Jeronim Perovic: "As long as the world needs fossil fuels, Russia will play a role in the energy market"

Jeronim Perovic: "As long as the world needs fossil fuels, Russia will play a role in the energy market"

Jeronim Perovic (1971, Winterthur) is a historian, but his latest book has been dedicated to the economy, specifically, to the history of the Russian economy. The country of Vladimir Putin, this professor of Eastern European History and Director of the Center for Eastern European Studies at the University of Zurich, calls it a “power of raw materials”.

“No country in the world is as rich in raw materials as Russia. This gives Russia a global strategic importance”, says Perovic in this interview with For Europe especially, Russia has become an essential source of raw materials, especially fossil fuels.

In countries such as Austria, it is feared that a closure of the Russian natural gas tap, due to the consequences of the invasion of Ukraine, will lead to an "economic armageddon", according to recent words by Harald Mahrer, head of the Federal Chamber of Economy of Austria.

In Germany, the largest economy in Europe and the fourth in the world, there is also fear in the industrial sector about a possible closure of that tap. “An interruption of Russian gas reaching Germany would have catastrophic effects on the industry and would inevitably send the economy into recession,” said the president of the German Federal Association of Industry (BDI), Sigfried Russwurm, this week.

In Europe, to which the war against Ukraine has reminded him of the importance of diversifying its energy sources and raw materials, there is now a forced march for the energy disconnection from Russia. However, that disconnect will not be easy.

This is how Perovic puts it: "Access to Russia's energy sources has a long tradition." "Czarist Russia, since the end of the 19th century, began to export oil to Europe and the Soviet Union continued to trade with the capitalist world despite ideological opposition and political tensions," adds this expert.

In his opinion, this disconnection goes through the willingness of European societies to pay an energy bill that will be higher without Russian energy sources and, also, by a commitment in favor of abandoning fossil fuels.

His book is called Rohstoffmacht Russland (Ed. Böhlau, 2022), something like “Russia, power of raw materials”. At the time, Republican Senator John McCain said that this was not a country, but a "gas station." How decisive are raw materials in explaining the importance of Russia at the international level?

They are very important. No country in the world is as rich in raw materials as Russia. This gives it a global strategic importance. Russia, already in the past, used its raw materials for its own energy supply and industrialization. But also for exports. And as long as Russian raw materials continue to be in global demand, Russia's importance in the global economy will not diminish fast.

How important are other factors, such as military capacity, to consider Russia as a major international actor?

Russian military capability has always been somewhat out of balance with the country's economic performance. Russia has never managed, despite its wealth in terms of raw materials, to be among the industrial nations that lead the world's economic march and that is why it has sought to compensate for this deficit with military power. This was so in the past and is still valid today. Because the country, instead of investing the profits it gets from trade in raw materials in civil projects and economic innovation, dedicates a significant part of those profits to weapons, the Army and the security apparatus.

Russia tends to be seen more than anything else as a source country for coal, oil and natural gas. However, there are other raw materials that come from there that are sold in large quantities to the Western world. It is not like this?

Of course! And now, with the sanctions and Russia's disconnection from the global economy that is dominated by Western countries, we realize how dependent we are. For example, Russia also supplies metals such as nickel, palladium or chrome, which are very important for our economy and are not so easy to find in other countries. Also now it has been realized how important Russia is, and also Ukraine, as an exporter of cereals. Cereals are another important raw material!

In your opinion, to what extent is this European desire to achieve energy independence from Russia feasible?

In my book I have looked at the energy history of Russia in the last 100 years. In that period there were revolutions, wars or situations like those that occur today. After the Bolshevik revolution of 1917, Western companies tried to prevent the import of Russian oil. It didn't work, because Russia's oil was simply so cheap that it couldn't be excluded from the market. Ideology also did not play a significant role in importing Russian energy sources. Fascist Italy was supplied with oil from Bolshevik Russia.

After the start of the Cold War, it only took a few years for trade to resume. The "iron curtain" did not stop the flow of energy. As long as the world needs fossil fuels, Russia will continue to play a role in the energy market. From the Russian point of view, it does not matter where its energy sources are sold. For Europe it is, on the other hand, a question of the price of energy. Russia is geographically closer. Transportation is shorter and therefore Russian raw materials are attractive. To achieve energy independence from Russia, the only way would be to completely get out of the consumption of fossil fuels. But this has a price and we'll see if society is willing to pay it.

Why has Europe forgotten the diversification of energy sources?

In reality, Europe is not as badly positioned as it is made out to be when it comes to energy imports. Regarding oil, there are alternative options because the market is very global and there are numerous suppliers. Regarding gas, there are also alternatives such as Norway, Algeria, the Caspian Sea countries or liquid natural gas from Qatar, the United States or other countries. But the change will take longer in the case of gas, because it is still a market dominated by pipelines and Europe is connected to Russia through those pipelines. But diversifying is possible. Then questions arise: what price will we pay for oil and gas in the future? Does it make ecological sense to buy gas extracted from hydraulic fracturing in the United States or from dictatorships such as Azerbaijan?

doWhy countries as important as Germany or Italy was allowed to fall into a relationship of energy dependency with Russia?

Because access to Russian energy sources has a long tradition. Since the end of the 19th century, czarist Russia began to export oil to Europe and the Soviet Union continued to trade with the capitalist world despite ideological opposition and political tensions. Thus it was that the Soviet Union was considered a reliable partner. There were no notable interruptions in supply, so the natural gas collaboration between Western Europe and the Soviet Union, which began in 1968 with the first deliveries of Soviet gas to Austria, continued and expanded over the years and in the subsequent decades.

By then, the Eastern European states, the members of the Warsaw Pact, had long been dependent on Russian raw materials. Western Europe would become dependent on Russian gas during the 1970s. That gas was seen as an alternative to oil from Arab countries. The expansion of commercial relations also aimed at a political rapprochement with Russia. And this was a success. Increasing energy ties helped stabilize relations between Western and Eastern Europe during the Cold War. Actually, that's a success story.

To what extent has the Western world turned Russia into that "raw materials powerhouse" that you speak of in your book?

Already in the past it happened that Russia had the raw materials and Western countries had the technologies and the possibilities to invest in order to extract those raw materials. The great deals that were made with gas in the Cold War had an exchange nature, because Western companies made available the technology to build gas pipelines and enable extraction while the Soviets requested credits from Western European banks, to acquire those technologies and guarantees that they would supply gas in the long term.

This has changed little. The technically promising gas fields in the Arctic, Russia cannot exploit alone and therefore depends on cooperation with Western companies. That these companies have withdrawn from these exploitation projects is a serious blow to Russia. Countries like China, which do not participate in the international sanctions against Russia, will not easily be able to substitute Western technologies.

What is your opinion of these international sanctions and Europe's position against Russia?

In principle, I support sanctions. But so far Western policy has been reactive. They react to the aggression of Russia and with the sanctions they want to change the behavior of Russia. This is something illusory. Because we have to start thinking strategically and asking ourselves what relationship we want to have with Russia and what role Europe has to play in the future. We must not forget, after the war Russia will continue to be our neighbor geographically and we have, in the long term, no interest in a neighborhood with Russia as an isolated, anti-European country that is increasingly aligning itself with countries like China or other authoritarian states. Precisely, the consolidation of a Russo-Chinese alliance against the West is not a good prospect for us.

Can the Russian economy function without supplies to Europe?

Russia's problem is not that it will not make money on its raw materials. On the contrary, the country is making a lot of money also because the price of energy is very high. The problem is that the Russian state cannot buy anything with that money because of Western sanctions. Imports from Russia have fallen, according to estimates by some economists, between 70% and 80%, or even more! Russian industry will be in crisis, sooner or later, because it will lack important components for its products. Because it is dependent on imports to the West for developed technological products, but also for goods needed on a day-to-day basis. The industry may still function for a few months before these sanctions effects are felt. It will be necessary to see what effects they have, for example, if they will blame the Russian Government itself for the problems that this may cause or if they will blame the West. My fear is that many Russians will integrate the official narrative of the Kremlin and that the West will be considered guilty of the crisis in Russia.

Can it happen that Vladimir Putin ends his war against Ukraine because we Europeans stop buying energy from him?

Unfortunately not. Putin will not stop even if the Europeans stop consuming even the slightest drop of Russian oil or the last cubic meter of natural gas. Russia still has enough reserves, financial and military, to make this war last. Ukraine, however, is between a rock and a hard place and, militarily, under a lot of pressure in the Donbas [región del este ucraniano, ndlr.].

And can Europe succeed without Russian energy sources?

It will only succeed if society is prepared to pay the price. Politicians must clearly communicate what is at stake and they must make it clear that we now have the opportunity to make a big change, which is basically to abandon fossil fuels. But in politics you are always opportunistic. And what I fear most is that the unity and the spirit of optimism that we still feel now will end when inflation continues to rise, energy prices remain high and unemployment figures rise.

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