At The Arctic Circle

In 2013 I found myself in the Arctic circle aboard a US nuclear submarine. We had just crashed through a 5-foot thick sheet of ice. I was looking out from the submarine’s sail (bridge) at a seemingly endless icy horizon. Somewhere, hundreds of miles across the frozen plain, there was a Russian Special Forces operative staring back. These two arctic commandos looking towards each other across the vast tundra of the arctic represented a neo cold war that was developing at the top of the world. The US and Russia (and Canada, Norway, Sweden, Finland) all lay claim to the Arctic circle. Over the last decade one of the coldest, harshest environments on earth, has been heating up. Russia commissioned a new Arctic Special Forces brigade, US submarines conduct annual arctic exercises, and the other littoral nations have ramped up their cold-weather capabilities. While there is a geo-strategic reason for competition in the arctic circle, there is an even stronger subterranean rationale for competition in the far north – energy.

It is believed that over 13% of the world’s undiscovered oil and almost a third of global supplies of natural gas lie below the arctic sea bed. In a cruel twist of nature, as fossil fuels are burned they contribute to climate change. This in turn melts more sea ice, which allows easier access to even more fossil fuel. It’s a vicious loop.  In 2007 a Russian submarine planted a flag on the bottom of the seafloor in an area known as the Lomonosov ridge. While planting a flag almost 14,000 feet under the arctic was a symbolic act, the message was clear. Russia was staking a claim to massive untapped energy reserves in a quest to be one of the world’s largest suppliers of oil and natural gas.

That quest for resources is once again the center of the world’s stage with the unfolding crisis in Ukraine. While Russian tanks roll towards Kyiv, the economic battle lines are the real subplot of the conflict. Russia, in part thanks to its exploitation of places like the Lomonosov Ridge, supplies over 40% of Europe’s natural gas and over 10% of the global crude oil supply. Especially in a country like Germany, which relies on Russian gas for real heat during cold winters, enforcing export sanctions has a human cost. The NATO countries and the international community seems reluctant to challenge Russia’s aggression with military force. Ukrainian President Zellensky has begged the international community to enforce a no-fly zone, but the West’s response has been to meet Putin’s aggression with economic consequences by imposing increasingly severe sanctions but holding short of their energy production. As the Russian Army circles Kyiv like an anaconda sizing up its prey, the international community is trying to choke out Russia’s community by targeting their economy. This only works if countries like Germany have other alternatives for energy consumption.

Attack Russian Oil And Gas Exports To Defeat Their Military

The challenge for western nations opposed to Putin’s aggression in Ukraine has been to offset Russian exports with other suppliers. The global energy community has been doing just that. Liquid Natural Gas facilities, which are not traditionally a large part of the European energy picture, have been ramping up production for months. A natural gas facility in Rotterdam was operating a year ago at 5% capacity. They are currently near 100% capacity. The United States has also been ramping up deliveries to the European market. Just last month over 100 tankers from the US and Qatar arrived on European shores carrying Liquid Natural Gas (LNG). There are some supply chain issues (refineries and even ship berthing are a choke point) but the massive availability has certainly compensated for Putin’s previous stranglehold on continental resources. This action is surprisingly not completely benevolent, rather it is a product of market forces. The price of crude and natural gas has risen dramatically in the last few months creating a lucrative market for suppliers to move towards previously ignored European markets. Suppliers have seized on this profit potential (ironically the price rise has until just now, benefitted Putin the most, helping fund his offensive). This is one of the many ways in which market corrections are baked into a conflict before the shooting actually starts. As the sanctions continue to be layered into more and more domains of the global economy, it seems inevitable that despite attempts to offset, the constriction of a supplier as large as Russia will be felt. This week, European natural gas prices hit an all-time high. Futures linked to TTF, Europe’s wholesale natural gas price, rose more than 50 percent to €185 per megawatt-hour. The price of crude oil has been impacted as well. On March 1st, only a week into the invasion, oil has crested $100 a barrel. That price will be felt at the pump and beyond by people from Berlin to Boise.

Ukraine is Fighting For Its Very Survival In Part Because Its a Major Energy Market That Russia Covets

Ukraine is a country with abundant mineral resources including oil, natural gas, and coal, and untapped hydro and biomass potential. Despite its large population and high energy consumption, it’s still one of Europe’s largest energy markets. Ukraine also transits the most natural gas in the world, playing a major role in delivering Russian gas to European markets.  Read that last sentence again because it’s very important in understanding the war.  Ukraine has lots of gas, oil, and coal still in the ground and its pipelines carry the lion’s share of Russian oil and gas into Europe. Russia’s major source of dollars and Euros fueling its own economy comes from exporting energy to Europe.

Ukraine is now a country in a fight for national survival. Its fate will in part be determined by the effectiveness of sanctions placed on its enemy, the most important of them related to energy exports. There are a few signs of hope here. The sanctions appear to be having an immediate impact on some of the Oligarchs who are essential to Putin’s base of power. There is also an element of luck. Europe has had a relatively mild winter, meaning they are slightly less reliant on Russian energy exports than in years past.

History doesn’t repeat itself, but it often rhymes, and the echoes of another unprovoked invasion on the European continent almost 80 years ago are ringing in people’s ears. In that war, when the Germans opened up the Russian front, an extremely harsh winter bogged down the Nazis and saved the Russians from almost certain destruction. The war efforts and industries of both Germany and Japan were both ultimately dependent on oil and coal supplies that the Allies were successful in denying them.  Both countries found that they could not fuel their planes, ships, and tanks and they couldn’t keep the lights on in their own houses.   The world’s climate in 2022 is different than in 1943 when Germany turned on Russia. The 1940s saw some very long and very cold winters which increased the need for oil and coal to heat people’s homes and factories, making shortages even more acute for the Axis powers. Now, the same temperatures that are melting the ice in the Arctic and the Lomonosov Ridge, allowing Russia to extract more and more fossil fuels, are conversely lessening the demand for the energy resources that are Russia’s economic lifeline in this war. The harsh winters of 1943 in places like Stalingrad saved Russia from the Germans. The mild winter of this year may save Germany and the rest of the world from economic reliance on Russian energy. The global ecosystems of commerce, climate, and combat are colliding west of the Donblus, but the impact is reverberating far beyond the borderlands.

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