The crises boosting Russia's coffers  

Posted by Big Gav in

The Business Spectator has an article from Stratfor on the good fortune middle east unrest and Japan's nuclear disaster is bringing to Russia - The crises boosting Russia's coffers.

Two unrelated global crises are benefiting one regional power: Russia. The rise in energy prices due to the Middle East unrest is obviously benefiting Russia as an oil exporter. Furthermore, as a primary natural gas exporter to Europe, Russia stands to benefit from the souring of nuclear power in Germany and Italy due to the Fukushima nuclear power plant accident in Japan.

The unrest in the Middle East is a very straightforward story for Russia. It has increased energy prices about 20 per cent, and because of the way that Moscow taxes oil profits, most of this increase in prices going straight into the government coffers. On March 18, the Russian government currency reserves have climbed over $500 billion for first time in two and half years.

Unrest in Libya is also allowing Russia to increase its natural gas exports to Italy, which is already its second-largest customer in Europe. The unrest in Libya has specifically impacted the 10 billion cubic meter natural gas pipeline Greenstream, which goes under the Mediterranean from Libya to Italy. This pipeline is a vital component of Italy’s natural gas imports from North Africa.

Aside from giving Russia the extra income, the crisis in Libya is also changing the perceptions of North Africa as a potential alternative to Russian energy imports in Europe. Russia’s looking pretty geopolitically stable as an energy exporter compared to what is going on in Libya and across North Africa.

The other global crisis that is benefiting Russia is the aftermath of the Japanese earthquake, in particular the Fukushima nuclear power plant accident. Aside from again increasing Russian revenue stream by allowing it to export more natural gas to Japan, the real benefit to Moscow of the accident is the fact that Europeans are rethinking their nuclear renaissance.

2011 was shaping up to be a very important year for nuclear power in Europe. First, a centre-right government in Germany was supportive of continuing to use nuclear power as part of the German electricity component. Second, there was going to be a very key vote in Italy – a referendum on whether the country should reconsider its nuclear power plant. And finally, we had announcements in Poland, Sweden and also the United Kingdom – where nuclear power would become part of the component of switching from fossil fuels.

However, German and Italian populations have always been more sceptical of nuclear power than other Europeans, and the problem now is that, with the Fukushima nuclear accident, it is quite clear that Germany and Italy will not be part of a nuclear renaissance in Europe. The reason this is important is because there’s no real alternative for either other than Russian natural gas. In fact, over the last five years, 20 out of the 23 power plants that Germany built were natural gas, which means there’s already a commitment towards natural gas in Germany. The reason for this is because natural gas is a relatively cheap source of power. It is not as cheap as coal or nuclear power – nuclear actually being the cheapest – but it is three times cheaper than wind and over 10 times cheaper than solar. Therefore, as Germany reduces the amount of energy it derives from nuclear power – it’s slated to essentially stop using eight of its nuclear reactors for good – it will most definitely turn towards natural gas.

The other thing to consider is the upcoming Nord Stream natural gas pipeline. Nord Stream is really a pipeline between Russia and Germany that has strategic value. It goes under the Baltic Sea and its main purpose was to avoid shipping natural gas via Ukraine and Poland to Germany – to create a direct link between Moscow and Berlin, if you will. However, now its 55 billion cubic meters are looking like a very useful option for natural gas.

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