Energy wars with Russia are heating up

Very early this morning, I talked to the Dubai-based Gulf Intelligence, one of the world’s leading energy think tanks, about the latest developments in the world, our region and Turkey. What follows is a succinct summary of what I elaborated.

Accelerating the energy transition is a “fantasy”

Green energy transformation is, of course, a process that we all want and strive to achieve. But let’s neither underestimate nor exaggerate this process. We must bear in mind that today 80 percent of the world’s energy is still dependent on fossil fuels consisting of oil, natural gas and coal. Moreover, the share of renewable energy, to which we have invested nearly 10 trillion dollars over the last twenty years (and which attracted two-thirds of all global energy investments last year), is quite low in the world energy mix.

If we focus only on the share of solar and wind, a mere 4 percent emerges. That’s why fossil and green fuels will have to meet our needs in parallel and complement each other for many years to come.

The rapid energy transition is unfortunately a “fantasy” in the foreseeable future, as Aramco’s CEO put it last week.

Unfortunately, there is still no new approach to alleviate the climate crisis before the 29th COP summit to be held in Baku on 11-22 November 2024. While our plate is full of geopolitical tensions ranging from the Red Sea to the war in Ukraine, from Gaza to signs of conflict with Iran, to the possible annexation of the Dniester in Moldova, the issue of climate change is once again pushed to the back of the world agenda among priorities. Moreover, it seems that the anticipated drive in climate finance, one of the most heated disputes in the COP context, will not come.

Is a “ceasefire” possible between OPEC and IEA?

There is a serious battle of predictions between IEA and OPEC about the future of fossil fuels and at what point demand will begin to decline. The intensity of the conflict is increasing day by day. The future predictions of the IEA, where Western countries control the commanding heights, (of which I was once a principal administrator), in favour of renewables and against fossil fuels, torpedo investments in oil and natural gas and attract the angry reaction of the producing countries.

Therefore, giant American oil companies such as ExxonMobil and Chevron are forcing the US administration to withdraw from IEA membership to retaliate against this “hostile” attitude towards fossil fuels, which has led to a slowdown in hydrocarbon investments. OPEC countries share the same anger and are launching their alternative predictions.

Personally, I do not think that the call for the United States, the founding father of the IEA, to withdraw from this organization will go anywhere, considering that the Agency’s Deputy Executive Director and the most influential member of the Governing Board are Americans. Plus, Washington pays the biggest share of the IEA budget.

However, it is a fact that the European Union, which is the pioneer of efforts such as the Green Deal, has increasing influence within the IEA for faster decarbonisation calls.

It doesn’t make sense to go in the direction we are heading towards. Hence, I must say that a truce between producers and consumers is urgently needed.

Attack on Russian oil and energy infrastructure

Non-Western importing countries welcome the flow of Russian oil at discounted prices into their markets because they do not have to comply directly with US sanctions. Especially China, India, UAE and Turkey, which can purchase oil well below the 60 dollar per barrel ceiling, profit from this trade.

However, recently, in order to prevent these revenues going to Russia for financing the Ukrainian war, the US has started to cancel and delay banks’ payments for Russian oil through the threat to impose secondary sanctions. Currently, at least 50 tankers are waiting in the Indian Ocean to deliver Russian oil to Indian ports. Some Turkish state banks, Chinese and UAE banks are also delaying payments to Russia in order to avoid being included in the American blacklist.

We are experiencing “energy wars”

Meanwhile, in order to comply with the OPEC plus decision, the Russian government has sent instructions to its companies to reduce production to avoid the pressure of reducing its oil exports.

I have previously written that Russia was preparing for an all-out attack on Ukraine in the coming summer months. In order to paralyze Ukraine’s economy, Russia already destroyed 80 percent of the energy infrastructure there – except for natural gas pipelines and nuclear power plants, which concern itself. Now, possibly with Western intelligence and military support, Kiev has intensified its attacks on Russia’s energy infrastructure, especially the refineries in Samara. Currently, 10 percent of Russia’s refining capacity has been destroyed. We are experiencing a “energy war”, alongside an ugly armed conflict.

China is growing again

There was a broad expectation of strong economic recovery in China to stimulate global growth last year – it has not come about. But for this year, it is pleasing to note that the Standing Committee chairman of the National People’s Congress announced a 5 percent growth target, which he said would be achieved through innovation/technology-based production. Yet, in the first three months of the year, direct foreign investment to China decreased by 20 percent compared to last year, and American/Japanese supply chains are shifting their investments in production to surrounding countries.

If Turkey can boost its position as a safe production and logistics hub close to Europe, it can turn these dynamics to its favour.

Which camp is Türkiye in?

As a matter of fact, a relative easing of tensions have been observed in Turkey-US relations in recent months, in line with the “spirit of the times”. There is even talk of President Erdogan going to the White House as a state guest, probably in May. I think it is not possible to consider all these new dynamics independently of the anti-western Russia-China-Iran equation and the discussions as to which camp Ankara will be anchored in such a volatile region. There is also the expectation of a new domestic political transformation and foreign policy/security reconfiguration following the local elections to be held on Sunday – which are portrayed as if they will have the effect of a presidential/general election.

Everyone should be prepared now to review their attitudes and decisions based on these game-changing global and national developments.