[Choi Ji-woong's Energy War] Can Oil and Gas Become Russia's Weapons?

World's 3rd Largest Crude Oil Producer
2nd Largest Natural Gas Producer Russia

If Countries Halt Supplies
Shock Comparable to the First Oil Shock
One of the Most Powerful Weapons, But...

Russian Oil and Gas Undermine Trust
Accelerates Efforts to Find Alternatives
Long-Term Negative Impact on Russia Too

Editor's NoteAsia Economy Newspaper publishes a monthly series every Thursday titled "Choi Ji-woong's Energy War," diagnosing the energy industry amid a period of great transformation and examining the related changes in the international order. The author joined Korea National Oil Corporation in 2008, working in the Europe & Africa Business Division and the Stockpile Business Division, and later completed an MBA in Oil & Gas at Coventry University in London in 2015. He is an expert in the energy sector and the author of the bestseller "How Oil Rules the World," which chronicles the modern history of oil.

Russia is a resource-rich country. It ranks third in the world in crude oil production and second in natural gas. It is no exaggeration to say that most of Russia's national power and economic strength come from energy resources. Therefore, Russia's core interest is securing stable export routes for oil and gas. In other words, the most powerful means to check Russia is to boycott its oil and gas. Oil and gas are Russia's strongest weapons but can also be its greatest vulnerabilities.

This situation was likely factored into Russia's many calculations when it invaded Ukraine. Russia probably believed that the West could never sever its oil and gas trade. Russia's oil and gas volumes cannot be replaced by other producing countries. In terms of combined oil and gas output, Russia surpasses Saudi Arabia, the largest oil producer in the Middle East. If Europe stops importing Russian oil and gas, it would trigger a global energy price surge beyond just an energy shock in Europe. This would deliver a massive blow to the global economy, which is already showing signs of inflation. During the 1973 first oil shock, the Arab oil-producing countries cut production by only about 5% month-over-month to weaponize oil. It was not the volume but the act that caused the oil shock. If Russia were to implement a full-scale oil and gas supply cutoff now, it could cause a shock greater than the oil shock. Of course, Russia would have to brace for economic collapse as well.

The United States, the world's largest oil producer, imports relatively little Russian crude oil and can halt imports of Russian oil. However, if European countries, which are heavily dependent on Russia, take similar measures, they would have to endure a shock greater than the past oil shock. This is the background behind Dmitry Medvedev, Deputy Chairman of Russia's Security Council, sarcastically saying that if oil and gas sanctions are realized, "Europe will enter a brave new world." South Korea also imports a significant amount of crude oil from Russia. Last year, Russian crude accounted for 5.6% (53.75 million barrels) of South Korea's total crude oil imports.

Russia's invasion of Ukraine recalls the Arab invasion of Israel in October 1973, the Fourth Middle East War. In the 1970s, Europe, Japan, and others rapidly increased oil consumption as they completed post-war reconstruction and advanced industrialization. Thus, even a small disruption in energy supply could cause tremendous shock. Naturally, Arab oil became a powerful weapon. At that time, the Arabs invaded Israel and, in response to the U.S. and its allies supporting Israel, cut oil production. Subsequently, oil prices surged about fourfold. As a result, the world experienced the shock of the first oil shock. The U.S. Gross National Product (GNP) fell by as much as 6%, and Japan recorded its first post-war negative growth.

Jiwung Choi, Researcher at Korea National Oil Corporation Smart Data Center

Russia likely considers its oil and gas as powerful weapons. However, it seems to overlook their side effects. Immediately after the first oil shock, countries worldwide made multifaceted efforts to reduce dependence on Middle Eastern oil. The U.S. began full-scale oil development in Alaska and the Gulf of Mexico. The U.K. developed the North Sea, producing Brent crude, which later became one of the international oil price benchmarks. France, aiming to increase energy self-sufficiency, expanded nuclear power generation, obtaining 65.7% of its electricity from nuclear power as of 2020. These 1970s efforts caused prolonged low oil prices in the 1980s. These low prices dealt a fatal blow to the Soviet economy, which depended on oil, and were a significant factor in the Soviet Union's collapse in 1991. The current high oil price trend driven by Russia undermines the credibility of Russian oil and gas and accelerates efforts to find alternatives. In the long term, this is not beneficial for Russia's oil and gas industry.

However, there is an even more important lesson. The greatest lesson in modern warfare since the 21st century is that 'administrative control' is several times more difficult than 'military occupation.' In the 2003 Iraq War, the U.S. occupied Baghdad in just 20 days with overwhelming firepower. One key reason for the U.S. invasion was to defend Saudi Arabia. Saudi Arabia, as a global oil supplier, plays the most critical role, and its falling into anti-American hands would pose a significant threat to U.S. hegemony. Therefore, Iraq was needed as a buffer zone to protect Saudi Arabia from anti-American forces like Iran and Syria. The U.S. goal was to remove Saddam Hussein's anti-American regime and establish a new pro-American government. However, over more than ten years after the occupation, the U.S. lost over 4,000 soldiers and spent over 100 trillion won but failed to maintain administrative control. Since 2014, the rise of the Islamic State (IS) in Iraq has further complicated matters for the U.S. Moreover, the current Iraqi government is dominated by Shiites hostile to the U.S., like Iran.

Russia's intention in invading Ukraine is also to administratively control Ukraine and keep it as a buffer zone protecting Russia from NATO. To do this, it must establish a pro-Russian government, which is the ultimate goal. However, modern warfare shows that this is much more difficult than military occupation. Ukraine is larger than Iraq. Also, Russia does not have manpower and resources as abundant as the U.S. Therefore, it is highly uncertain whether Russia can control Ukraine as intended. Even if occupation is possible, global public opinion and anti-Russian sentiment in Ukraine would render the occupation meaningless. Russia is repeating history, forgetting not only the lessons of the Iraq War but also those from the Soviet invasion of Afghanistan.

Choi Ji-woong, Researcher, Smart Data Center, Korea National Oil Corporation