“Geopolitics,” coined in 1904, meant “the study of how factors such as geography and economics influence politics and relations between nations.” Now it means politics among (not just between) nations and rivalries for international power. A geopolitically successful nation delivers on promises to allies and threats to rivals — or loses allies and strengthens rivals.
A case in point: Putin aims to restore Russia to his view of glorious empire. He ignored Russia’s signature on international guarantees of Ukraine sovereignty, annexed Crimea and sighs for “New Russia.” Stunned at first, the US is working to restore balance by diplomatic efforts, agreeing to base troops in Poland, and urging NATO allies to expand sanctions against Russia.
This is Cold War geopolitics anew. Crimea is probably permanently Russian, but Putin may prefer Ukraine as a no-threat neighbor and irritant to the West. That may satisfy all but Ukraine. So what’s the outlook?
Russia has a monopoly on natural gas supply to Ukraine, and provides 12% of all gas to Europe. But Russian shut-offs in 2009 spurred European supply diversification and cross-border pipelines. Those facts may give Putin pause and ease his aggressiveness.
Further trade sanctions could impose pain on Russia; and European nations and the US. Carter’s 1980 wheat embargo (over Russia’s invasion of Afghanistan) hurt Caterpillar and American farmers, as foreign grain growers and tractor makers gained. Sanctions are always iffy, and in this case, US companies are acting as info conduits so State will be aware of the full range of implications of any new sanctions.
The US has one major trump card: all oil and natural gas sales are paid in US dollars, so US sanctions on international transactions could virtually halt Russian gas sales and slash all Russian income. But virtually every European nation would be hit hard; they and US companies oppose taking that step. The club is in the closet, and all parties know it. But it’s a last-resort item.
Booming US gas production should help deter Russia, and the politics is lining up. The US (not Russia) is now the world’s largest gas producer; it will be the largest oil producer by 2020, and production of both will grow for decades. State and the NSC have new groups working on energy initiatives to slow Russia (despite the President’s non-decision on exports of oil or liquefied natural gas [LNG]). The Department of Energy has granted 7 LNG export licenses, and enormous new gas supplies across the USA have lowered domestic prices for that premium fuel. To make a consensus, Congress has held hearings and may repeal laws banning export of oil and LNG. In this case, all US companies and our allies would be beneficiaries.
All will take time; the first US LNG export facility will not ship until late 2015 and others will come on line slowly. LNG facilities are enormously expensive, and all customers must have signed contracts before any bank will loan hundreds of billions of dollars to finance construction. But demand is growing, and prices of LNG imports are $16/ million British Thermal Units (MMBTU) in Asia, $12-$14/MMBTU in Europe – and about $3-$4 in the United States. DOE will give more permits, new trade agreements will mean more exports — and all studies project that LNG exports will increase US production, so domestic users will have plentiful supply at costs within their economic target range.
In fact, companies that use natural gas as feedstock or fuel (including some that oppose exports) have been “reshoring” facilities from overseas due to plentiful supply and lower prices. US shale-oil fields in Texas and North Dakota “flare” (burn off) the cheap gas that comes with their oil, because there are no domestic pipelines to move the gas to economic US markets. Regulatory delays in permitting such pipelines are partly to blame for the widespread flaring; but rapid production growth of both oil and gas plays a significant part. With exports, flaring will end; it will be economic to pipe that gas to new demand at home and overseas.
One US company will pay $600 million to buy out of a 20-year contract for imported LNG and will shift to domestic supplies. Others will follow, and as contracts are cancelled, exporters must redirect shipments and/or adjust prices. The ripple effect on international prices has long-term implications for Russia, but it is already being felt, and Russia has few or no alternatives to its waning monopoly.
So we are watching a new geopolitical struggle without arms races or huge military buildups, but a real one. The United States and its allies must work together; Russia must curb its aggression to avoid self-inflicted damage in the next few years and beyond. Much depends upon decisions in Moscow and Washington, but the outlook is hopeful.
