Putin Creating A Pretext To Protect Militarily Crimean Offshore Oil and Gas Reserves

Russian President Putin — taking a page from the heretofore successful playbook of Turkish President Erdogan — appears to be building a pretext to militarize the Crimean peninsula to a considerably greater extent and accelerate the exploitation of its annexed offshore energy treasures.  As we observed in our ‘‘‘alert‘ of August 8, 2014, Moscow has already approved a $18.7 billion economic development program for Crimea.  A great deal of these funds are slated to support the exploration and drilling of Crimea‘s formidable offshore energy reserves, which are estimated to rival those in the North Sea.

Even if the estimated Crimean offshore oil and gas reserves are worth a fraction of their estimated size (valued at as much as $1 trillion), Moscow has a huge incentive to consolidate its control over these waters, and deploy area denial weaponry (e.g. air defense, anti-ship systems, etc.) in advance of, or during, drilling operations.

When the Ukrainian population witnesses the centerpiece of its future national wealth being militarized and drained by the Kremlin, a new, perilous front in the Ukrainian conflict will likely be opened.  It is, for example, reasonable to expect that some oil- and/or gas-related equipment (drill rigs etc.) to be sabotaged by Ukrainian nationalists in much the way that took place over several months in late 2015 with regard to Crimea‘s electricity supply (i.e. downed power lines).  Moscow would, no doubt respond vigorously to such ‘‘‘provocations‘ from Kiev and double-down on the pace of this massive energy resource theft.

Such a scenario could well persuade select NATO member states (e.g. the U.S., UK, Poland, the Baltic States etc.) to form a ‘‘‘coalition of the willing‘ to discourage foreign investment in Moscow‘s Crimea-based energy projects, as well as associated financing arrangements.  These new Crimea-related sanctions could be expanded, depending on Moscow‘s appetite for escalation (which will likely prove considerable).  President Putin probably calculates that the balance of cash benefits for Moscow favors aggressive energy development of his annexed Crimean offshore reserves, and risking ‘‘‘non-consensus‘ sanctions from select NATO members.  A consensus within the EU denying Moscow the rewards of such energy piracy is almost certainly unattainable.

With respect to the other major deterrent to Moscow going down this road — its anemic economic and financial condition — Putin likely views the situation as sufficiently stable to move ahead full throttle with buttoning up Crimean reserves in a compressed timeframe, and even posing a future threat to Romanian offshore drilling. 

Should this predicted series of events occur, or something akin to it, it would again demonstrate that economic and financial (E&F) indicators can reliably provide ‘‘‘early warning‘ to the U.S. and allied security communities and militaries concerning the opening of this dangerous new front in the Ukrainian conflict.