A Hotter Cold War

In The Colder War: How the Global Energy Trade Slipped from America’s Grasp, energy expert Marin Katusa explains how and why the U.S. is losing its hegemony in the energy market to Russia, and what can be done about it.

Connecting the dots, as any good one-time math teacher would, Katusa outlines how "The Great Game" played between the British and the Russian empires evolved over time, and how the U.S. emerged to take the UK’s role. The author talks about the rise of U.S. petrodollars after Bretton Woods, and gold parity. After that he shifts his focus from west to east – to Vladimir Putin. He sketches Putin’s biography with attention to his poor childhood, early work with the KGB, and his first steps into politics. According to the author, Putin quickly realized that Russia’s biggest strength was its vast natural resources, which needed to remain under Russian control – to include keeping the domestic private owners under the state’s thumb.¹

Katusa then turns his attention to Ukraine, a nation that plays a very important role in Vladimir Putin’s plans, as a vital channel for gas sales from Russia to Europe. Fifty percent of Russia’s gas exports to the European Union pass through Ukraine.² Not by chance, Ukraine has been tempted to leave Russia and join the EU. Keeping Ukraine under its sphere of influence is both "business and politics" for Putin, as he does not want to lose this portal for significant revenue, nor does he want to lose his leverage to shut down the gas that warms Europe during the winter.³

Katusa raises an important, oft-overlooked point about Mr. Putin: While his passion for martial arts wins headlines, his scholarly work on energy and the economy have raised far fewer eyebrows.⁴ In 1997, Vladimir Putin wrote a dissertation in economics entitled "Mineral and Raw Materials Resources and the Development Strategy for the Russian Economy". Putin gives a sense of his current strategy to improve the country’s economy within the document. The strategy it sketches was put into practice the moment Putin sat on the presidential chair. Katusa divides the strategy into three parts: the Putinization of Oil, the Putinization of Gas, and the Putinization of Uranium.⁵

The first part of the strategy consists of dominating the global oil and gas markets. Following massive investment in the oil industry, Russia surpassed Saudi Arabia in oil production in 2009, becoming the world’s top oil producer.⁶ The author speculates about the next steps toward the Putinization of Oil. One possibility is a partnership with OPEC, which would make such a consortium responsible for the production of 56 percent of global oil.⁷ It seems that the U.S. is aware of the possible power imbalance resulting from that. This might be the reason why the U.S. has worked so diligently to halve its dependence on foreign oil from 60 percent in 2005, to 32 percent in 2013.⁸

With regard to gas, Katusa supports his argument by highlighting that Russia is responsible for at least one-third of what Europe consumes, with a yearly production of $100 billion.⁹ Putin has been working to build alternative pipelines to direct its gas to Europe and Asia. Other products such as liquefied natural gas (LNG), as well as other nations like Nigeria, Egypt, Mozambique, Algeria, and China have factored into Putin’s equation.¹⁰ China, evidently, has a special place, and Russia secured a 30-year contract to provide about one-fourth of China’s gas consumption.¹¹ This reinforces Russia’s influence on the east, while the U.S. loses more space in the region.

Putin’s uranium strategy consists of growing the country’s uranium mining activities, as well as converting nuclear weaponry into material for energy creation. Katusa expects that while OPEC still matters as a driver of energy markets, the petrodollar economy is coming to its twilight. U.S.-Saudi Arabia relations have been deteriorating; as a result, it is likely that Russia or even China will run to take the America’s place in this equation. History repeats itself: The rise and fall of the British pound was followed by the rise and near fall – according to Katusa – of the U.S. dollar.¹² But what comes next?

At the end of the book, Katusa gives his best guess for the near future. The author contends that America is "a vulnerable giant close to exhausting its advantage."¹³ A potential threat to the U.S., in 2013 China announced that their banking system is ready for anyone that wants to buy and sell oil in yuan instead of dollars. A second threat has come from the BRICS – the group formed by Brazil, Russia, India, China and South Africa. They have announced the inception of the New Development Bank, which will be used by developing countries as an alternative to the World Bank and the IMF.

Katusa argues that in order to definitively finish the petrodollar, Russia has launched the project Double Eagle, which consists of an alternative to the SWIFT, an international payment system used today to make international money transactions (in U.S. dollars).¹⁴ For the author, SWIFT is the glue that binds the global monetary system to the dollar, and Double Eagle would allow people to move away from the dollar, and conduct their business with other trading currencies.¹⁵ Ultimately this pressure is expected to lead to a sudden drop in the foreign-exchange value of the dollar, causing inflation and presaging a U.S. economic crisis.

Although Katusa traces an outstanding framework of the subject, recent facts have shown that he might have missed some important considerations. Russia’s economy is in recession right now and is expected to shrink by 4.5% this year.¹⁶ Other BRICS nations are also suffering from political scandals and economic problems. On the other hand, most predictions for the U.S. economy are generally upbeat.

The end of the Petrodollar and U.S. hegemony over energy markets may someday materialize, however Katusa fails to convince the reader that it will happen in this decade. Despite these critiques, The Colder War provides an informative and insightful look into Vladimir Putin’s economic strategy and the complex global dispute over energy markets.