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Daniel Yergin, one of the world’s leading experts on energy, and Angela Stent, one of the world’s leading experts on Russia, discuss the current state of the Russia-Ukraine war.
The conversation, which was recorded on September 27 and included Co-CIO Greg Jensen, Co-CIO for Sustainability Karen Karniol-Tambour, strategist Atul Lele, and Daily Observations editor Jim Haskel, covers three broad topics: the current state of the Russia-Ukraine war, how the war is reshaping the global energy map, and Russia’s role in an increasingly bipolar world, with a focus on its relationships with China, India, the Middle East, and the West.
Editor’s note: the views of external guests do not necessarily reflect the views of Bridgewater.
Note: This transcript has been edited for readability.
“I think this is their point of maximum leverage, because most Russian gas to Europe has been stopped. Putin laid out in his strategy, which what he said was ‘high prices create economic hardship, create social turmoil, bring populist parties to power, and change the elite.’ I think over the next few years, Russia’s status as an energy power will go down. But I think this is his high point, and oil prices may be down right now, but I think there’s great turbulence ahead.” — Daniel Yergin, Vice Chairman of S&P Global
“So far, the average Russian really hasn’t felt the impact of the sanctions that much. So, if you live in a big city like Moscow, life is pretty normal. You wouldn’t know there was a war going on. If you live in the rural regions of Russia, they were pretty poor anyway before the war. And so, people haven’t felt the sanctions that much. When the full impact of the export controls is felt next year—the lack of semiconductors, the lack of spare parts — you’re going to start to see factories closing down. And that’s probably when people are going to feel the pinch much more.” — Angela Stent, Director of the Center of Eurasian, Russian, and East European Studies at Georgetown University
I’m Jim Haskel, editor of the Bridgewater Daily Observations. In today’s installment of Inside the Research Engine, we have a real treat to share with our listeners: a conversation with Daniel Yergin, one of the leading experts on energy, and Angela Stent, one of the leading experts in the world on Russia and Vladimir Putin. And Dan and Angela happen to be a married couple. My colleague Atul Lele has known them for quite some time. So, Atul, let me bring you in here. First, it’s pretty rare, is it not, to have these two appear together for an interview in this format?
Thanks, Jim. Yeah, it is rare, and so we’re really lucky to have them. And just by way of background, again, Dan is the vice chairman of S&P Global and the world’s leading authority on energy. He’s best known for writing The Prize: The Epic Quest for Oil, Money, and Power, which won the Pulitzer Prize. And his latest book is The New Map: Energy, Climate, and the Clash of Nations, which we’ll link to in the Daily Observations.
And Angela is the director of the Center of Eurasian, Russian, and East European Studies and a professor of Government and Foreign Service at Georgetown University. She previously served as a national intelligence officer for Russia and Eurasia at the National Intelligence Council and is the author of The Limits of Partnership: US-Russian Relations in the Twenty-First Century, for which she won the American Academy of Diplomacy’s Douglas Dillon Award for the best book on the practice of American diplomacy. She also wrote Putin’s World: Russia Against the West and with the Rest, which we’ll also link to in today’s Daily Observations.
And, Atul, it was great to be able to bring them into a research huddle with you and me, co-CIO Greg Jensen, and co-CIO for Sustainability, Karen Karniol-Tambour. And so those are the voices our listeners will hear. We covered three broad topics. We covered the current state of the Russia-Ukraine war, how the war is reshaping the global energy map, and also Russia’s role in the increasingly bipolar world, with a focus on its relationships with China, India, the Middle East, and the West.
So, with that, Atul, let’s get right into the discussion with Dan and Angela, and it starts with you asking Angela about her thoughts on the latest developments in the Russia-Ukraine war.
Chapter 1: The State of the Ukraine War
Angela and Dan, thanks so much for joining us today. So much has happened in the war recently. So, Angela, we’re going to start with you. What’s your take on the Ukrainian advances, the partial mobilization of Russian forces, the annexation of Ukrainian provinces, and the state of conflict in general?
Certainly. Well, Atul, when we got together a month ago, it looked as if there was a stalemate in the war in Ukraine. The Russians hadn’t taken any territory since June. The Ukrainians hadn’t really taken very much either. It was just grinding on. And then, lo and behold, the Ukrainians have made very good use of their American-supplied HIMARS weapons and other weapons, and they were able to take back territories in the northeast and the Kharkiv region, which Russia had taken over at the beginning of the war. There’s another major counteroffensive going on as we speak in the Kherson region in the south, a crucial region which links up with Crimea.
So, the initiative appears to be on the Ukrainian side. We do know that when they took over these areas in the Kharkiv region, the Russian soldiers literally dropped their weapons and fled. They complained on social media channels that there were no commanders, there were no officers telling them what to do, and they just sort of ran home as fast as they could. Some of them surrendered to the Ukrainians.
So, in response to the momentum being on the Ukrainian side, Putin then has done two things. The first is to announce what he called a partial mobilization of 300,000 troops. But in fact, most people believe that the real figure—because it’s classified there—is about a million men. That’s what they’re trying to do. And it really is not going very well. First of all, they said they would only mobilize people who were veterans, people who had combat experience. Well, they’re picking up students, young people who have no combat experience and probably won’t get any training. And then they’re picking up men as old as 62. They can pick them up until they’re 65, who maybe had combat experience in the Soviet era, but it’s a long time ago.
Then we’re seeing pictures of the weapons that these newly mobilized people are being given—rusted Kalashnikovs. I mean, really symbolic of how degraded the Russian army is. And there’s fierce resistance to this mobilization. The queues for people to get out of Russia into Georgia, into Kazakhstan, into other countries—the lines are very long, and young Russian men are fleeing. They’re setting fire to mobilization stations. The mobilization is happening, but it’s not going very well.
And then the other part of this, as you mentioned, is that there are these so-called referenda going on in Donetsk and Luhansk in the Donbas, and then also in the Zaporizhzhia region, where, of course, the nuclear power plant is, which the Russians have turned into a military base, and in Kherson, where there’s a major Ukrainian counteroffensive. People come to your house with armed guards, they give you a piece of paper, and they ask you to check a box. Well, of course, you’re going to check the box saying, “Yes, we want to reunite with Russia.” You’re not going to check the box that says no.
So probably sometime in the very near future, President Putin will announce that these four regions have voted to join Russia. This is now part of the sacred Russian land. And therefore, if the Ukrainians continue their counteroffensive in Kherson, they are now attacking Russian territory. And this, therefore, could elicit a major Russian response to it. So, what’s happening now, really, is the act of a leader who knows that things are going very badly. And his aim is to deter the West, to deter Ukraine from continuing to fight on. Hence the referendum, plus the mobilization.
Chapter 2: The Impact of the War on Energy Markets
Dan, would really love to hear from you as the war is sort of reshaping rapidly how you see the energy markets as currently clearing. What is the supply/demand balance and imbalance like in both gas and oil now? And where is that likely to go over the next few months?
Well, I think you’ve seen the impact of price, and you’ve seen the impact of central banks raising interest rates and the wide expectation of recession. So, you see oil prices, like other commodity prices, weakening. For many years, people say Saudi Arabia is the central bank of oil. Right now, the central bank of oil is the central bank. It’s the Federal Reserve and its interest rates.
On gas, there’s been a race to fill gas storage in Europe. Gas prices are down in Europe, but it’s still the equivalent of around $400 a barrel of oil right now, and there’s not much other supply. And I think the most important thing, actually, is that there’s a second front in the Ukraine war. It’s an energy war in Europe, and that’s being played out every day and every hour.
Just to follow up on that, Dan—I want to come to Angela in a second. But what do you see as the levers that Russia has in that war at this point? What more can they do or play to impact Europe in a bigger way?
Well, I think this is their point of maximum leverage, because basically most Russian gas to Europe has been stopped. And I think Putin laid out actually in June his strategy, which what he said was “high prices create economic hardship, create social turmoil, bring populist parties to power,” and as he put it, “change the elite.” And that’s what we’ve just seen happen in Italy, of course. And his aim is to really undermine the coalition by making it so difficult for people in Europe.
I think over the next few years, Russian influence, Russia’s superpower status as an energy power will go down. But I think this is his high point, and we still have a period of—oil prices may be down right now, but I think there’s great turbulence ahead, particularly starting in December and the run-up to the December ban by the EU on importing Russian crude. So, Putin knows the energy market very well. In 2009, he sat for six hours in a negotiation over natural gas. And so, he knows that this is a very formidable weapon, and he will use it to the maximum. And along the way, by the way, also make a lot more money than he made last year so far.
Chapter 3: How Sanctions Are Impacting Russia’s Economy
Daniel, that’s a great segue into the question I wanted to ask Angela about what it’s like in Russia right now from an economic perspective. How is Putin spending the money he’s getting from energy? And what is the average person on the street feeling in terms of the impact of this war on the economy?
Well, as far as we know, Putin is still spending the money that he’s getting from energy sales on his war machine, but he obviously needs much more money if the army is to be up to snuff. So far, the average Russian really hasn’t felt the impact of the sanctions that much. So, if you live in a big city like Moscow, the restaurants are open. Life is pretty normal. You wouldn’t know there was a war going on. The only place where you might is some of your favorite restaurants. You know, Starbucks, McDonald’s, they don’t exist anymore in their US or international form. They’ve now been taken over by the Russian state. And if you go to your local supermarket, some of the goods that you used to buy that come from Europe or the United States or Japan, for instance, won’t be on the shelves anymore, but you’ll have some substitutes. And your electronics are going to be much more from China than they were before. If you live in the kind of vast hinterland, the provinces, the rural regions of Russia, they were pretty poor anyway before the war. And so, people haven’t felt the sanctions that much.
What’s much more likely to happen is that when the full impact of the export controls is felt next year—the lack of semiconductors, the lack of spare parts. The Chinese, by the way, because they’re not violating Western sanctions, they’ve closed down their Huawei operations in Russia. But what’s going to happen next year is you’re going to start to see factories closing down—automobile factories, other kinds of factories—because the spare parts or the components for the manufacturer aren’t there. And that means unemployment is going to get significantly higher than it is now. And that’s probably when people are going to feel the pinch much more.
So far, the Russians have weathered this fairly well, largely because they are still getting all of these revenues from energy sales, and because they’ve managed to keep the ruble at a rate which enables them to continue doing what they’re doing. But I think, increasingly, they will feel the impact of the sanctions in 2023.
So, Greg, let me add a comment to that, two things. One, at the beginning of February, the major companies in Russia were asked, “How would you do if there were sanctions?” And I think they answered kind of thinking, well, sanctions related to just taking the eastern part of Ukraine. And Putin interpreted that to mean that the economy was sanction-proof. But as Angela says, it will progressively not be. The other side of it, of course, is the great beneficiary here is China. And, for instance, we know of one large industrial project, which was going to have European, South Korean, and Japanese equipment is now going to have Chinese equipment. And so, the Chinese will be an economic winner out of this.
Chapter 4: Putin’s War or Russia’s War?
And so just thinking about the way that you frame the impact, Angela, on Russia’s economy and how it sounds like it’s going to be playing out over the coming months and years, bring it back to the genesis of the war. How much of this do you see as being Putin’s war versus it being Russia’s war?
So, I think in the beginning, you could definitely say this was Putin’s war. He was coming out of two years of extreme isolation because of COVID, where he hardly saw anyone. He certainly didn’t meet with international CEOs and politicians. He just saw a small group of people around him, most of whom shared his views. He was kind of stewing about Ukraine, which has been an obsession with him for a long time. And as far as we know, he made the decision to launch this invasion pretty much on his own. Certainly, his foreign minister didn’t know about it. The head of the central bank didn’t know about it beforehand. In fact, all of the economic ministers didn’t know about it beforehand. And he believed, based on false intelligence from his own intelligence operatives who were in Ukraine, that this would be a three-day blitzkrieg, that Ukraine would surrender, Zelensky would flee, and the Russians would put in place a government that would be very pro-Moscow.
That, of course, is not how it has turned out. But in the seven months since this war has been going on, I think we cannot only call it Putin’s war, even though he is the chief decision maker. He may not be consulting that much with people at the top about what he does. But there has been this concerted propaganda effort to persuade the Russians who have remained in Russia—and about 400,000 people have left Russia who opposed the war—but the ones who remain to persuade them that this is a patriotic war, that the West is threatening Russia, that NATO and its proxy, its vassal Ukraine, were threatening to somehow either invade Russia or break it up into different parts. And therefore, you do have a majority of Russians who apparently still believe that this is a war of necessity. And when Putin likens it to the Great Patriotic War, i.e., World War II, that what they’re doing there is somehow defending Russia from Ukrainian Nazis. So, they have bought into this. I think it’s, in a way, convenient to say this is Putin’s war and absolve the population in Russia of any responsibility for it. And I think that’s probably not correct.
Chapter 5: How Europe Is Responding to the Energy Price Shock
Dan, one of the struggles that European governments and UK governments have faced is how to handle the huge spike that we’ve seen in energy prices and prevent it from causing excessive pain for households and for their economies. Has anything surprised you about how policy makers have responded to this challenge?
I don’t know if the change in direction in the UK in terms of its overall economic policy, tax cuts and so forth, was necessarily foreseen. But I think it was inevitable that governments would have to struggle with what they do, in one way or the other, to insulate consumers, who also happen to be voters, from these energy prices that they had never anticipated that were so much higher than anybody had thought was possible. So, I think we’re seeing a lot of subsidization. Actually, as I think about your question, Atul, I think the reaction of Germany has been very interesting, that a Green minister, one of the leaders of the Green Party, as the minister of economics, has said, “You know, it’s not only about wind and solar; it’s about oil, natural gas, and indeed coal.” And he made a very interesting comment—this is Robert Habeck. He said, “With energy, there is no black and white. There are only shades of gray.”
So, I’d say one big shift, actually, is that, in a sense, looking to the United States now as a baseload for natural gas rather than looking to Russia. The role of US LNG was not seen as a foundation of energy security for Europe. But Europe now sees it. And there are all these European people from governments and companies coming to the US constantly looking for LNG deals.
Chapter 6: China’s Energy Policy
Where do you think China is going to end up from all of this? Because if you’re basically thinking about the global potential transition and what it would take to actually cause a significant shift in the kind of energy used in the world, China is sort of the biggest swing player. We saw, with what’s happened in the last few months, China’s increase in coal use is bigger than most countries’ total coal use, and that was just on a change basis. And you already described them as somewhat economic winners from this set of activities. How do you think they’re seeing the trajectory of what kind of energy they’ll use and where they’ll see themselves in the map and all the different things they’re trying to accomplish between focusing on the environment, focusing on security? In some ways, I imagine that the choices they make will probably set the world’s trajectory when it comes to how we deal with climate change more than anyone else’s. And it’s not clear to me how they’re responding to all of this in terms of their medium-term plans.
Well, I think on the issue of China’s general orientation and its relationship to Russia and how it sees this overall scene, I’ll leave that to Angela. On energy, China is basically—well, there are two things to be said. One, from the point of view of the world markets, China’s COVID lockdown has been very helpful, because if Chinese demand had been at the normal level, we would see prices higher. You’ve had Chinese oil companies actually selling cargoes of LNG that they’ve bought to Europe right now. So that’s taken some of the pressure off the market.
I think we can say that China is pursuing Barack Obama’s energy policy, an all of the above energy policy. I participated recently in a dialogue that China, even if you look at their new 14th Five-Year Plan, they actually kind of put energy security before low carbon. So, I think number one for them is energy security. And that means right now using more coal and so forth. On the other hand, they have half the wind, half the solar in the world. They dominate—80% of solar panels come from them. So, they’re moving strongly in that direction. But they’re also, at the same time, very much conventional energy and protecting their economy.
I think, Karen, that points to a larger thing, which is that in general, for most countries, energy security had fallen off the table, just wasn’t a consideration. China didn’t forget that, and Japan didn’t forget that. And other countries are rediscovering that, in a way, it’s hard to have an energy transition without energy security.
Chapter 7: How EMs Are Grappling with Higher Energy Prices
How would the rest of the emerging markets—because one of the things we see from our vantage point is we’re seeing how Europe bidding up US LNG just means that other emerging markets can’t get it, so they can’t rely on it as much in their plan. So, when we sort of try to add up the global supply/demand for broader energy across oil, gas, coal, renewables, it feels like it’s hard to see a significant transition occurring if the Europeans are very committed to getting greener through time, but just end up kind of setting everyone on a browner path, if you will, in response to the European supply/demand.
Well, I think it has been—Germany was not interested in importing liquefied natural gas. Now, at least five floating storage and regasification units have been contracted for Germany. So, they’re moving. You had the chancellor of Germany flying to Senegal looking for LNG exports. I think you pointed to something that, of course, there’s a focus on Europe, where natural gas today is the equivalent of $400 a barrel of oil. But not much attention, as you say, is what this is doing to developing countries who had counted on LNG, and it’s hitting them. So, they’re either using coal or they’re having brownouts or blackouts. And the other thing is, of course, food—70%, our economists estimate, of the cost of food is really energy. So, they’re also being really hit, of course, on food, although, again, we’re seeing these commodity prices ease now. But I think in the gas markets, Europe is—any cargoes they can get, they’re going to get, and that means they’re not going somewhere else.
Chapter 8: The Politics of Europe’s Ukraine Support
Angela, when we last spoke about this, what was really interesting is that Europe’s gone to the right politically. Latin America has gone to the left. What do you think the route of travel is for European governments from a political perspective, and how do you think that feeds into the policy response to all of this?
Well, first of all, I think the biggest change was in Germany, the so-called Zeitenwende, where they decided this was a turning point for them. And after 50 years of importing significant amounts of Russian gas, of believing that it was always very important to have a dialogue with Russia, to try and improve ties with Russia, because without it, it would be very dangerous for Europe. They’ve seen the light, and they’ve seen that, in fact, making these concessions to Putin didn’t really get them anywhere and that they had to now, first of all, spend more on defense and, in fact, supply Ukraine with some military hardware—not as much as the Ukrainians would like—in order to prosecute the war and take hundreds of thousands of Ukrainian refugees in.
And Germany hasn’t moved to the left on this. What Germany has done—and Dan already talked about the Greens—I mean, in a sense they’ve had to abandon some of their long, most cherished policies, which are anti-nuclear power, anti-coal, anti-hydrocarbons in general, and not getting involved in armed conflicts elsewhere. They’ve had to reevaluate all that, and they’re in favor of supplying weapons to the Ukrainians, etc.
So, I think there’s been a big change in Germany, and I think it remains to be seen whether that change will last over the winter. If it becomes a very cold winter, if as some Germans fear, they’ll be freezing because there isn’t enough heat, will that then put pressure on the German government to reconsider this new iteration of their Ostpolitik, of their public policy toward Russia, and to maybe relent on some of the sanctions?
Now, what we have seen, yes, we’ve seen in Italy certainly a turn to the right, and that’s partly fueled by the economic pressures that people feel, the inflation, the high energy prices, and the uncertainty about the winter, and has led people there to say, “Maybe we should reconsider how tough we are with Russia.” Interestingly, the woman who will probably be the next prime minister, if she can put together a cabinet, Giorgia Meloni, has come out very much in favor of supporting Ukraine and has had some very harsh words about Russia, although some of her coalition partners, not the least of which Silvio Berlusconi, who still counts Putin as a friend of his, maybe have a different view of Russia.
You did also see, of course, in the French parliamentary elections, far more people from the right-wing party of Marine Le Pen get elected to the National Assembly, although Macron himself, I think, is still trying to hold the line very much of support for Ukraine and criticism of Russia, even though he talks to Russia. So, Hungary, Viktor Orbán has always been pretty pro-Russian, and Hungary has been a reluctant supporter of sanctions. So, it’s always been an outlier in this. You did have demonstrations in the Czech Republic just a few weeks ago, again, on these issues of the economic hardship caused by sanctions and calling for a reevaluation.
So, it’s not clear how long Europe will hold together. The unity has been remarkable, given the normal kind of transatlantic problems there are, particularly during the Trump administration. So, the unity has been remarkable, but it could weaken again in view of the shortages that will be experienced in the winter and depending on what the weather is. But I would also say, the more atrocities are revealed in Ukraine, and we just had another set of those, and really the more that Putin uses nuclear blackmail—now, there are some people in Europe who are arguing, “Well, so we’ve got to sit down. We’ve got to get the Ukrainians, force them to get to the negotiating table, because otherwise, he may use a tactical nuclear weapon,” but others have the opposite effect, which is, “This man is trying to cross a red line to do something unprecedented that hasn’t been done since 1945. And we have to push back. We have to deter.”
So, I think, as we see the situation heating up now, as we discussed at the beginning, you get different reactions in Europe. And if Putin does cross a line, if he were to use a tactical nuclear weapon, my sense is that that would pretty much unite most of Europe against Russia, because he really will have broken a taboo.
If I can come in on that, I think the shift that you’ve seen over the last two or three weeks is people are much more seriously considering actually that it could happen—tactical nuclear weapons—and what would be the nature of the response. It would be kinetic, but it would not be nuclear. And I think that’s the message that’s been conveyed back to Putin. And that’s why the situation is so difficult, because Putin, from his point of view, can’t afford to lose. And on the other side, he can’t afford to win. And that’s why we could see that Russian military doctrine, you escalate to de-escalate. So, certainly the stakes are going up.
Chapter 9: Assessing the Energy Markets as Winter Approaches
And getting to how you see the next couple of months play out, Dan, in terms of the energy thing, do you feel like the recent calmness in the markets, the declining commodity prices but yet still at high levels, reflects a reality that that they’ve stored enough, that it’s basically in some degree of tentative balance? And how do you see that kind of playing out going forward? What do you see as the tail risks in Europe and what do you see as the optimistic possible outcomes?
Price is a very powerful messenger, and gas demand in Europe is down in September about 13% from the previous year. We’ve seen gasoline in the US has been down about 6%, 8%. So, I think that takes the pressure off. And the sense of a slowing or weakening global economy—the numbers, as you guys know so well, keep pointing toward further weakness. But I think there are a couple of—Angela mentioned the weather, cold weather in Europe. Then they’re really in a much more difficult position. Basically, on oil supply, it’s still a tight market, and people think, oh, this crisis began with energy on February 24 with the invasion. It began a year ago when markets really started to tighten as demand came back.
Greg, what I would be most concerned about right now is what happens in November and going into December with what we talked about before, which is a European ban on crude oil imports, but they also are bans on financing for shipping and insurance. And in a sense, looking to shipping and insurance to be a very key element, which would mean that Russian oil that went to India—India, last year, imported 1% of its oil from Russia. This year it’s 20%. Suddenly, if you can’t ship it—a large amount of it has to go on Western ships or insured ships—you’ll have a big hole in the market.
So, the US government has come up with this idea of a price cap on Russian oil, which it is meant to do two things. One, keep the oil flowing so you don’t create a shortage; two, reduce Russian earnings from oil. The thing is that the Russians are paying full attention to this. They’ve called the idea absurd, and they’ll counterattack. And they can do it by cutting off oil from Kazakhstan, as they’ve done recently, reducing some of their own supplies. And you could inadvertently create a panic in the oil market, kind of a scramble for oil that we haven’t seen since the 1970s, really. And so, I think this is moving into a period of high uncertainty, and nobody’s playing with all the cards in this.
Chapter 10: The Impact of Sanctions on Russian Oil Production
Do you see any other risks to the Russian oil supply from the lack of technological flow from the West? Do you think that’s a significant thing, or is that still a very long-term problem for Russia?
I don’t think it’s long term. It’s medium term. I mean, Russian production has stayed up, which was not expected. But the flow of technology, the flow of investment has been cut off. And so, we would expect to see Russian oil to go into a decline—not a dramatic decline, but maybe a million barrels and then 2 million barrels a day so that Russia will feel that impact. The Western service companies may have exited, but they’ve still left their 3,000 Russian employees there who are still working in their fields and so forth. I think over time, it means that there will be a deterioration in Russian energy supply, and their problem about natural gas, of course, is if they’re not shipping it to Europe, you can move oil and you can put it on tankers. You can’t put pipelines on tankers. And so that will mean shutting natural gas for them. And they’re talking about another big natural gas pipeline to China, but that’s going to take four or five years. It’s not going to happen overnight.
Chapter 11: Can Russia Leave the West for the East?
Angela, in chapter two of your book—and for listeners, we’ll be linking to Angela’s book in these Daily Observations. In the book, you mentioned that Russians have long been divided over whether they should look to the West or look to the East. Now, we’ve seen somewhat of a pivot from Russia, more toward the East since the start of the war. Of course, that’s in part driven by necessity. Europe’s shifting away from Russia as a supplier of energy, and China and India need energy as cheaply as they can get. But beyond energy, we’re also seeing it in joint military exercises and strong relations more generally. What do you think the limits are in terms of the pivot from Russia to the East?
Well, one of the limits is really, and Dan has talked about that, is if we’re talking things like natural gas, the pipelines, nearly all of them go to Europe. I mean, there’s a major one that goes to China. But they really have to reorient that, and that takes quite a long time. Oil, obviously, is easier to sell. It’s interesting because Russia has really never been—even though it’s geographically partly in Asia, it’s never acted as an Asian power. And in the Soviet times, even though they talked about it, they never did it. And it’s really only under Putin, and it’s really only since 2014, when China sort of came to Russia’s rescue after the annexation of Crimea and the attempt by the Obama administration and other Western countries to isolate Russia. China stepped in and made sure that Russia wasn’t isolated; formed, if you like, more of a strategic partnership with it; and began to back it up in the kind of quest for a new world order. And since then, Putin has very assiduously courted various countries around the world, including in Asia, to improve ties, to have an alternative to the West.
Now, Indian-Soviet ties were very important during the Cold War period. India was a leader in the Non-Aligned Movement. It was a major importer of Russian military hardware. India still gets, I think, the majority of its military hardware from Russia. So, these are longstanding ties going back decades, certainly into the Cold War. And right now, I mean, the Indians see Russia also as somewhat of a balancer in their relationship with China. Russia did intervene a couple of years ago to help resolve after border clashes between India and China. The Indians still want the Russian weapons, although one wonders, after everything that’s happened in the Ukraine war, whether they maybe will reassess it. And then certainly, as Dan has talked about, they’re buying much more Russian oil at discounted prices. But I think there are limits, let’s say, even to the relationship with India. Interestingly enough, at the Shanghai Cooperation Organisation Summit in Samarkand a couple of weeks ago, Prime Minister Modi publicly chided Russia, chastised Russia, and said, “This is not a time for war.” And he could have done it privately, but he didn’t. And he said publicly, “I’ve spoken to you many times on the phone about this.” And one can see now a wariness with India. And, for instance, if Russia were to use a tactical nuclear weapon, I mean, that has major implications for all of the nuclear powers, including India and Pakistan. I mean, what does that mean? Does that remove a taboo there?
So, I’m not saying that the relationship with India is faltering, but I think the Indians are taking a cold, hard look at Russia, even though they haven’t been willing to condemn Russia outright for what it’s done in Ukraine or sanction it. And of course, India does have other options. It’s in a partnership with the Quad: Australia, Japan, and the United States. So, it has its own balancing act to do.
Japan, I mean, the Russians and Japanese have had a territorial dispute since the end of World War II, the southern Kuril Islands. Putin has now made it abundantly clear that Russia doesn’t negotiate territory. It’s in the Japanese constitution that these islands should be returned to Japan, and so the Japanese-Russian relationship, when Prime Minister Abe was around, was really trying to push a rapprochement. But that relationship is now very much on ice, not necessarily in the energy field, but in the other fields, and the Japanese, of course, have joined in on all the sanctions, as have the South Koreans. So, for both of those countries, the relationship with Russia and the economic part of that relationship overall isn’t that important.
And then there are other countries in the region that, if you think about the ASEAN countries, and I think the message that the West has been giving them is that they should be concerned about Russia violating the rules of the United Nations charter, violating international law by this unprecedented invasion. And so, they’re sort of thinking about it. So, I think there has been somewhat of a pivot to the East. And clearly the Russian-Chinese relationship is the centerpiece of this pivot to the East. And I think it would take quite a long time for it to become a more robust pivot to the East. Culturally, historically, there’s much less than common. Where do the Russian elites send their children to study? To Europe, to the United States, to other countries in the West, and not so much to any of these countries in Asia.
Can I add, on China, it is true that Putin and Xi were describing each other as their best friends. And one time, Putin brought what he said was Xi’s favorite Russian ice cream to him for his birthday. I mean, all these symbols. And, of course, they pledged unlimited cooperation at the beginning of the Olympics. But what one hears from other heads of state is that Xi did not know what Russia was actually going to do, and certainly, the Chinese have to look at Putin and worry about and wonder about his level of competence to have blundered into a situation like this. And so, their confidence in him, while it’s a great opportunity for them to enhance their position, it also has to make them wonder about the soundness of their partner.
Chapter 12: Russia’s Energy Relationship with India, China, and OPEC+
So just zooming in on the energy relationship in a bit more detail, what do you think the mix looks like going forward if you had to guess, in terms of where India is going to be sourcing its energy from? What does their mix look like more broadly, and the same for China?
Well, I think for India it’s a question of price. India imports 85% of its oil. And so, it’s a really big hit to have very high oil prices. And going back to what Angela is saying about India’s balancing act, the Indian foreign minister said, “Well, our interest in this conflict is fuel, food, and fertilizer.” And so, if they can get cheaper oil, they’ll get cheaper oil because they need it for their economy. So actually, Indian refiners can buy cheaper Russian oil and then sell refined product at higher prices. So, the economics on the world market works out for them on that. So, I think, for India, it’s more opportunistic, but it does show a reshuffling of the global market because Iraq, Saudi Arabia, the major producers who were selling to India, now they’re going to reorient part of their sales back to Europe. So that kind of realignment is going on.
I think for China, going back to what Angela said, this is long term that Russia looks to China as a fundamental market. I think the Chinese will put a limit on what percentage of their energy comes from Russia, but that’s going to be the growth market for them. And I think that’s a more durable market rather than, in a sense, for India it’s more opportunistic right now. It’s really about price.
So, moving now to the relationship between Russia and the Middle East. How has the relationship with OPEC+ changed since the start of the war?
It’s very interesting to see that OPEC+ is really, of course, a Saudi-Russian construction that came out of the price collapse, and the Saudis have reaffirmed their commitment to OPEC+, and OPEC+ is continuing to meet. In fact, we may see—in response to weakening price, we saw a small supply cut by OPEC+—we may see a larger one in the next month or two if the price continues to weaken. So, I think that relationship of OPEC+, based upon the Saudi-Russian relationship, which was really forged in 2016, that continues to be very much in play. And both sides, the Russian and the Saudi, want to keep OPEC+ going.
Chapter 13: The US Role in Europe’s Energy Security
In terms of just sticking with the different energy relationships around the world, how does all of this inform the energy relationship between the US and Europe? Obviously, we’re seeing some shifts there. But just if you can size that for us, how big the shifts really are, what you would expect that US-European energy relationship to look like in the future from where we are today?
I think that it’s become much more significant. The US is basically one of the top three LNG exporters. And to size it for you rather precisely, right now, 66% of US LNG exports are going to Europe. That’s about double what it was last year. The main market for US LNG, liquefied natural gas, was Asia until this happened. And I think it’s now been kind of—I can see it in the contracts that had been written—that it’s been sort of formalized in terms of US supply going to Europe. And, of course, the Biden administration came in no particular fan of LNG, no particular fan of hydrocarbons. And there was President Biden promising the Europeans, well, we’ll get you 15 bcm more LNG. They did that several months ago. And I was talking to somebody in the administration the other day and said, look, we’ve done it. So, I think this kind of energy security relationship around natural gas, despite all the other criticisms that are there, has become an important component in the overall US-European relationship, and the Europeans are counting on the United States going forward.
Chapter 14: Will the US Allow More Energy Production?
Do you see much movement there in terms of the US allowing more development in shale or on the pipeline side in response to the war?
Well, let’s start with energy prices, because it was, as we observed earlier, the energy crisis, the high prices began well before the war. And already last November, you had the administration, including the president, asking, “Why isn’t the industry producing more oil and gas?” And at our energy conference in Houston, CERAWeek in March, there was the secretary of energy saying to the oil and gas people in the audience, “Could you please increase your production? And by the way, investors could you relax a little bit of the ESG pressure on these companies and investor returns so they will produce more?” And they are producing more.
So there has been that. But on the other hand, the basic tenet of the administration, a lot of it comes out of the progressive side that wants to restrict it. And so, in terms of actual access, leases on federal lands, and people sort of get confused—the US government owns 48% of the 11 western states, and a lot of federal lands are offshore. So, we’ve seen that the amount of offshore leasing has been much slower in this administration so far. So, it’s both. And, of course, right now, there’s all the excitement around that bill that is called the Inflation Reduction Act for some reason about all the kind of tax credits that would be available for renewable development.
Do you have a view of how this new set of policies is realistically going to open up some of the ability to lay down pipelines, build some of the infrastructure? In other words, how much of a compromise was really made here to allow pragmatic things to happen?
Well, it’s still very much being fought out. I mean, permitting is a big issue. It’s a big issue for the oil and gas industry, for pipelines. It’s a big issue for renewables being able to connect offshore wind to shore. So, around the world, but certainly in the United States, permitting is a kind of unseen battleground over future energy development. And, in terms of natural gas, the US doesn’t have any shortage of natural gas, but what it has is a shortage of natural gas pipelines.
Chapter 15: Is Russia Politically Stable?
Angela, we recently had a discussion with Tom Friedman of the New York Times. And one of the things he said was that we used to live in a world of a dangerous but stable Russia, and that was the Soviet Union. We then lived in a world of a hopeful but unstable Russia. That was Yeltsin’s democratic experiment. Then we lived for the last 20 years with Vladimir Putin, and for the first time, it seems like the stability of Russia is literally on the table. That was the case he made. So, I want to get your assessment. How unstable has Russia become domestically? And which way do you think this is breaking? Is it going to be a dangerous but stable Russia, a hopeful but unstable Russia, or a pariah Russia also armed with thousands of nuclear weapons spanning 11 time zones?
So, I would say that, for the first few months of the war, Russia still looked pretty stable. It’s a highly personalized regime, people have to realize. There really aren’t any institutions of the state that function. And therefore, when you look back, by the way, at Russian leaders and Soviet leaders who’ve been removed from power, like someone like Khrushchev or even Gorbachev, there were institutions that got together, discussed it, and voted and removed them. There’s no such thing in Russia now. So, highly personalized and, therefore, potentially really quite unstable. But the situation appeared to be stable enough because those who didn’t like the war, as I mentioned before, 400,000 of them have left. And those that remained there didn’t necessarily support the war, but about 50% of them, according to public opinion data, kind of were indifferent. They just closed their minds off to it. They didn’t think about it, and they just went along with their daily lives. And this is why most of us predicted that Putin would not go for general mobilization. Because once you start trying to conscript the educated in the major cities, there’s going to be much more resistance, as there was during the Soviet-Afghan War. But Putin has now thrown caution to the wind and done that. And so, what you’ve seen playing out in Russia since they started this mobilization is you see protests, as I said. You see recruitment stations being set on fire. You see Russians fleeing. So, the sense of stability now really must come into question.
Now, that doesn’t mean that Putin is about to be removed from power or that there will be a popular revolution. A large number of people who are being conscripted now—and this was true in the beginning of the war, too—are from the very poor areas of Russia, the benighted areas of Russia, and they’re non-ethnically Russian, but they’ve also started now protesting much more than they did before. So, if I were Putin sitting in the Kremlin, I would not feel that I had everything under control, even though you have the instruments of repression that are there. If you watch the videos, you’ll see that the protesters are beaten up by the police. So, it’s not as if those repressive instruments aren’t there. But so far, this hasn’t congealed into a countrywide movement. We’re not at a street revolution yet.
Which other countries would really be prepared to support the current regime if it comes under pressure? Well, we now know that Iran has said that it completely supports Russia. North Korea completely supports Russia. I’m not sure that they’d be able to ensure that Putin stayed in power. And for China, it’s very difficult. Xi Jinping and Putin may say they’re best friends, although it’s very unlikely that two autocrats like that are really best friends. But from Xi Jinping’s point of view, it’s very important to have someone like Putin in power. In other words, someone who wants the close ties to China and has an antagonistic relationship with the West. So, from China’s point of view, the worst nightmare would be to have a successor to Putin who reconsiders Russia’s very aggressive stance toward the West. We may find that impossible to imagine, but it’s theoretically possible. So, a successor who would say, “Maybe we really should improve ties with the United States and other Western countries and distance ourselves a little from China,” that would be the nightmare for the Chinese leadership there.
So, they will want to have someone in power, in the Kremlin, that still wants to pursue this strategic partnership with China, really very much as a junior partner. I mean, Russia’s become much more dependent on China, certainly, since the war began. But again, I think the Chinese would have limited influence in the outcome in Russia. And I would say that the people immediately surrounding Putin, if one of them were to be his successor, they have less invested in this relationship with China than Putin himself has. So there’s not much that the external world, I think, can do either to impact what happens inside Russia or to impact who might succeed Putin. And I do think that Russia is more unstable now. And I think with all of these blunders in the war, Putin’s position really looks more precarious to me.
Chapter 16: Putin’s Potential Successors
Angela, coming back to something you mentioned there, which is the highly personalized nature of it. Can you give us some sense of what succession in Russia looks like? Are there successors? What are they like? Just some sense of that would be great.
I recommend everyone to see the movie The Death of Stalin to get a sense of what happens in some successions. So, Putin has deliberately not chosen a successor because he hasn’t wanted to be a lame duck. And from time to time, a name surfaces and people say, “Wow, it’s that governor or this governor,” and then somehow their name disappears, and they aren’t a successor. So, a lot of people believe that if this war continues to go badly and Putin is removed somehow, you’d have a collective leadership in the beginning. And those people would probably be the people who are surrounding him now, men like the Security Council Chair Nikolai Patrushev and men like the Defense Minister Shoigu, the head of the foreign intelligence service and domestic, Naryshkin and Bortnikov. That’s probably four or five people who might have a kind of collective leadership and would probably continue in the immediate period of time to prosecute the war but might find ways in the end of sort of pulling back and trying to negotiate something. So that’s one scenario.
In the longer run, there is a group of technocrats waiting there, starting with the Prime Minister Mishustin or Sergey Kiriyenko, who’s now a deputy presidential head, who was once prime minister briefly in 1999 and then head of the atomic agency. But both of those people would be potential successors, and they are somewhat younger. And in the sense that they’re technocrats, they again would focus more on the economy and recognizing that if you want to grow the economy, having such an antagonistic relationship with the West is really counterproductive. So that would be the kind of next echelon of people. They don’t come from the security services, unlike the people who surround Putin now, and they would have a more pragmatic view of the world. Not that they’d be pro-Western, but it might be easier to deal with them.
Now, beyond that, it’s anybody’s guess. Russia always surprises us. And if you did have a change in regime that was brought about more by the streets, then of course there are any number of opposition leaders, starting with Alexei Navalny, who, of course, is in prison now for a long time, who would be contenders for that, were he let out of jail. But then you’d have an extremely unstable situation in Russia. I think that, even if you have collective leadership following Putin, the recipe for instability is there. I go back to what did happen, in fact, after Stalin died, which is you had three or four people who really thought that they should be the head of the Communist Party of the Soviet Union. And there was huge tension between them, and one of them was then executed by the others. So, it’s even in what looks like a managed transition, it could unravel and there could be greater instability.
Chapter 17: Putin’s Relationship with the Oligarchs
So, you’re talking about the technocrat landscape, the political landscape. How about the relationship with the oligarchs? A lot was made back in February and when the initial sanctions were put in place on asset seizures and the like. What’s the relationship with the oligarchs in Russia, between Putin and the oligarchs? And how do they play into it, if at all?
At the pleasure of the czar—it was always like that in Russian history for hundreds of years. And so, when the sanctions were put on them, they weren’t happy about it, they’re not happy to lose their bank accounts and their yachts and their homes in Saint-Tropez. But they really don’t have very much influence. These are not people who are in the inner circle who are making decisions. I’m sure that this group of people—I mean, they’re different oligarchs, but the oligarchs would be much happier if the war were somehow to be able to come to an end. And then some of the sanctions would be lifted and they could continue the lives that they lead, which is moving freely between Russia and Europe, Russia and the West. Even someone like Roman Abramovich, who was the former owner of Chelsea Football Club, who was apparently involved in this latest prisoner exchange, they certainly have communications with the Kremlin and with Putin. But it’s not as if they really have any influence over decisions.
I remember at the beginning of the war all the journalists asking, “Oh, all the oligarchs are sanctioned. Are they going to get together and say, we have to get rid of this man?” That’s not how it works in Russia. I used to go to these annual conferences where we had discussions with Russian colleagues, and then we met Putin at the end and had dinner with him. And a couple of times it was very clear to me there was one oligarch who was said to be close to him who funded much of these programs. And Putin very dismissively saying, “Oh, that’s just one of our oligarchs,” but in a really pretty sarcastic way. And he’s made speeches since the war began, basically saying if these people are making their money in the West, they only care about themselves, not about Russia. So, he has contempt for most of these people.
One of the things that’s interesting is that many of these oligarchs have had sudden “accidents” that have caused their demise. And there’s also the assassination of the daughter of one of the most famous Russian nationalists. What do you think is going on here?
Defenestration is a real problem, right? And if I’m a wealthy person, maybe I own a home on the first floor. I mean, I’m afraid to say we really don’t know. I think in the case of Dasha Dugina, who is the daughter of one of the extreme supporters of Putin, who actually criticized Putin for not being tough enough in Ukraine. First of all, we’re not sure whether the bomb was actually supposed to be for her or for her father because suddenly they switched cars and she was driving his car. I think most people believe this was a sign from the FSB, from the domestic intelligence services, warning these people who were criticizing Putin from the right, if you like, that they should cease and desist and not criticize him for not doing more.
In the other case, I know one of the companies where a couple of executives were killed or died mysteriously, falling out of windows, was Lukoil, which is a private oil company. And that could have something to do with—whose former head said after day one of the war, “We need to have peace talks”—trying to maybe take over that oil company. These can also be business disputes among businesspeople themselves, or it could be the Kremlin. And I think the signal always is, if we don’t like what you’re doing, we have ways of silencing you, and then always leaving it with this kind of ambiguity that you don’t really know who did it.
Chapter 18: The US Response to a Russian Nuclear Attack
And then one final question from me. It’s been reported that the Biden administration has explicitly warned Russia what the response would be if they used any sort of weapon of mass destruction, whether it was a strategic or a tactical nuclear weapon. Do you have any sense of what that message might have been and whether it’s created a sufficient deterrent quality?
So, I think the message probably has to do with attacking Russian conventional facilities. So Russian bases in different parts of Europe, maybe. Maybe something inside Russia. Obviously, we don’t know the details, but there would be a US military response on Russian military targets, definitely. The US is not going to respond with a nuclear weapon. Now, is that enough to deter Putin? I think most people believe that we have to just be explicit. I mean, that Russia, I think, losing its seat on the Security Council of the United Nations, which has been one of the ways in which it’s exercised influence above its weight, if you like. I don’t know. I mean, sanctions, although we’ve sanctioned Russia enough already, there are more sanctions. But I think mostly it would focus on a non-nuclear US and NATO military response, and the hope being that this would definitely deter Putin.
Wow. Angela, Dan, thank you both so much for a really enjoyable and insightful discussion. We really appreciate your continued insights, the time you’ve taken today, and we look forward to seeing you whenever you’ll come back.
And thank you very much. Enjoyed being back, in my case, to have continued the conversation that we started last year.
And I want to thank you very much, and I’ve enjoyed it.