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Analyses Last Updated: Aug 9, 2022 - 10:51:59 AM


Russia’s Looming Defeat in Ukraine
By Simon Johnson, Project Syndicate, Aug 2, 202
Aug 8, 2022 - 11:52:37 AM

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After suffering a catastrophic defeat in its initial attempt to take Kyiv and Kharkiv, in recent months Russia gained some territory in Ukraine’s eastern Donbas region. But on both the military and economic fronts, the war has turned south for the Kremlin.

WASHINGTON, DC – It is easy to see who is losing the most from the Russian invasion of Ukraine: Ukrainian civilians, victims of war crimes and missile terror, and the millions around the world for whom food is now more expensive, because Russia has until recently been blocking Ukrainian grain shipments through the Black Sea (and launching strikes on Ukrainian ports even after agreeing to a ceasefire). But who exactly is winning from this dreadful conflict?

The Russian authorities are behaving as if things are going well for them. Their tone is arrogant, and they respond to entreaties with disdain. Their media proxies threaten to blow up Europe one day and, when rebuked, to destroy the world the next day. And now Russia is choking off the supply of natural gas to Europe – throwing its weight around as if victory is just around the corner. But all of this is just a bizarre delusion. In fact, Russia is losing the war badly in both military and economic terms. On the military front, the Russian position looks increasingly dire.

After suffering a catastrophic defeat in its initial attempt to take Kyiv and Kharkiv, in recent months the Russians gained some territory in the Donbas region. But this advance was entirely due to massive artillery bombardment. Now that the Ukrainians have longer-range artillery, this Russian advantage is dwindling rapidly. Kherson, in southern Ukraine, provides an instructive example. The Russians have positioned an army group on the western side of the Dnipro River, supplied primarily over a big bridge, which long-range Ukrainian missile strikes recently rendered unusable. No supplies, ammunition, or fresh troops can reach the stranded Russian forces. This looks like a turning point.

Another big defeat looms on the economic front. The pre-invasion Russian economy was based on energy exports – oil, gas, and coal, in that order of importance – supported by foreign direct investment and a flow of people and ideas that had deepened greatly over the past three decades. All of this is fading fast. Western companies are pulling out their skilled people and technology. Sanctions on coal exports are beginning to bite. And now the Russians are starting a self-destructive confrontation with Europe by weaponizing its exports of natural gas.

Perhaps the major Russian achievement since the end of the Cold War was to persuade Germany and other parts of Europe that it could be trusted as a long-term partner in the supply of gas. This trust is now destroyed. No one in Europe should want to rely on Russian energy supplies for decades, or perhaps for as long as the world uses fossil fuels.

Very soon, Russia will have just one major export: crude oil. For a renegade state, crude oil is an ideal resource. It can be loaded onto a tanker and sold anywhere in the world. Much of this market is already shady, and many customers, for example in India and China, prefer not to ask too many questions. But Russia is a big oil exporter – attempting to move around four million barrels of crude per day by sea. A decent-sized tanker can carry about one million barrels, and it takes about 20 days to move it from Ust-Luga (an important Russian port in the Baltics) to the west coast of India. The Russians need to mobilize a vast fleet – hundreds of tankers – along with all the financial services needed to support these transactions. And they need this fleet to operate 24/7, without disruption. To keep its economy functioning, Russia needs to organize something akin to the 1948-49 Berlin Airlift – except this time the task is lifting oil by sea out of Russia, and not for two years, but forever. According to industry sources, around half of all suitable oil tankers are owned or controlled by European and other Western companies. Most of the trade finance and insurance used in these transactions is run out of the European Union, Norway, the United Kingdom, the United States, and Japan. Instead of trying to cut off these transactions, the G7 has proposed a more robust approach: companies would be allowed to participate in moving Russian oil, but only if all involved agreed to pay no more than a capped price. Russia already accepts a substantial discount – the latest estimates for Urals crude are up to $20 per barrel below the price of the Brent benchmark. The pre-invasion discount was close to zero. Now the West is effectively pushing to increase this discount – creating a dial that can be turned to tighten the squeeze on Putin’s revenue. When the price cap was first proposed, some commentators predicted it would drive up the world price of oil – but prices have subsequently fallen. Other observers suggested that the market would not cooperate – but oil traders and banks seem keen to continue doing business in an approved fashion. And some people fretted that not all the details were immediately in place – as if that ever happens with major policy breakthroughs. The noose is tightening around Kherson – entirely the result of Russian aggression and over-confidence. And it is tightening around Russian oil revenues and the Russian economy for the same reasons.


Source:Ocnus.net 2022

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