How Russia Gains from the Japanese and Middle East Crises

Two unrelated global crises are benefitting Russia. As the primary gas exporter to Europe, Russia stands to gain from the rise in energy prices as a result of unrest in the Middle East.

Secondly, the country benefit from sourcing nuclear power in Germany and Italy due to the Fukushima nuclear power plant disaster.

According to the Financial Times,

Two unrelated global crises are benefitting Russia. As the primary gas exporter to Europe, Russia stands to gain from the rise in energy prices as a result of unrest in the Middle East.

Secondly, the country benefit from sourcing nuclear power in Germany and Italy due to the Fukushima nuclear power plant disaster.

According to the Financial Times,

Russia’s stock market saw a storming first quarter, outperforming every other leading market, as turmoil in the Middle East pushed up oil prices.

The stellar performance raised hopes that this would be the year when Russian equities caught up with their peers in the other Bric countries (Brazil, India and China) in attracting foreign investment.

However, performance has become more sluggish and analysts are beginning to ask whether high oil prices are in fact bad for long-term growth in the Russian economy.

In a report from STRATFOR Analyst Marko Papic examines how the crises of the war in Libya and the Japanese nuclear disaster align to benefit Russia’s energy sector;

The unrest in the Middle East is a very straightforward story for Russia. It has increased energy prices about 20 percent, and because of the way that Moscow taxes oil profits, most of this increase in prices going straight into the government coffers. On March 18, the Russian government currency reserves have climbed over $500 billion for first time in two and half years.

Unrest in Libya is also allowing Russia to increase its natural gas exports to Italy, which is already its second-largest customer in Europe. The unrest in Libya has specifically impacted the 10-billion cubic meter natural gas pipeline Greenstream, which goes under the Mediterranean from Libya to Italy. This pipeline is a vital component of Italy’s natural gas imports from North Africa.

Aside from giving Russia the extra income, the crisis in Libya is also changing the perceptions of North Africa as a potential alternative to Russian energy imports in Europe. Russia’s looking pretty geopolitical stable as an energy exporter compared to what is going on in Libya and across North Africa.

Related: Russia Economy
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The other global crisis that is benefiting Russia is the aftermath of the Japanese earthquake, in particular the Fukushima nuclear power plant accident. Aside from again increasing Russian revenue stream by allowing it to export more natural gas to Japan, the real benefit to Moscow of the accident is the fact that Europeans are rethinking their nuclear renaissance.

2011 was shaping up to be a very important year for nuclear power in Europe. First, a center-right government in Germany was supportive of continuing to use nuclear power as part of the German electricity component. Second, there was going to be a very key vote in Italy — a referendum on whether the country should reconsider its nuclear power plant. And finally, we had announcements in Poland, Sweden and also the United Kingdom — where nuclear power would become part of the component of switching from fossil fuels.

However, German and Italian populations have always been more skeptical of nuclear power than the rest of Europeans, and the problem now is that, with the Fukushima nuclear accident, it is quite clear that Germany and Italy will not be part of a nuclear renaissance in Europe. The reason this is important is because there’s no real alternative for either other than Russian natural gas. In fact, over the last five years, 20 out of the 23 power plants that Germany built were natural gas, which means there’s already a commitment towards natural gas in Germany. The reason for this is because natural gas is a relatively cheap source of power. It is not as cheap as coal or nuclear power — nuclear actually being the cheapest — but it is much cheaper — three times cheaper than wind and over 10 times cheaper than solar. Therefore, as Germany reduces the amount of energy it derives from nuclear power because it’s slated to essentially stop using eight of its nuclear reactors for good. It will most definitely turn towards natural gas.

The other thing to consider is the upcoming Nord Stream natural gas pipeline. Nord Stream is really a pipeline between Russia and Germany that has strategic value. It goes under the Baltic Sea and its main purpose was to avoid shipping natural gas via Ukraine and Poland to Germany — create a direct link between Moscow and Berlin, if you will. However, now its 55-billion cubic meters are looking like a very useful extra natural gas — not a replacement for natural gas shipped through Central Europe, but rather actual direct exports from Russia to Germany to fuel Germany’s rising need for natural gas which is going to start replacing the electricity generated by nuclear power.

So, in the short term, Russia is certainly benefiting from increased oil prices and also from temporary increases in natural gas exports to Japan and Italy due to Libya and the Fukushima nuclear power plant disaster. However, in the long term, Russia stands to gain even more from the fact that the Fukushima nuclear power plant disaster is going to commit two core European countries — Germany and Italy — to a greater dependency on Russian exports.