This article identifies the major factors that triggered aggression and what may unfold in future keeping in view the nature of Russia in the global energy supply chain.
Historical Background
Russia has been invaded several times in the past through Ukraine because it is vast and mostly flatland – like, attacks by Napoleon in the early 19th century and Germany in the World War II. The declaration of independence by Ukraine in 1991 once again exposed Russia to a potential threat. It felt even more insecure post-1990, when NATO decided to expand across Eastern Europe. Russia feared that Ukraine’s integration into NATO would bring it to its doorstep and restrict its access to the Black Sea. Unconstrained access to all weather ports with direct access to the oceans is an essential requirement of Russia’s economic security and strategic interests. Thus continuity of its lease on the “warm-water” port at Sevastopol in Crimea could not be compromised.
In 2004, a pro-Russian candidate won the presidential election. He was not allowed to assume charge due to rigging allegations against him. A pro-West candidate was thereafter elected as the president. A number of disputes arose between Russia and Ukraine, including commercial issues concerning the Russia–Ukraine gas.
The US-supported Ukraine's bid to join NATO was launched in January 2008. Russia, of course, strongly opposed it. During the Russo-Georgian War in 2008, the relations between the neighbours soured further due to Ukraine's support to Georgia, including attempts to block the passage of the Russian vessels to the warzone through Black Sea. In 2009, Ukraine announced a plan to revamp its gas infrastructure with the help of the EU -- without involving Russia, a major stakeholder. The US was continuously relishing the deteriorating chemistry between the two neighbours. Thus, in August 2009, it emphasized that Ukraine has a right to join NATO, when the Russo-Georgia war was hardly a year behind them.
In 2010, the pro-Russian Viktor Yanukovich was elected as the president of Ukraine. He extended the lease of the Russian naval base in Sevastopol till 2042. Later in 2013, he suspended negotiations on Ukraine’s agreement on free trade with EU, and entered into a Russo-Ukraine treaty for 33 percent discount in the gas price and loan of 15 billion USD by Russia. This ensued a mass movement, called ‘Dignity Revolution’, by the pro-EU/NATO lobby in Ukraine.
The movement, though questionable in certain respects, resulted in the ousting of Yanukovych’s government in February 2014, which was taken as a great setback by the pro-Russian lobby. Ukraine has at least 12 million ethnic Russians, and it is quite clearly divided with the eastern part still yearning alignment with Russia while the western with the EU. Thus the ‘Dignity Revolution’ impelled them to launch a movement especially in Crimea, where out of a total population of 2.3 million, more than 1.5 million is Russian.
Taking advantage of the situation, Russia annexed Crimea in March 2014, and also started fomenting trouble in two other regions -- Donbass and Luhansk -- through proxies.
Upon Russian entry in Crimea, Ukraine stopped supplying defense related components to Russia from its arms’ factories, followed by starting the construction of a defensive wall along the border with Russia in 2015. The same year Russia banned agricultural imports from Ukraine that, in return, declared closure of its air space to the neighbour.
Also, in 2017, an association agreement between Ukraine and the EU opened markets for free trade and visa-free travel to the EU for Ukrainians, whereas, in 2018, Ukraine banned entry of all Russian men under the age of 60. Also, earlier in 2017, the Ukrainian parliament had legislated to the effect that NATO membership is Ukraine’s strategic foreign and security policy objective. This was later, in 2019, also integrated into the country’s constitution.
In June 2019, the current president (Zelenskyy) appealed to Biden to let Ukraine join NATO, followed by approval of the new National Security Strategy in September 2020, with the aim of NATO membership as its pivot.
The tension continued to build up and started expanding to the Ukrainian border as well. On December 7, 2021, Biden spoke with Putin in the backdrop of the said tension, and threatened Russia with stringent sanctions if it attacked Ukraine. He then apprised Zelenskyy on the same, who thanked him for the “strong support”.
Russia later presented detailed security demands, including a legally binding guarantee that NATO would go back to the pre-1997 status. However, on January 24, 2022, NATO put its forces on standby, followed by Washington’s rejection of the Russia's demands. Ironically, on February 14, Zelensky urged Ukrainians to fly the national flag and sing the anthem on February 16 -- the date Russia was expected to invade Ukraine.
On February 21, 2022, Russia recognised Luhansk and Donetsk as independent states and ordered the deployment of Russian troops there, followed by a full scale aggression upon Ukraine only three days later.
Despite the abundance of natural resources, a highly skilled workforce and developed infrastructure, Ukraine’s economy has continued to contract since 1991. Its income per capita declined by over 40 percent from 1989 to 1997. The share of industry in Ukraine’s economy has significantly declined since 1991 from 50 percent of gross value added (GVA) to now 27 percent.
Russian Economy and Pertaining Energy Logistics
Russia has the distinction of being the world’s third largest producer of oil (10.5 milllion BPD) and the second largest producer of natural gas. Its natural gas production in 2021 remained (50 BCFD). Some 50 percent of which was consumed locally, while exports to Europe outside the former USSR remained at 18 BCFD. Russia supplies about one third of European gas consumption and 25 percent of the EU’s oil. Germany alone gets more than 50 percent of its natural gas and 30 percent of its crude oil from Russia. For some countries this dependence is even higher. For example, Finland, Bulgaria, Italy, Poland and France respectively import 94, 74, 70, 46 and 24 percent of natural gas from Russia.
The Netherlands, Germany, Poland, and Belarus purchase majority of the oil from Russia, more than 70 percent of which comes through pipelines crossing Ukraine.
Within Asia, China accounts for 15.4 percent (1.6 million BPD) of Russia’s crude oil exports; 40 percent of which is imported through a 4,070km-long pipeline. Russia is also China's No. 3 gas supplier (average off-takes is 1.6 BCFD) and No. 2 coal supplier. Similarly, Russia was South Korea's the fourth largest crude oil supplier (51 million bbl) and the second largest coal exporter in 2021.
The other major energy buyers of the country are Japan and Vietnam.
The US has also emerged as a major buyer of Russian oil -- some 11 percent of the US imports in 2021. They have increased after the US sanctions against Venezuela, which amply highlights the maneuverability constraints of the global energy supply chain.
NORD STREAM 2 AND US And UKRAINE
The Ukrainian gas transmission transit system, comprising of 38,550kms of pipelines, including 13 underground gas storages, connects Russia with Europe. In 2009, a commercial dispute between the two countries had temporarily disrupted gas supplies to Europe. According to Russia, it compelled them to diversify with alternates like Nord Stream, which further added to the existing mistrust. For example, in 2019, Ukraine undertook unbundling of Naftogaz, Ukraine’s oil and gas national company. Contractually, any change in the transmission network operator required the consent of Gazprom, a Russian majority state-owned multinational energy corporation. To avoid that Ukraine allowed the said contract to expire before the new operator took charge in January 2020, instead of duly engaging them as a stakeholder.
Till 2017, 50 percent of gas supplies to Europe were made through this route.
However, the above factors are urging Russia to fast develop viable alternates. In the given backdrop, in September 2021, Gazprom completed construction of the Nord Stream 2 (cost: 10 billion USD, capacity: 6 BCFD), which runs across the Baltic Sea from Russia to Germany, parallel to the existing Nord Stream of equivalent capacity. The two can fulfill 25 percent of all the EU’s gas requirement.
The US apprehending the increased leverage of Russia tried to block Nord Stream 2 earlier by imposing sanctions; which Germany later got lifted. Also primacy of this route over the Ukrainian route would deprive Ukraine from the pertaining pipeline tarrifs (3 billion USD per year). Thus, the US and Ukraine are both against Nord Stream 2.
The current situation is an undue hindrance to Germany (current GDP: 4.2 trillion USD per year) whom the circumstances forced to put on hold the intakes through this pipeline.
Ukraine is also a critical route for oil flows from Russia to Europe. In 2021, alone it shipped 77 million barrels to the EU and 5.1 million barrels to Belarus.
Revenue from the above sector is responsible for more than 40 percent of Russia’s federal budget. The same has helped Russia accumulate 630 billion USD in foreign reserves.
Economy Of Ukraine
The per capita GDP (13,943 USD) of Ukraine is the lowest in Europe, with Luxembourg (per capita GDP: 122,740 USD) at the top. Its GDP was 83 billion USD in 1990 and 155.58 billion USD in 2020.
The impressive economic essentials of Ukraine come as a surprise. At present, industry’s share in Ukraine’s GDP equals 29 percent; while services and agriculture account for 59 percent and 12 percent, respectively. In the industry, heavy industry holds primacy, contributing 70 percent of Ukraine’s industrial output. Ukraine provides one-tenth of Europe's steel imports -- thus any supply disruption to the same can cause shortages and price hikes.
Further, the world's number one steel producer has the largest steel plant in Ukraine. Besides steel, the country has well-developed value chains of manganese, aluminum, oil and gas, coal mining, chemicals, mechanical products (turbines, locomotives and tractors) and shipbuilding. The renowned aircraft company Antonov is based in Ukraine.
In agriculture, even at present it accounts for 13 percent of global corn exports.
Regarding oil, it touched 300,000 BPD in 1972. The same has come down to 10 percent now due to a reduction in the exploration activity for new reserves, primarily due to shortage of funds. In 1980s, it had 6 refineries (capacity: 60 million tons/year). Only two are currently operational. Also, it has vast gas reserves (32 TCF) for which it is currently partially dependent upon Russia.
Ukraine could easily have been a super power if it was not butchered the way it has been since “independence” in 1991. With an area of 603,548 km², it is the second largest European country. Pre-1991, it had an exceptional role in the economy of USSR with a highly developed industry.
Despite the abundance of natural resources, a highly skilled workforce and developed infrastructure, Ukraine’s economy has continued to contract since 1991. Its income per capita declined by over 40 percent from 1989 to 1997. The share of industry in Ukraine’s economy has significantly declined since 1991 from 50 percent of gross value added (GVA) to now 27 percent.
Misplaced Priorities
Despite of its immense economic challenges its defense expenditure has grown 10 times during the past two decades. Although, by 2020, its total debt stood at 148 billion USD in 2020. According to its 2021 budget, we observe an allocation of 11 billion USD for defense and domestic security out of the total budget of 47.65 billion USD. It increased its army by 126 percent between 2014 and 2020 in addition to augmenting other associated segments. Also, the volume of Ukraine’s trade with Russia came down from 35 percent of the total in 2010 to 8 percent by 2010, which is indeed alarming; especially when they have an extended common history.
Expansion of NATO
During negotiations about the unification of Germany, the apprehension of NATO’s further expansion was a major undercurrent. Categorical assurances were given that there would be no expansion to the East, which continued till Clinton assumed charge in the US.
In view of the President’s intent and associated steps in that direction on June 26, 1997, a group of 50 foreign policy experts that included former senators, retired military officers, diplomats and academicians, sent an open letter to Clinton opposing the NATO expansion. The letter stated, “Russia does not now pose a threat to its western neighbors… For this reason… this ill-conceived policy can and should be put on hold”. The letter also recommended “supporting a cooperative NATO-Russian relationship”.
During the debates, it was repeatedly highlighted that it would alienate and antagonise Russia compelling it to react. Most of the existing NATO members, that hoped the end of Cold War, would enable them to divert the funds to social development, were also not supportive of the expansion. However, with the support of the American military industrial complex, the issue assumed center stage in the US presidential elections of 1996 with vice president of Lockheed Martin, then serving as the head of the US Committee to Expand NATO, able to make the push.
Resultantly, three countries, including Poland, were admitted into NATO in 1999, followed by another admittance round in 2004, when seven more were included.
Throughout, the saner voices kept reminding that it was fast shrinking the margins with respect to the US reaching to an amicable arrangement with Russia. However, egged on by triumphalism, we observed urgency in isolating Russia and taking NATO to its doors. It was nothing else but a deliberate provocation.
The speech Putin delivered in the Munich Security conference on February 10, 2007 should have sufficed for the West to see what was building up in the Russian leadership’s mind. He said, “NATO expansion… represents a serious provocation that reduces the level of mutual trust. And… against whom is this expansion intended?” He also read out an excerpt from the speech of NATO General Secretary in Brussels in 1990, “the fact that we are ready not to place a NATO army outside of German territory gives the Soviet Union a firm security guarantee”. He then asked the audience, “Where are these guarantees?”
However, completely ignoring the above concerns as well as the fundamental principle of inclusivity and engagement as the cornerstones of democracy, the US and NATO continued the expansion spree. Thus, during the NATO summit in Bucharest in April 2008, the US president supported offering a Membership Action Plan (MAP) to the two Russian neighbours -- Georgia and Ukraine. Though, highlighting the potential objection of Russia, Germany and France opposed it; but, the proposal was principally agreed on and it was decided to discuss the MAP in December 2008.
Reacting to that, Putin stated, “would be taken in Russia as a direct threat to the security of our country".
The first tangible reaction came in the form of the Russian attack on Georgia in August 2008.
A number of European countries were calling for the review of sanctions imposed on Russia after the annexation of Crimea, and before the current war started. European political leaders have been vocal against the sanctions. Some of them have frequently criticized the US in this regard.
Sanctions
Keeping in view the global significance of Russia’s energy supplies and minerals, associated economic relations and joint ventures in and outside Russia, any long-term sanctions would only prove to be counterproductive because of their disruptive impact on the supply chains globally. Credible evidence exists to corroborate that those levied after the Crimean aggression failed to deliver. In 2018, the US was compelled to lift the sanctions it imposed on the world’s second largest aluminum manufacturer. Also, in 2014, against the sanctions imposed, Russia stopped all food imports from the EU, US, Norway, Canada and Australia, which has seriously impacted the farmers.
A number of European countries were calling for the review of sanctions imposed on Russia after the annexation of Crimea, and before the current war started. European political leaders have been vocal against the sanctions. Some of them have frequently criticized the US in this regard. In 2017, Germany and Austria criticized the US over new sanctions against Russia targeting Nord Stream 2. Their joint statement stated, "Europe's energy supply is a matter for Europe and not for the United States of America”.
The above enumerations amply reflect the continued provocation Russia was subjected to since mid-1990s. They resisted for long until, flush with oil money, they caught the bait instead of adopting the path of aggressive diplomacy and mobilization of public opinion. The death and destruction currently caused may ingnite ethnic divide in Ukraine.
The events also reflect abject irresponsibility and failure of diplomacy on the part of all the stakeholders. They could see this coming and were serving as catalysts to expedite the climax instead of taking measures to cool down the situation, and try to achieve a balanced, win-win settlement.
The lack of required understanding and statesmanship on the part of the Ukrainian leadership also contributed in bringing the war on. They literally allowed themselves to be played in the hands of others and that too for decades. They needed to be pragmatic and focus on the accelerated development of their country. Some of the acts of Zelensky simply fell in the category of black comedy, such as when war was imminent he let Biden aggravate the situation and then he thanked him for the “strong support”. Later, when Russia was about to attack his country, instead of picking up the phone and attempting to engage with Putin, he asked his nation to fly flags and sing the anthem.
Ukraine may prove to be an experiment for some. But, for Ukrainians, it has only brought destruction. Russia may succeed in conquering the country, but may lose hearts forever. Is that what Putin really wants?
The war may end soon. However, for Russia, the long-term consequences of the aggression may prove challenging. This should be a concern for other European stakeholders, such as Germany.