The Kremlin and the world energy war

For careful observers of the changing global energy landscape and the role of Russia in particular, recent developments do not come as a surprise. The cheap oil of the 1990s is truly a thing of the past, with markets proving a new floor of US$60 per barrel of crude oil already exists. The incontrovertible truth is that oil, and increasingly natural gas, are the very lifeblood of the industrialized, modern economies of the world. The monumentally difficult and expensive move to new, alternate sources of energy has not even begun in any meaningful way.

The Kremlin and the leadership of other oil-and-gas-rich states foresaw the global energy developments noted above. The Kremlin has moved to reconsolidate Russian natural resources industries under its control. Russia has successfully positioned itself as the key global supplier of a most sought-after commodity. Middle East instability is on the rise with no relief in sight. That solidifies Russia's new position. There is no way out in the near term. Russia easily could apply tremendous economic and political pressure to severely damage, or credibly threaten to do such damage, to the economies of the West.

The US and British economies in particular are artificial bubble disasters just waiting to happen, tremendously burdened with enormous debt loads. The dollar appears to have reversed its temporary 2005 gain, now resuming its strategic decline. China has signaled that it will diversify its huge reserves out of dollars. Russia and its key strategic allies could fight and win an economic war with the West because the energy-dependent, bubble-ridden US and British economies would be forced to "blink" first, before they were crashed. Deeply energy-dependent Europe would be forced to "blink" long before the US and Britain.

The global order is re-dividing into roughly two de facto blocs - one has the US at its core and the other has Russia-China at its core. Energy is the major dividing line between the two blocs, and as desperation for control of strategic energy resources increases rapidly, so will the sharpness of the dividing line between the two blocs. With energy thus serving as a primary catalyst, the resource-rich Eurasian bloc is attaining significantly more gravitational pull than the American bloc.

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