Has Russia Overplayed Its Hand In This Gas Crisis?

Over the past couple of weeks, your humble correspondent has been writing regularly about various aspects of the ongoing gas crisis that’s been kicked off by Russia, directed at Ukraine, and causing fallout all over Europe – in the middle of winter, and a cold one at that.

You can find previous scribblings here, here, here, here, and here.

As events unfold, is it possible that the Kremlin has badly miscalculated, and overplayed its hand?

More below the fold….

Alex Alexiev has an article entitled “Putin’s House of Cards Coming Down” – it’s a bit lengthy, but it’s worth the time to read the whole thing, since it’s quite insightful.

I’ll just provide a few highlights here to get everyone started….

To little notice in America, a drama is being played out in Eastern Europe….

But, of course, not to little notice for readers of RedState! 🙂

Noting (as your humble correspondent did last week) that Germany has been a major facilitator of this mess (acting virtually as a Russian-interests section at both NATO and the EU),

Thus, the ever-eager-to-appease-Russian-misdeeds Western European elites have fallen in line behind the Kremlin mantra that the conflict with Ukraine is a purely commercial affair unworthy of European involvement. Meanwhile, Moscow’s army of European lobbyists, led by paid Gazprom lapdog and former German chancellor Gerhard Schroeder, sing the praises of ever greater European dependence on Russian energy. Yet, Europe’s cowardice notwithstanding, it is difficult for anybody with even a basic knowledge of the facts not to see that this time Putin has miscalculated badly and is playing a losing hand from an increasingly untenable position.

As I mentioned a week or two ago, the Russian claim that the whole problem is that Ukraine needs to pony up and pay “market prices” for gas is untenable; there is no “market price,” and the prices charged by country are reflective of the relative pliability (or lack thereof) with regard to the Kremlin:

to dispense with the argument that this is a purely commercial dispute, it is worth pointing out that Russia has a sliding scale of prices it charges for its gas to ex-Soviet republics depending on the degree of their political sycophancy to the Kremlin. Obedient clients, like Armenia and Belarus, are charged $110-$120 per 1,000 cubic meters, more independent countries like Georgia and Moldova pay $270-$280, while current bête noir Ukraine is asked to pay a punitive $500.

I also noted that there is considerable pressure (particularly in…. Germany) for new pipelines that will move Russian gas to interior Europe without running through the “new” eastern countries – causing worry that this is a first step to a new German/Russian “understanding” with regard to eastern Europe:

Others have claimed – and indeed, both Putin and Schroeder have been beating the pavement on that in the past few days – that the crisis was engineered by the Kremlin to convince Western Europeans to line up behind two more Gazprom-planned gas pipelines (Nord Stream and South Stream) that bypass Ukraine, Poland and the Baltics.

And this trouble could lead to an attempt at a bailoutski:

As gas prices and the company’s revenues plummet in the next few months, it is quite conceivable that Putin’s prize possession [Gazprom] would shortly owe more than it’s worth and become technically bankrupt. It is already begging the Kremlin for $5 billion in emergency handouts and paying 500 basis points over Libor for bridge loans to avoid default on loans coming due.

And how are falling energy prices affecting the fiscal situation of the Russian government? Oh, my – is that grim:

All of this is, of course, very bad news for the oil and gas sector but it is an unmitigated disaster for a government whose very economic model is doomed if that sector does not perform. According to finance minister Kudrin, Russia needs an oil price of $95 per barrel to avoid an economic downturn and is facing huge budget deficits if it falls below $70. We’re now well past these points on the way down and the inevitable bursting of Putin’s make-believe economics bubble is taking place in front of our eyes.

I’ll stop there. Read the whole piece – it’s worth it.