In the past two weeks, a Russian court overturned a 30-day suspension of shipments through the Caspian Pipeline Consortium conduit that carries mostly Kazakh crude to an export terminal on Russia’s Black Sea coast. The suspension, which I mentioned, would have removed up to 45 million barrels of crude from global supplies, worth more than $4.5 billion. But the fine imposed on the company in place of the suspension was only 200,000 rubles, or $3,200.
The successful call was undoubtedly a victory for the pipeline company and a relief for European refiners. But for the government of Kazakhstan and the foreign oil companies operating there, the threat of future disruptions has not gone away.
Feeds through the CPC system have already been interrupted twice since Russian troops invaded Ukraine on February 24. At the end of March, the terminal was partially closed for a month after a storm reportedly damaged two of the three loading buoys. Then in mid-June the cargoes were again suspended from two moorings for a survey of the surrounding water area, which led to the discovery of a number of World War II mines. A skeptic might have expected mine clearance to have been a priority when the buoys were first installed.
What worries European nations even more is that the hand of the Kremlin firmly controls gas flows from Russia. For most of last year, deliveries were around 400 million cubic meters per day. This abruptly dropped by around 25% as winter approached, with reduced flows on the Yamal-Europe pipeline through Poland. They fell again in January, when volumes shipped via Ukraine were also sharply reduced. By June, total pipeline flows from Russia to Europe had fallen to around 40% of normal levels, falling below 20% in the past two weeks as the Nord Stream pipeline was shut down for annual maintenance.
Fears that the line directly from Russia to Germany will not restart once work is complete are allayed — for now. Shipments along the route resumed on July 21, but President Putin was quick to warn that they could slump within days unless a turbine sent to Canada for maintenance is returned before the one of the others on the line is taken out of service.
The threat of gas flow disruptions remains very real.
And then there is the agreement to allow grain shipments from Ukrainian Black Sea ports. While any agreement to restore these vital exports is welcome, be under no illusions that they cannot be stopped at any time. The theft of Ukrainian grain by Russia is well documented, as is the wanton destruction of crops in the fields.
Russia’s apparent setbacks from the brink in these three areas should be treated with caution. Just because the weapons weren’t used this time doesn’t mean they won’t appear later.
Much like the nuclear missiles that Putin and his henchmen continue to threaten to use, much of the leverage gained by Russia’s ability to cut off food and energy exports lies in uncertainty. created by the possibility of their use, rather than in their actual use. Once used, although devastating, the threat disappeared. By keeping them in reserve, the pressure can be maintained almost indefinitely.
Expect Russia to continue to threaten oil, gas and agricultural flows as winter approaches, although this does not limit them.
More from Bloomberg Opinion:
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• Struggling to stay cool? The same goes for the generator that powers your air conditioning: David Fickling
• High fossil fuel valuations are a political weapon: Mark Buchanan
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Julian Lee is oil strategist for Bloomberg First Word. Previously, he was a senior analyst at the Center for Global Energy Studies.
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