US-Russia: The New 'Cold War' on Energy

Despite political tensions between the White House and Republicans, the U.S. economy is climbing out an economic downturn thanks to the energy boom. According to last Friday’s report by the U.S. Department of Commerce, in the second quarter of 2013, the economy did not grow by 1.7 percent, as announced a few weeks ago, but 2.5 percent. From April to June, exports grew at a faster rate than in the last two years, reducing the trade deficit to 2.7 percent of gross domestic product, less than half compared to the 6 percent peak reached in 2005.

The boost in exports is due to the sale of foreign products, not services. At the top of the list, there is oil and all its derivatives — oil, which Americans produce through “fracking,” the new technology they invented. Until June, Washington exported an average of 99 million barrels per month, about four times as high as the level of exports 10 years ago.

In 2011, after 60 years, the U.S. was finally able to become a net exporter of petroleum products again. National production also helped give a big boost to refined products that previously depended on imported crude oil. Apart from the 3.5 million barrels of crude oil shipped through the pipeline in Canada, the U.S. exports refined products with a higher added value, namely gasoline and diesel. New consumers include many emerging economies: India, Brazil, China and Turkey.

The American energy boom is not just bringing into equilibrium the trade balance — a phenomenon that has not been seen since the days of the Cold War — but it is also a source of tension with Russia and, therefore, in a sense, helps recreate the atmosphere of political tension between the two former superpowers.

Today, Russia can be defined as a “petro-gas” state, a nation whose economy is dependent on energy resources. According to statistics from the European Bank for Reconstruction and Development (EBRD), at the end of 2012, oil and natural gas accounted for 70 percent of Russian exports, while in the ’90s, they were less than 50 percent. About half of government revenue and 17 percent of its GDP comes from the energy sector. Gazprom, the Russian energy company, accounts for 14 percent of the total capital in the Russian stock market.

Not only is this nation the foremost producer in the world of energy and only second to the U.S. in natural gas, it is also the leading exporter of these products. However, this record is dwindling because of American competition and is doomed to disappear in the long term. According to a study by the EBRD, Russian oil reserves, mainly located between the Urals and central Siberia, are in fact able to sustain their current production rate for only another 20 years. Unlike the Americans, the Russians have not even begun to invest in fracking to extract the reserves of eastern Siberia.

Putin is well-aware of this situation, but he does not have a solution. Until now, his strength and that of his loyal supporters rested on energy resources. If these are reduced or disappear, Putin’s popularity may be affected — and that would explain the return to Cold War tensions and anti-American propaganda, perhaps a desperate attempt to maintain his hold on power on ideological rather than economic foundations.