November 23, 2022

Energy shutdowns in Sri Lanka and Russia point to global ‘perfect storm’: Peter Apps

(Views expressed here are those of the author, columnist for Reuters)

LONDON — As protesters stormed Sri Lanka’s presidential and prime minister’s residences on July 9 over shortages and the economic crisis, social media users across the Middle East speculated whether their governments would be the coming – as markets braced for a shutdown of Russian gas to Europe and blocking crude oil exports from Kazakhstan.

Nearly five months into the Russian invasion of Ukraine, ground fighting is expected to continue to rage throughout the summer, with Russian troops steadily advancing into Donbass under heavy artillery support while that Ukraine would hit Kremlin fuel and ammunition dumps with long-range Western weapons.

Last month, the Global Crisis Response Group set up by United Nations Secretary-General Antonio Guterres in March warned that the war had supercharged pre-existing crises caused by the pandemic, regional climate change and the rising national debt to create the worst cost of living crisis in years. history, plunging some countries into a “perfect storm”.

Sri Lanka is now showing what that can mean, with Ukraine’s war price shock coming after a pandemic plunge in foreign exchange earnings from tourism, a depreciating currency and now a default. Power cuts are frequent, there is too little fuel to get to work or school and the local UN humanitarian adviser estimates that almost a quarter of the population will now need help international food.

This week’s unrest appears to have swept an entire generation of the Sri Lankan political establishment from power. Local media reports that President Gothabaya Rajapaksa has pledged to step down alongside former opposition leader Ranil Wickremesinghe, with whom he recently formed a power-sharing executive that proved unable to prevent things to get worse.

Others may be to come, and far beyond Sri Lanka. On Monday, Ukraine’s navy reported that the first eight civilian grain ships since the war entered the Danube following Russia’s withdrawal from Snake Island in the Black Sea, a key step in unblocking stalled exports that have driven up world food prices by more than 20% since last year.

But shipments from the much larger Black Sea port of Odessa remain blocked, with many silos in Ukraine bombed by Russia or still full of last year’s crop as Ukraine begins harvesting the crop globally vital summer. Farmers say they struggle to secure sales and financing, find places to store their crops, and suffer other disruptions from the conflict.

THE NEXT RUSSIAN PIPELINES?

Energy disruptions could be next. On Monday, Russian gas to Germany via the Nordstream 1 pipeline fell to zero for 10 days of what operator Gazprom described as “scheduled maintenance”. European authorities, however, fear the shutdown could be permanent – ​​on Sunday French Finance Minister Bruno La Maire said he thought it was the most likely option, and that Europe should “ “Get into battle order now”.

Russia has also closed another major pipeline in its territory, one that brings crude oil from landlocked Kazakhstan, again citing technical issues.

A prolonged shutdown of the pipeline owned by the Caspian Pipeline Consortium (CPC) of Russian and Kazakh companies alongside Exxon Mobil, Chevron, Shell and Italy’s ENI could wipe out 1% of the world’s oil supply , according to analysts at JP Morgan. This could potentially send prices to new highs above $190 a barrel, further deepening the global economic crisis.

Sri Lanka’s current problems have been a long time coming, its growing external debt, especially to China, has made it a much heavier burden due to the collapse of tourism revenues amid the pandemic and a misguided ban fertilizer imports even before the war in Ukraine struck its double blow. of soaring food and fuel prices.

But a host of other countries find themselves in similar positions. In Afghanistan, Pakistan, Lebanon, Egypt, Turkey, Iraq, Argentina, Myanmar and Zimbabwe, these same global pressures and a host of local issues are also causing growing hardship. As we saw during the “Arab Spring” of 2011, this can have dramatic and unexpected political consequences.

Throughout July 10, the Arabic and English hashtags for the search terms “the presidential palace”, “Sri Lanka” and “the Sri Lanka crisis” were among the most shared in the Middle East. Many users showed sympathy for the protesters, expressing hope that their own “despotic and corrupt” governments and leaders could be next.

COMPLEX GEOPOLITICS

In many ways, the current feverish global markets, politics and economy suit the Kremlin well. Despite the difficulties of knowing for sure whether the current disruptions are deliberate or just part of the standard summer shutdown and maintenance cycle, many oil market players suspect that what they are seeing now is part of a very deliberate strategy. .

Since the start of the war, nations in the West and especially in continental Europe have spoken openly of seeking to wean themselves off Russian oil and gas permanently, by investing in renewable energy and other sources. But little of this activity has yet occurred, and the giant underground caverns in Germany used as a strategic gas reserve to keep that country through the winter are only partially filled.

Disrupting the Kazakhstan pipeline could also be an easy victory for Moscow. On June 17, Kazakh President Kassym-Jomart Tokayev openly opposed Putin in front of other leaders of the St. Petersburg International Economic Forum to argue that former Soviet states should not take Russia’s advice to recognize the breakaway republics of Donbass and Luhansk.

In February, Russia sent troops to Kazakhstan to support Tokayev after the unrest, and blocking much of his ability to export appears to be a classic Kremlin tactic in response.

But these geopolitical games are complex and unpredictable. Last week, Putin spoke by phone with Sri Lanka’s Gothabaya Rajapaksa, while pro-Kremlin social media outlets insisted the current unrest was instigated by the United States.

But while Sri Lanka received shipments of cheap Russian oil via India, it was not enough. The forces released by the invasion of Ukraine are global and unpredictable, and no one yet knows if they will end.

** Peter Apps is a writer on international affairs, globalization, conflict and other issues. He is the founder and executive director of the Project for Study of the 21st Century; PS21, a non-national, non-partisan and non-ideological think tank. Paralyzed by a car accident in a war zone in 2006, he also blogs about his disability and other topics. He was previously a reporter for Reuters and continues to be paid by Thomson Reuters. Since 2016 he has been a member of the British Army Reserve and the UK Labor Party.

(Editing by Tomasz Janowski)

Reuters