Now that the Russian onslaught of Ukraine has escalated from incursion to all-out war, many pundits will be claiming “I told you so,” or “we saw this coming a mile away.”  Perhaps some of these people had the clairvoyance or insight to be able to make these claims now, but for the most part, people with knowledge of the players and the geopolitics involved never thought that Mr. Putin would be so bold.  Why?  Because he has so much to lose.

In 1991, one of the most informative volumes ever written about geopolitics and what exactly makes the world go round was written by Daniel Yergin, an authority on global energy markets.  His book, “The Prize: The Epic Quest for Oil, Money and Power,” is essentially a history of the oil industry from 1850 to 1990. The book went on to win a Pulitzer Prize, was made into a documentary, and was followed up by several additional publications and scholarly writings.  In the years after the publication of “The Prize,” Dr. Yergin continued to publish and speak on the nature of international relations and some of the fundamental aspects of the variables that lead countries, state actors, and global business to behave in ways that are sometimes difficult to comprehend for the casual observer.

This is the situation in which we find ourselves today – a new conflict that is becoming more inhumane with each passing hour that is taking place on the doorstep of the largest concentration of democratic countries on earth.  But if you look through Dr. Yergin’s prism of historically accurate facts about the actions of dictators and autocrats when taking fossil fuels into account, Putin’s invasion of Ukraine makes no rational sense.  Russia is the world’s third largest producer of crude oil and the second largest producer of natural gas.  Russia’s energy exports account for most of the country’s foreign trade and income – so much so that it has most likely made Vladimir Putin the world’s richest person.  These are well known facts.  However, what is less well known is that the world’s number one producer of oil is the United States of America, and that the U.S. is currently a net exporter of oil as well.  American oil production has been a steady force in world energy markets for decades.  Of the top producers of oil in the world, America is by far the most stable country when compared to the remainder of the list which includes such top tourist hot spots as Russia, Saudi Arabia, and Iraq.  America’s annual production is 20% more than Russia, 30% more than Saudi Arabia and nearly three times the amount of Iraq who are numbers 2, 3 and 4 respectively in world crude oil production.

Despite America’s top spot on the oil production list and, at least statistically, being self-sufficient, gas prices at the pump are rising to levels not seen in the last 14 years.  If we are self-sufficient and produce 2 million barrels of oil per day more than the nearest competitor, why is Russia’s foray in Ukraine resulting in energy inflation at home?  The short answer is that despite that fact that oil pumped out of the ground in North Dakota or under the sea in the Gulf of Mexico is good for America, the prices per barrel are tied into the GLOBAL supply and demand equation.  Energy markets are extremely efficient and operate close to equilibrium in typical market conditions.  But because of the thin differential between global supply and demand, even the disruption of a small percentage of daily production can cause dramatic upswings in prices – regardless of where the oil is pumped or consumed. 

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Mr. Putin understands this.  He knows that the specter of removing 10 million barrels per day of Russian production from global oil supplies will quickly and violently cause the world’s energy costs to rise.  This is Mr. Putin’s safety blanket.  President Biden’s reluctance to lobby for a complete global embargo of Russian oil is rooted in the knowledge that it will possibly send the world into a high inflation, recessionary economic environment.  This is the gamble that Putin is taking – that the world will capitulate and trade Ukraine independence for energy and price stability.

But what happens if the gamble fails?  What if the rational world determines that short term economic pain is a small price to pay to destroy Mr. Putin and his massive ego?  If the rest of the planet decides to make this trade, Mr. Putin is done, but at what cost?  America will fare better than Europe.  Europe imports roughly 40% of its energy supply consisting of oil and natural gas from Russia, which represents a substantial portion of all Russian energy exports.  Cutting off the tap of Russian oil to European cities will be devastating – to Europeans and to Russia.  The common wisdom is that Europe would survive, but Russia would become a failed state.  Internal strife and civil unrest would consume Russia.  It would be a painful replay of Russia in the early 1990s when the Soviet Union was gone, the economy was non-existent, and Russians were starving and freezing to death.

So, what is the answer? 

Dr. Yergin has been debating this question for decades.  Mr. Putin’s rallying cry has always been that Mother Russia should be more nationalistic, self-serving, and returned to the glory of the Soviet era.  The enduring vision of Russia after the failure of the Warsaw Pact and Soviet Communism is one that haunts Putin to this day.  The debauchery, poverty, and the rapid slide down the global food chain that was ushered in by the Boris Yeltsin years has fueled Vladimir Putin’s actions since he came to power.  He views today’s Russia as only a minor improvement of the Yeltsin regime and a tiny fraction of the global power once yielded by the Soviet Union.  His actions in Ukraine and recent forays into political meddling in America and other democracies are attempts to regain the once proud notion of a Russian Empire (without tsars, but plenty of oligarchs).  But if the West calls Putin’s bluff and determines that the world will not trade a sovereign nation’s independence for low petrol prices, is the rapid demise of the Russian economy – the certain internal conflict that will arise – and the loss of what power he did yield until last week a risk that he is willing to take?

Until 10 days ago, the politicians of Europe, the scholars of international affairs, and many others believed that Putin would take the sabre rattling to an extreme just to attempt to reap concessions from NATO about further expansion.  Most believed Putin’s ego would not let a potential failed state and his exile to a remote island in the Indian Ocean with his money and yachts and airplanes intact drive his actions.  The educated group did not think that Putin would take this risk.  But he did.  He invaded, then he got frustrated with a lack of progress, now his tactics have become barbaric (as if regular warfare is not bad enough), and a real risk of accidents or misunderstandings in the fog of war could easily drag NATO into the conflict, and the world could be in for a devastating aftermath of a continental war.  Because of his actions, the West is now considering the next move – cutting off Russian oil to world markets.  It will be painful, but it will destroy Putin.  It is a move that Putin had to have known was coming if he acted in his current manner.  It is not rational.  It is all very unexpected.  But some will claim it was a foregone conclusion.  I believe it is a shock to the 99.9% of the rest of us.  I’m not 100% sure what Dr. Yergin would have predicted, but it would be a great time for the world’s leadership to bring these experts to the table to play out all scenarios in which the world’s most dangerous individual has begun to operate from a different playbook.