By Thomas L. Friedman
As the Russian army continues to falter in Ukraine, the world is worrying that Vladimir Putin could use a tactical nuclear weapon. Maybe -- but for now, I think Putin is assembling a different weapon. It's an oil and gas bomb that he's fusing right before our eyes, and he could easily detonate it this winter.
If he does, it could send prices of home heating oil and gasoline into the stratosphere. The political fallout, Putin surely hopes, will divide the Western alliance and prompt many countries -- including ours, where both MAGA Republicans and progressives are expressing concerns about the spiraling cost of the Ukraine conflict -- to seek a dirty deal with the man in the Kremlin, pronto.
When it comes to energy, we want five things at once that are incompatible -- and Putin is onto us:
1. We want to decarbonize our economy as fast as we can to mitigate the very real dangers of climate change.
2. We want the cheapest possible gasoline and heating oil prices so we can drive our cars as fast and as much as we want -- and never have to do anything to conserve energy.
3. We want to tell the petrodictators in Iran, Venezuela and Saudi Arabia to take a hike.
4. We want to be able to treat U.S. oil and gas companies as pariahs and dinosaurs that should pump us out of this current oil crisis and then go off in the woods and die and let solar and wind take over.
5. Oh, and we don't want any new oil and gas pipelines or wind and solar transmission lines to spoil our backyards.
I understand why people want all five -- now. But they involve trade-offs, which too few of us want to acknowledge or debate.
If we persist in that, we are going to be in for a world of hurt if Putin drops the energy bomb that I think he's assembling for Christmas. Here's what I think is his strategy: It starts with getting the United States to draw down its Strategic Petroleum Reserve.
According to a report in The Washington Post, the reserve contained "405.1 million barrels as of Oct. 14. That's about 57% of its maximum authorized storage capacity of 714 million barrels."
Putin wants America to use up as much of its Strategic Petroleum Reserve cushion now -- just like the way the Germans gave up on nuclear energy and he got them addicted to Russia's cheap natural gas.
Next, Putin is watching the European Union gear up for a ban on seaborne imports of crude oil from Russia, starting Dec. 5. This embargo -- along with Germany and Poland's move to stop pipeline imports -- should cover roughly 90% of the European Union's current oil imports from Russia.
As a recent report from the Center for Strategic and International Studies in Washington, D.C., noted, "Crucially, the sanctions also ban EU companies from providing shipping insurance, brokering services or financing for oil exports from Russia to third countries."
The U.S. Treasury and European Union believe that without that insurance, the number of customers for Russian oil will shrink dramatically, so they are telling the Russians that they can get the insurance for their oil tankers from the few Western insurance companies that dominate the industry only if they lower the price of their crude oil exports to a level set by the Europeans and the United States.
My sources in the oil industry tell me they seriously doubt this Western price fixing will work.
Now add one more dodgy player to the mix: China. It has all kinds of long-term, fixed-price contracts to import liquefied natural gas from the Middle East at roughly $100 a barrel of oil equivalent. But because President Xi Jinping's crazy approach to containing COVID -- in recent months some 300 million citizens have been under full or partial lockdown -- China's economy has slowed considerably, as has its gas consumption. As a result, an oil industry source tells me, China has been taking some of the LNG sold to it on those fixed-price contracts for domestic use and reselling it to Europe and other gas-starved countries for $300 a barrel of oil equivalent.
Suppose, come December, Putin announces he is halting all Russian oil and gas exports for 30 or 60 days to countries supporting Ukraine, rather than submit to the European Union's fixing of his oil price. He could afford that for a short while. That would be Putin's energy bomb and Christmas present to the West. In this tight market, oil could go to $200 a barrel, with a commensurate rise in the price of natural gas. We're talking $10 to $12 a gallon at the pump in the United States.
The beauty for Putin of an energy bomb is that unlike setting off a nuclear bomb -- which would unite the whole world against him -- setting off an oil price bomb would divide the West from Ukraine.
If Biden wants America to be the arsenal of democracy to protect us and our democratic allies -- and not leave us begging Saudi Arabia, Russia, Venezuela or Iran to produce more oil and gas -- we need a robust energy arsenal as much as a military one. Biden needs to make a major speech, making clear that for the foreseeable future, we need more of every kind of energy we have. American oil and gas investors need to know that as long as they produce in the cleanest way possible, invest in carbon capture and ensure that any new pipelines they build will be compatible with transporting hydrogen -- probably the best clean fuel coming down the road in the next decade -- they have a welcome place in America's energy future, alongside the solar, wind, hydro and other clean energy producers that Biden has heroically boosted through his climate legislation.
I know. This is not ideal. This is not where I hoped we would be in 2022. But this is where we are, and anything else really is magical thinking -- and the one person who will not be fooled by it is Vladimir Putin.