As the energy war intensifies with waning US dominance and Russian ascendance, the ‘Great Game’ is truly on
THE AMERICAN economic hegemony is on the wane, as its most important pillar, the strength of the US dollar, faces unfavourable circumstances induced by competition from other currencies and US profligacy. But the death blow, as Marin Katusa, the author of The Colder War, argues, will be delivered by the much-demonised Russian President, Vladimir Putin, who has been meticulously planning to bring Russia back in the ‘Great Game’.
Katusa is a mathematics professor-turned-fund manager in the energy and resources sector. He is a second-generation immigrant whose parents came to Canada from Communist Yugoslavia. His background, both familial and professional, helps his ability to vividly portray the imminent fall of the US with rare conviction. Though many would scoff at the dire predictions reserved for the economic giant that has ruled the roost since World War II, Katusa’s story of developing geopolitics, seen through the prism of oil, has the potential to change opinions about the invincibility of the ‘land of the free’.
The book concisely documents two specific events that made the US dollar the reserve currency of the world. One, after WW-II, the devastated countries in Europe agreed to pledge gold in lieu of dollars that they badly needed to rebuild much of Europe. This system lasted nearly three decades before President Richard Nixon discontinued it in 1971, after the US economy suffered losses in confidence due to trade deficit and creeping inflation. Nixon, however, wasn’t done. To ensure the dollar remained the world’s reserve currency, he despatched his secretary of state, Henry Kissinger, to Saudi Arabia, a country that was the largest producer of oil and gas at that time.
Kissinger offered to protect Saudi hydrocarbon assets from unfriendly neighbours like Iran and Israel. He also assured the Saudi family rule over the country in perpetuity. In return, Saudi Arabia would sell its petroleum products only in dollars and invest the surplus proceeds in US treasury bonds. The agreement was signed in 1974 and, as Nixon had calculated, the rest of the oil producing and exporting countries fell in line and subsequently became partners in the deal. Thus, Katusa says, began decades of US dominance in not just the energy sector, but the entire world economy.
Now, the world was hungrier for energy than anytime in the past, but needed reserve dollars to procure it. The demand for dollars across the world ensured that the US central bank could continue printing the greenback without any cost. This afforded very high living standards for US citizens and ensured that imports remained cheap. However, as a result of cheap imports, the US economy soon became profligate, with its fiscal deficit touching 100% of its gross domestic product. Nearly half of the country’s annual expenditure is now being funded by debt. The unsustainable consumption model is not only hollowing out the US economy, it’s making it unfit for the coming war.
And the war this time around promises to be colder, led by the former KGB (Russia’s equivalent of the CIA) spy Putin. Since his ascendance post the Cold War, Putin has solely focused on developing Russia’s vast natural resources, which include oil, natural gas and uranium. Even his post-graduate thesis reveals that he has always believed in natural resource-led supremacy to bring Russia back on the table reserved for world leaders.
The first few chapters of The Colder War are dedicated to documenting the unusually rapid rise of Putin in Russian politics. It’s a racy read that paints Putin as a tragic figure, one who must do all the dirty work to realise his grand vision for his country. Like a mafia boss in a Mario Puzo novel, Putin cajoles, persuades, compromises and devastates his opposition. He is not driven by a set idea of wrong or right, his actions are pragmatic and drawn from a grand strategy to see his country at the top of the food chain.
Katusa, however, makes it amply clear that Putin is no democrat or hero. He is suspected of faking bombings in Moscow so he could build a case to go after the Chechnya rebellion. He is widely believed to have had a hand in the disappearance of journalists critical of his methods. He is ruthless and amoral in his dealings. However, Katusa takes great pains to rip the western media-created image of Putin—a trigger-happy, bare-chested cowboy. He argues that Putin has long-term vision and clear goals for the future.
A case in point is his trajectory as the Russian President. After Boris Yeltsin’s departure from the scene post the Cold War, Putin quickly cornered power and, with the help of his trusted aides, known as the ‘St Petersburg Boys’, he ensured that the coterie rule the country for a long time. But soon after he took over, he put his plan in action—of rescuing Russian natural resources from the oligarchs, who had come to own vast assets of previously nationalised companies. After getting rid of some oligarchs through less-than-kosher means, while getting others to pledge support to him, he got down to reviving these companies. He also opened doors for foreign investors and oil companies to buy stakes in these companies, but kept the control firmly with himself.
Putin built pipelines for feeding Europe’s energy needs. He carefully avoided going for a full-fledged war in Ukraine for that reason. His military response was limited to a point where he had gained access to oil and gas pipelines. Putin showed immense constraint in dealing with uprisings in eastern neighbour Georgia. This helped him build feeder lines and ship terminals for transporting gas and oil to the ever-hungry China. Currently, most of western Europe is dependent on Russia for nearly 30% of its energy needs. Russia has managed to carve out a major chunk of the market share in the energy trade that previously belonged to West Asian countries.
With Russia already replacing the Gulf countries as the prime supplier of energy to the world, the hold of the dollar in the trade has been jeopardised. This is further threatened by a BRICS (Brazil, Russia, India, China and South Africa) proposal to dump dollars and trade in a mutually acceptable currency. Some countries had already started doing it, albeit clandestinely, in their energy trade with Iran after the US had imposed sanctions on it. As the book argues, the US dominance is a direct function of the dollar’s dominance. With the world ready to explore other options, it could spell disaster for the only existing superpower. It would lead to high inflation, as the world dumps its savings in US treasury bonds. A glut of dollars that suffers from depressed demand would inundate the US economy, making the country one among many others when it comes to world affairs.
The book rounds off Russia’s preparedness with a description of its natural and acquired advantages in uranium mining and enrichment, a fuel needed in ever-more quantity for clean nuclear energy. However, for people who watch the energy space closely, the book seems incomplete without even a passing reference to renewable energy, solar and wind energy in particular. While renewable energy faces technological and logistical challenges, countries like Germany, which uses nearly 30% of its annual energy requirement from solar and wind, have shown the way.
It’s not debatable that hydrocarbons would continue to be the mainstay of the world’s energy requirement, but a technological breakthrough in, say, power storage systems, could turn the equation on its head and make renewable energy far more reliable and cheap. The book sorely misses a chapter or two on such an eventuality and its impact on the world. The book also does not discuss the impact of falling petroleum prices on countries dependent on it for a bulk of their revenue and what it does to their well-laid plans of usurping the US’ place.
The Colder War: How the Global Energy Trade Slipped from America’s Grasp