![It typically costs $100 to fill a 12-gallon tank in Italy today. The country imports much of its oil from Russia. Which is why its government is reluctant to sign on to President Obama's anti-Putin campaign. [Credit: NWA online]](https://i0.wp.com/www.dougsbriefcase.com/blog/wp-content/uploads/2014/05/credit-nwa-online.jpg)
It typically costs $100 to fill a 12-gallon tank in Italy today. The country imports much of its oil from Russia. Which is why its government is reluctant to sign on to President Obama’s anti-Putin campaign. [Credit: NWA online]
Which may help explain why President Obama’s crusade to impose systematic economic sanctions on Russia has so far fizzled. Europeans are unwilling to pay the costs that disruptions in trade with Russia would impose on them.
One can hardly blame them.
Italy imports nearly 80 percent of the energy it uses, according to the World Bank. That includes an estimated 2 million barrels of oil a day in 2010, mostly from Libya, Azerbaijan, Saudi Arabia and Russia. The “Arab Spring” and US military intervention have made Libya a more dangerous place (see Benghazi) and consequently a less reliable trading partner, forcing greater dependence on Russian oil.
Russia also supplies a considerable portion of the 2.4 trillion cubic feet of natural gas that Italy is estimated to have imported in 2012. Its other major sources of natural gas are Algeria and Libya, both of which have grown less dependable in recent years due to domestic unrest. In part because of political instability in northern Africa, the average price paid by Italian consumers for natural gas rose by 34 percent between 2008 and 2012, compared with general inflation over that four-year period of just 9 percent.
Still, natural gas has remained relatively more affordable than electricity. The average Italian paid about 32 cents (using current euro-dollar exchange rates) per kilowatt hour for electricity in the second half of 2012, more than 2–1/2 times what Americans pay on average.
These high energy costs are biting Italian consumers during trying economic times. The Italian economy is smaller today than it was in 2007. It has shrunk in 4 of the last 6 years. Last year it contracted by 1.9 percent. The “good news” is that the IMF believes that it will grow this year – by 0.6 to 1.1 percent — changing direction while leaving living standards depressed.
Economic war with Russia would turn even that modest improvement to a negative and further unsettle an already-scrambled domestic political situation. Italy is on its third unelected government since Berlusconi was deposed in November 2011. The current prime minister, 39-year-old Florence mayor Matteo Renzi, is pushing a fractious parliament to approve his plan for 7 billion euro in tax cuts, aimed at letting low earners keep an additional 80 euro ($111) per month in wages. The plan has come under fire both from Berlusconi’s party and from parliamentarians aligned with comedian Beppe Grillo, who has called the offsets associated with the tax cut “nothing but hot air.” If Renzi’s plan fails, he too may be forced to move on.
In view of its economic contraction, political uncertainty and falling living standards, it is easy to see why Italy is reluctant to take sweeping sanctions against one of its biggest energy suppliers. A similar story is repeated, in various versions, throughout many European capitals, suggesting that President Obama’s campaign is unlikely to succeed.
That’s not to say that Russia’s economy isn’t vulnerable. While it may not be the “gas station masquerading as a country” that John McCain (R‑AZ) makes it out to be, its economy depends to a great extent on the sale of energy and other natural resources. Twenty-one of its twenty-two largest companies are in oil, gas, mining or iron and steel production Like Venezuela, it has suffered from the worldwide decline in oil prices.
It is also a highly corrupt economy, with Vladimir Putin and a small group of oligarchs controlling the enormous wealth generated by the largest companies. Putin’s personal net worth remains a mystery. It has been estimated to exceed $40 billion. An economy that lacks diversification and that concentrates wealth in the hands of a politically connected elite is susceptible to shocks, a vulnerability that President Obama would very much like to exploit.
His problem is that Europe, too, is vulnerable and that it would suffer if Russia were harmed. Trade, after all, isn’t a form of charity. It is mutually beneficial. Restricting it disadvantages both parties. Europe may be better able to sustain economic damage than Russia, but Europeans who already are paying high prices to drive their cars and heat their homes are no more inclined to sacrifice than Americans would be. Nor would our politicians, including President Obama, ask us to undertake such sacrifices, given the political hazards of such an appeal.
As the economic sanctions campaign stumbles on, the situation in Eastern Ukraine continues to deteriorate. The multilateral agreement to return government buildings to Kiev’s control, concluded just two weeks ago, appears dead. The Kiev government has now all but conceded certain eastern Ukraine cities (not to mention Crimea) to Russian-inspired militia. Pro-Russian forces have tightened their control over several of these cities and there are reports that they downed two helicopters flown by the Kiev military in the pre-dawn hours this morning. It is beginning to appear that whatever the results of the scheduled May 25 elections, the new government in Kiev will be unable to control substantial parts of the country, including cities where key industrial assets are sited.
That is lamentable. Unlike in Crimea, there does not appear to be substantial sentiment in eastern Ukraine to secede from the country, much less to unite with Russia. Those, at least, are the findings of a poll conducted last month in eastern Ukraine by the Kviv International Institute of Sociology. Polls can be suspect and I am relying on a Google translation of the results, since I do not read Ukrainian. But with those caveats, here are a few of its findings:
- Most believe that Russia is illegally interfering in Ukraine’s internal affairs (54 percent agree with that assessment; 32 percent disagree).
- The plurality does not believe that Russia fairly protects the interests of Russian speakers in eastern Ukraine (50 percent vs. 33 percent).
- The overwhelming majority oppose the seizure of government buildings in eastern Ukraine by force of arms (77 percent vs. 12 percent).
- They also overwhelmingly oppose a Russian incursion into eastern Ukraine (74 percent vs. 12 percent).
- They do not want to secede from Ukraine and become part of Russia (70 percent vs. 15 percent).
- They are not fans of the Kiev government either. Most think that the rule of Acting Ukraine President Oleksandr Turchynov is illegitimate (51 percent vs. 30 percent).
- Nor do they favor the government Turchynov replaced. Most consider the rule of former President Viktor Yanukovych to have been illegal (70 percent vs. 20 percent) and the plurality (45 percent) hold him responsible for the killing of demonstrators in Maidan Square last winter.
If these poll results accurately reflect the views of Russian speakers in eastern Ukraine, then they would appear to be more sensible and realistic than those of Putin, Obama, or the leaders of western Europe. Eastern Ukrainians reject the West’s contention that the government established last February to mollify protestors is legitimate, but they don’t embrace Putin’s designs on eastern Ukraine or believe that he is looking out for their well-being.
They are right on all counts. A reasonable solution would have been to constitute a temporary government in Kiev that was broadly representative of all parties in that fractious country. That might have been possible in the days and weeks following Yanukovych’s fall in February. Instead, we incited Russia by backing a coup in its neighbor, then proved unable to prevent Putin from turning Ukraine into a divided, ungovernable mess. Having assured Ukraine’s long-term instability, our foreign policy experts now devote their energies to permanently poisoning our relations with Russia. They seek to make Putin a pariah, to deny him a seat at the global lunch table.
Perhaps the Italians and other Europeans will someday throw in with our economic sanctions campaign. Maybe they’ll be willing to pay $12 or $15 for a gallon of gasoline and shell out exorbitant sums to heat and light their homes.
That, in effect, is what President Obama is asking them to do. Their reluctance is understandable.