When U.S. President Joe Biden took to the podium in the first hours of the Russian invasion of Ukraine, he spoke of a blitz of sanctions designed to isolate and cripple the Russian economy, and ultimately stall the Russian war machine.
Noticeably absent from the long list of deterrents — which even included personalized financial penalties levied against Russian President Vladimir Putin, his inner circle and oligarchs alike — was Russian energy.
Russia currently supplies 47 per cent of natural gas used in Western Europe and exports five to six million barrels of crude oil a day. With Brent crude cresting over the $100-per-barrel mark, that's roughly $5 billion of revenue every day just for the oil.
According to Joseph Doucet, a University of Alberta energy economist and dean of the College of Social Sciences and Humanities, however, it’s precisely the surging price of oil that is keeping energy off the negotiation table.
“When we started into the pandemic almost two years ago, people speculated and forecast on how much of an impact there would be on economies and thus the demand for oil,” said Doucet. “And people were probably at that point overly pessimistic.”
As weeks of the pandemic morphed into months and then years, a lot of production was halted, including several million barrels of shale gas production in the United States.
“Demand has come back more quickly than anticipated, supply not so much,” said Doucet. “And because of that, prices have been driven up.
“Oil prices — and actually more, gasoline prices — are sensitive politically everywhere, but even more so in the U.S.”
Political science professor Greg Anderson said hardships at the pump turn into anger in the voting booth and beyond, citing inflation as one of the proximate causes of the 2011 Arab Spring.
“Inflation is incredibly corrosive for the party in power,” he said.
“Six dollars, seven dollars, eight dollars a gallon, I don't know how high it's going to go in the U.S., but these are revolutionary prices. I don’t know if it will get people into the streets, but it certainly will get Democrats thrown out of office — not that Joe Biden can do anything about it, but voters always blame the party in power.”
Even if Russian oil were to be sanctioned, there is some debate as to whether sanctions work, Anderson noted.
“Sanctions are antiseptic. You don't have to put boots on the ground, you're never going to see body bags coming home. Sanctions are these easy financial things that everybody hopes are going to work. They pinch, there's no doubt about it, but the problem with sanctions is that, by and large, they pinch the wrong people.”
The wrong people, according to Anderson, are everyday Russians lining up at ATMs to find that there is nothing in them, or that their assets are frozen.
“Do they go out in the streets and complain and overthrow the government? Maybe. But that doesn't happen very often and even where it has, the results have been mixed.”
It’s been estimated that Putin has amassed currency reserves in the neighbourhood of $600 billion to $700 billion. And though some of that may not be accessible thanks to the sanctions, Doucet said China, and others reliant on Russian oil, are unlikely to stop buying.
“Canada announced recently that we are not going to import Russian oil, but we don't import very much, so it's kind of a non-issue and that’s the same for the U.S.,” said Doucet. “But China is a net importer of oil. China, I would speculate, will continue to buy Russian oil.”
And while Putin has been immunizing his economy, and certainly his power base inside Russia, from the western sanctions for quite a few years, Anderson said the dictator has also calculated that the West no longer has the stomach to help out to save Ukraine.
“Ukraine is not a NATO member and then on top of that, what sort of genuine economic interests does the United States, for example, have in Ukraine?” he said. “The U.S. just got out of Afghanistan, and nobody wants to go back into battle on anything.
“Ukraine is on its own in many ways.”
However, even with the nuclear threat looming large, Anderson said Putin overlooked one key element.
“It seems NATO is remarkably unified to me and suddenly has a new reason for being,” he said. “If Putin is successful in Ukraine, the threat to Poland and other NATO members is pretty obvious. It could concentrate and change people's views on what NATO ought to be doing.”
That also means a lot of soul-searching about where energy needs are sourced.
“I think that this could be a watershed moment for a lot of Western European energy markets,” said Doucet. “Even if Putin raised the white flag today, I can see the western world, particularly Western Europe, taking a deep breath and questioning their energy dependence.”
This could include Canadian natural gas, although Doucet noted Canada currently doesn’t have the necessary liquefaction capacity.
“It takes billions of dollars and many years to be able to build those kinds of facilities. So it's not going to happen this summer, but it may well be something that is more likely today than it would have been a year ago.”
For Canada over the longer term, Doucet believes Canadians will also want to rethink our energy self-sufficiency.
“We might see the Americans reconsidering Keystone, and Canada might want to reconsider a pipeline from Western Canada to East for crude oil,” he said. “Where the oil comes from is becoming more and more important.”