Ukraine: A Pawn in Putin’s Energy Survival Strategy

The West is building a bridge to a utopian future without fossil fuels, leaving Russia and other producers with nothing to sell. Optimal cartel strategy is to earn an exit premium by raising prices. The invasion of Ukraine was a catalyst and producers have done nothing to offset it. Usually cartels limit high prices because they motivate buyers to find alternatives, but in this case the buyers have already declared they demand alternatives no matter what the price. So resolution of the Ukraine crisis won’t automatically lower prices; it would have to include pledges by Europe to keep buying Russian oil and gas. Already Europe has extended an olive branch by declaring natural gas a green fuel. In the US, the same logic applies to domestic producers, who fear stranded capital if they invest to increase supply if the Biden administration makes regulations even harsher. The industry may begin to see a reversion to a pre-Biden regulatory environment when congressional control flips in November, pointing to a Republican White House in 2024.