that may work more in Europe’s favour is Russia’s own dependence on energy revenue from the West.
 
When Putin became president in 2000, oil and gas accounted for less than half of the country’s revenue. Today the percentage is about two-thirds.
 
Moreover, EU consumers will have new options, as US LNG projects progress and other global exporters push ahead with natural gas production.
 
EU consumers provide about US$100m a day to Russia’s coffers, accounting for about 3% of the country’s economic output.
 
Europe would still suffer if Russian imports were halted, but the financial impact would now be felt bitterly in Moscow as well. Checkmate!
 
 
Venezuela and Caricom
 
Venezuela’s troubles are a wider Caribbean crisis.
 
The Bolivarian Republic is in its worst economic condition in 30 years.
 
It is plagued with rampant inflation, consumer goods shortages, power cuts and one of the world’s highest crime rates.
 
The government crackdown on student protesters and the widespread media suppression are almost unprecedented.  President Maduro (who is no Hugo Chavez) has unleashed civilian and paramilitary forces against students and protesters who favour the opposition parties.
 
He lacks the charisma of the late Chavez, as well as his skill to pull back from the edge of a crisis. 
 
Venezuela is among the world’s top five oil producers, but the current energy situation is so stark that Caracas no longer publishes oil production or export statistics.
 
President Maduro has maintained the Chavez-era habit of treating the state-owned oil group PDVSA as a national piggy bank for financing multiple spending projects.
 
It has been turned into a curious organisation that also manufactures jam, processes chicken, runs neighbourhood clinics and builds houses, though its main business is oil production.  
 
Today PDVSA is beleaguered and is the major collateral damage in Venezuela’s political and economic drama.
 
Admirably, PDVSA revenues fund social projects, health and education programs for the poor, and heavily subsidises petroleum products to the public to the tune of US$16bn a year (gasoline costs 18 US cents a gallon).
 
But on the downside, PDVSA also sends oil to Cuba (500,000 barrels per day), funds the PetroCaribe agreement and loses some 100,000 barrels a day that are smuggled to Colombia.
 
And incidentally, it sold much of its future production to China to generate funds to help the government win the recent national election.
 
High oil prices funded President Chavez’s Bolivarian revolution over the past 14 years. 
 
President Maduro is not so lucky.
 
PetroCaribe model in danger
 
Lower oil prices are a potential disaster for Venezuela’s ruling party – and for the Cuban regime, which enjoys cheap energy imports from Caracas.
 
A Venezuelan energy crisis also spells potential disaster for Caricom countries that depend on the PetroCaribe program.
 
The muted Caricom response to the Venezuelan crisis is therefore understandable. PetroCaribe is in danger.
 
The PetroCaribe model of regional energy cooperation is based on the primacy of Venezuelan oil, high revenue stream, largesse and the use of ideology as a strategy for regional co-operation.
 
It is not a sustainable model for the future.
 
Those Caribbean governments that have accepted Venezuela’s largesse should understand that eventually, they will have to repay the debt and increase their energy independence by strengthening regional energy co-operation and developing alternative sources of energy.
 
 
Caricom’s possible action
 
A common approach by Caricom, as envisioned in the formulation of a Caribbean energy policy, could help to transform PetroCaribe, as well as the region’s relations with Venezuela, providing less potential for politics to trump economics.
 
The alternative scenario is one of heightened insecurity among regional consuming countries over access to supplies.
 
Some years ago, I raised the question that if by nature, or by force, Mr Chavez left the scene and PDVSA and Venezuela had new presidents, what would happen to Cuba’s oil debt, the PatroCaribe programa and PDVSA’s investments in the region and abroad?
 
Unlike in the EU, only a few Caricom members appear to have advanced initiatives that can provide alternative sources of energy.
 
Well, Hugo Chavez has gone, and as one regional commentator put it recently - keep our fingers crossed that PetroCaribe will not be scuttled!
 
In both Ukraine and Venezuela, the lessons of energy geopolitics are clear.
 
Oil and gas are formidable tools of diplomacy. They can strike nations where it hurts, change national security to national insecurity and, among other things, reshuffle the deck of political and economic winners and losers.
 
Fear not, but there is more national and regional uncertainty to come worldwide, given the changing geopolitics of energy.
 
Professor Anthony T. Bryan consults on energy trends and energy geopolitics to several firms in the USA that deal with political and economic risk. He is the founder and president of Anthony Bryan and Associates. He is currently a Senior Fellow at the Institute of International Relations at the University of the West Indies in Trinidad.
 
 
 
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