Dan Yergin Discusses Putin’s Energy War And America’s Obligation To Remain A Reliable Supplier

“So let me say, in two words: Terrible idea.”

Daniel Yergin, Vice-Chairman of S&P Global, was responding to a question I had asked during our recent interview about ongoing discussions within the Biden administration of invoking limits on exports of U.S. crude oil, oil products or liquified natural gas (LNG). President Biden has chosen not to go there so far, but the idea continues to be floated in the press, especially around oil products like gasoline and diesel.

“It would be a distortion in the market,” continues Yergin. “It would reduce the efficiency of U.S. refineries, and it would be a terrible message to the world. It would announce that the U.S. is not a reliable supplier. Sorry, Europe, you can’t count on the United States. Sorry, Latin America, you can’t count on the United States. And that would be completely counter to the whole notion of being a reliable supplier and the overall strategic relationships.”

As Yergin points out, being a reliable supplier of oil has been a point of firm emphasis for the Biden administration in its relations with Saudi Arabia and other OPEC nations. The White House recently said that it is now re-evaluating the entire U.S./Saudi relationship in the wake of the OPEC+ decision to cut its collective crude production.

Yergin went on to note that a similar “reliable supplier” dynamic has played out between Russia and Europe over the past several decades. Now that that dynamic has been interrupted by Russia’s war on Ukraine, the consequences have been severe.

“Russia, and before that, the Soviet Union said, ‘we are a reliable supplier. Whatever happens politically, we’ll keep supplying you,’” Yergin says. “But that’s not what’s happening right now. And Europe is saying ‘we just don’t want to depend upon Russian energy in the future.’ And it looks now that they’re going to cut back on some of the other imports from Russia, too, like aluminum. So, Russia has basically destroyed its biggest and most important market, which was Europe.”

In our interview, which can be viewed in its entirety at this link, Yergin was not as blunt as J.P. Morgan Chase CEO Jamie Dimon was when Dimon recently said “we’re getting everything wrong on energy,” but he did express great concern about rising instability and disruptions in energy markets.

“Obviously, it’s such a politically charged atmosphere in the United States right now on the eve of the midterms,” he says, “But I think one has to think long term, or even just mid-term and say, you know, what are your main objectives? Your main objective is to have the world energy markets function as well as they can.”

Putin’s Imperial Vision

So much of the current instability has come about as a result of the war between Russia and Ukraine, an event and resulting fallout Yergin foresaw in his book “The New Map.” I asked him if, some mornings, he reads the headlines and thinks, ‘hey, I wrote about this on page 159.’

“Or maybe on page 78,” he says with a laugh. “Well, I did say that Ukraine was the issue that was going to blow up and it’s going to be very tied into energy in Europe and so forth. And I think what the book does is provide the context for how we got to February 24th and how we got to where we are today —Putin’s views on Ukraine, the use of energy, the battles over natural gas. Because that’s the context to explain where this all came from and the basic fact that Vladimir Putin refused to accept the reality that Ukraine was a separate country.

“He had an imperial vision. And that is what is now playing out in the battlefield and is disrupting global energy markets. Last year he put out an essay saying that Russians and Ukrainians were brothers. Now he’s brutally devastating the country and the lives of Ukrainians.”

When asked whether he believes Putin’s imperial vision is limited to Ukraine, Yergin is not encouraging for those who want to see peace come soon to Europe. “I think it started off as all of Ukraine. He wanted to take Kiev and he thought he’d take it in a couple of days. He expected to decapitate the Zelensky government, replace it with a puppet government, and hold a victory parade in Kiev. That never happened,” Yergin says. “I quote him in the book (”The New Map”) saying that ‘the collapse of the Soviet Union was the greatest geopolitical catastrophe of the 20th century.’ And he wanted to reverse that. Putin holds not just a Soviet view, but a view of a Russian empire. But, then, things have not gone the way that Putin thought it would go, right?”

Indeed, they have not gone according to Putin’s plans at all. Despite higher prices for oil and natural gas helping to sustain energy-related revenue flows into Russia, Yergin notes that Putin’s conduct of the war has inflicted great damage on the country’s economy and social structure and is moving Russia inexorably into an economic decline.

“David, I’m very struck that, just over the last couple of weeks [since Putin announced a call-up of additional conscripts], is the number of young men who have left Russia. Some estimate 700,000, some estimate a million,” he says. “That’s incredible. In just two or three weeks! And these are the most vital, energetic men. They’re computer engineers or technologists. They are people in business. They’ve all left the country. So, that’s another way that his economy has been damaged by this. [In “The New Map”] I spend a lot of time exploring the basis of the relationship between President Xi of China and Putin, and between Russia and China. And I think Russia ends up increasingly an economic dependency of China. It’s already happening. But it’s going to take years to build a new pipeline to China for all that gas that Russia is no longer selling to Europe”

The OPEC+ Cuts and U.S. Reaction

We talked about the recently announced production cuts by OPEC+, and the very strong reaction to it by the Biden administration. Yergin pointed out the likelihood that timing and the prospects of looming major future events had a lot to do with actions on both sides.

“The other factor is that this is kind of a lead into December 5th,” Yergin says. “December 5th is a very important date, because that’s when the European ban on the import of seaborne Russian crude oil goes into effect. But it also has something else there, too, which is that it [restricts] insurance and and shipping services. And so, in response to that, Washington woke up and said, whoa, if that goes into effect, you could have a 6 or 7 million barrel a day hole in the world oil market.”

He cites another factor that likely impacted the OPEC+ thinking on the production cut, which is the plan by the U.S., European Union and the G-7 nations to attempt to invoke and enforce a price cap on Russian oil. “This kind of price cap on Russian oil has never been imposed before. I think that was something else that the OPEC+ countries were worried about. And of course, one of the two key OPEC+ countries happens to be Russia.”

Why Energy Security Matters

These sorts of geopolitical considerations are always key in discussions with Yergin, as is the level of energy security, or lack thereof, among and between the various countries involved. These are themes that he has returned to again and again in The Prize and his other books and is central theme in The New Map. With that in mind we moved next to the question of whether Europe will be able to maintain adequate natural gas supplies needed to prevent human catastrophe from taking place over the coming winter. The discussion quickly focused on how Putin has exploited Europe’s dependence on his country for this critical energy source.

“A lot depends upon the weather. If it’s a warm winter [Europe] will manage,” he says. “But if it’s a cold winter, it’s going to be quite challenging. They did do one thing: They got storage filled, and during the winter, storage normally provides about about 25% of supplies. Demand is down somewhat, but at great pain because some of the gas going into Europe has been is as much as ten times the normal price. Prices have come down in recent days, partly because of weather, partly because the storage is filled. But the winter has not yet begun. The overall spikes are having a huge impact. And whether they have shortages or not, this is having a terrible impact on the European economy. European governments know that they have to do something in the face of the economic hardship and the growing protests, and it looks like the EU is going to try to device a cap on natural gas prices. Not easy to do!”

He points out that none of this is happening by mere accident. “It’s deliberate, by the way. It’s really it’s a second front in the Ukraine war, which is an energy war in Europe, where his aim is to impose so much pain that the coalition breaks and new governments come to power.”

Yergin remarks that one impact of Putin’s use of energy leverage has been a sudden new appreciation for natural gas, which had become a bit of a pariah among Europe’s climate-focused national leaders. “It’s interesting to see that suddenly something that was just off the agenda and forgotten about – energy security – is back on the agenda. I think it was last year that France refused to accept the cargo of US LNG because it was produced with shale gas.

“But now the French are thrilled to see how much gas they can get from U.S. LNG exporters. Last year, maybe 30% of U.S. LNG went to Europe. Now it’s close to 70%, and now U.S. LNG has become part of the security foundation for Europe.”

Coming Full Circle

All of which serves as a primary reason why it is so crucial for the United States to maintain its status as a reliable supplier of oil and natural gas to Europe and other importing countries. Conversations with Dan Yergin always have a way of coming full circle in this way.

At the end of our interview, we agreed to continue this dialogue shortly after the first of the year. It’s an opportunity I’m already looking forward to.