Russia’s collapse, OPEC’s outage, and the U.S. response

Russia’s sphere of influence

-Caucasus. Russia pursues an ambitious regional policy in the Caucasus, in line with its historical traditions and contemporary geostrategic interests, which portray the region as “an integral part of Russia’s history and destiny”.

Meanwhile, its longstanding role as a key player in the region continues to shape its perceptions and priorities. Russia’s policy towards the South Caucasus is also in line with a broader vision for post-Soviet Eurasia, which is seen as a crucible for Russia to finally reassert itself as a major world power – this dynamic has continued in Ukraine since 2013. the conflict.

The Russian Federation’s goals in the Caucasus have at odds with the Western security community in an area where both sides have significant interests. Managing these requests represents a major security issue.

The Nagorno-Karabakh war in 2020 ended with a ceasefire signed by the presidents of Armenia, Azerbaijan and Russia, mediated by Russia. As part of this fragile agreement, Moscow deployed approximately 2,000 peacekeepers to Nagorno-Karabakh. The 2020 Nagorno-Karabakh ceasefire agreement, which also underlined the deadly exacerbation between Azerbaijan and Armenia in recent months, has not been able to completely prevent violence in the settlement area since its signing. Still, Russian peacekeepers have so far prevented such frictions from developing into a third Nagorno-Karabakh war.

Russia wants to present itself as an effective mediator and promoter of peace in the South Caucasus. But Russia’s capacity to do so was undoubtedly damaged by the February 24 decision to openly invade Ukraine. The longer the war of attrition in Ukraine lasts, the more likely Moscow will find its problems in the South Caucasus worsening.

-Kazakhistan

Russians are still an influential socio-political group in Kazakhstan and they continue to be active in Kazakhstan’s public, military, cultural and economic life. Also, the Kazakh language is the state language, and Russian is now officially used in Kazakhstan’s public institutions as an equivalent language to Kazakh.

January’s protests and Russian intervention proved that despite this so-called multi-vector foreign policy under Nazarbayev, Kazakhstan remained firmly within Russia’s sphere of influence. Tokayev may be willing to portray himself as independent from Moscow given the side effects from a unilateral invasion of Ukraine, but he is more of a seasoned enforcer in presenting that image than a leader really trying to get out of Moscow’s orbit.

Kazakhstan has long sought to be relatively independent in its defense procurement from Russia and has been a valuable client of various Western defense firms, but it is not without controversy. Yet his own army has proven incapable—or at least not credible enough in the eyes of the regime-to respond to the January unrest. The production of Turkish drones by such a close Russian ally is worth considering.

Meeting of Presidents in Prague. President Mr. Recep Tayyip Erdogan attended the “European Political Community (EPC)” inaugural summit on Thursday, where he discussed regional issues, including Russian aggression, and met with world leaders.

The President conveyed Turkey’s views, contributions and assessments regarding the challenges Europe is currently facing with its peace and security, energy, climate and economic situation.

Among those meeting at the historic Prague Castle are the leaders of Albania, Armenia, Azerbaijan, Bosnia and Herzegovina, Georgia, Iceland, Kosovo, Liechtenstein, Moldova, Montenegro, North Macedonia, Norway, Serbia and Switzerland.

-About Ukraine-Russia

Turkey’s ambassador to the Czech Republic said this week’s European Political Community summit presents an opportunity for Turkey as it has shown an “enormous performance” in solving problems beyond the capabilities of other countries.

One of the most significant consequences of Turkey’s mediation was that Turkey, the United Nations, Russia and Ukraine signed an agreement in Istanbul to reopen some Ukrainian ports to release grain that had been stranded for months due to the ongoing Russia-Ukraine war. This was crucial in responding to the growing global food crisis.

Egemen Bagis said, “This meeting is actually an opportunity for Turkey, because as it has been for centuries, as the most Western country in the East and the most Eastern country in the West, it shows a tremendous performance in solving problems that other countries cannot solve.” he told Anadolu Agency (AA).

Bagis said, “There is a Russia-Ukraine war that threatens all humanity and worries everyone, but Turkey is the only country that can establish a dialogue with both sides.”

Praising Turkey’s role as a mediator between Russia and Ukraine, including the historic Istanbul grain corridor agreement, Bagis said, “None of the EU member states have been able to achieve this, but Turkey has succeeded,” adding that the country is capable of finding solutions to “chronic problems”.

-About Azerbaijan-Armenia

 The Armenian prime minister, together with Macron and the head of the European Union, Charles Michel, said that he will meet with the Azerbaijani president in Prague:

“I am going to Prague to attend the European Political Community summit. A four-way meeting is planned there between myself, the President of Azerbaijan, the President of France and the President of the European Council. A meeting with the Turkish President is also planned. If nothing changes, these are essentially the main topics that fit into the general discussion of the peace agenda. There will be meetings.” said. The Armenian news agency Armenpress announced the possibility of this meeting on Wednesday.

Turkish, Armenian and Azeri leaders met informally at the Europe summit on Thursday, holding the first high-level talks between Turkey and Armenia since they launched an initiative to restore relations late last year, after decades of hostility.

Ankara is repairing its ties with many countries in the region and emphasizing the need for more cooperation. In this context, steps have also been taken with Armenia, especially after the last Karabakh war between Baku and Yerevan. President Recep Tayyip Erdogan said on Thursday that Turkey and Armenia can achieve full normalization in the region on the basis of good neighborly relations: “I wholeheartedly believe that we can achieve our goal of full normalization in our region on the basis of good neighborly relations. We want to warm up Turkey-Armenia-Azerbaijan relations as soon as possible and solve this problem,” he said.

Putin’s mobilization orders and reflection. As Russian President Vladimir Putin turns 70, he finds himself in the middle of a storm of his own making: His army suffers humiliating defeats in Ukraine. Hundreds of thousands of Russians are fleeing the mobilization order, and their senior lieutenants publicly insult military leaders.

Narrowing his room for maneuver, Putin has repeatedly signaled that Russia may resort to nuclear weapons to protect its gains in Ukraine – a harrowing threat that shattered its repeated claims to stability during his 22 years in power.

Stanislav Belkovsky, a longtime political adviser with extensive contacts among the ruling class, described the invasion as a “self-destruct mechanism for Putin, his regime and the Russian Federation”.

As the Russian army retreated under the blows of Ukrainian forces armed with Western weapons, Putin increased the stakes by annexing four Ukrainian territories and declaring a partial mobilization of 300,000 reservists to support the collapsing front line.

The poorly organized call triggered widespread chaos. The military is struggling to provide supplies for new recruits, many of whom are told to purchase medical kits and other essential supplies themselves, and are left to sleep on the ground awaiting dispatch to the front.

Andrei Kolesnikov, a senior member of the Carnegie Foundation, said the mobilization eroded Putin’s core support base and set the stage for potential political turmoil. “After partial mobilization, it is impossible to explain to anyone that you have stabilized the system. It destroyed the basis of stability,” he said.

-The annexation issue

 Putin threatened to use “all possible means” to force Ukraine and its Western allies to withdraw and defend the newly annexed Ukrainian territory.

The United States and its allies have said they take Putin’s threats seriously but will not succumb to what they describe as blackmail to force the West to leave Ukraine. Ukraine has promised to continue its counter-offensive despite Russian rhetoric.

Kolesnikov described Putin’s nuclear threats as a reflection of growing desperation. “This is the last step for him, in a sense, this is a suicidal move,” Kolesnikov said. “If he is ready to step up, we are witnessing a dictator worse than Stalin.”

At a fundraiser for the Democratic Senator Campaign Committee, Joe Biden said the stakes hadn’t been this high since the 1962 Cuban missile crisis, when John F. Kennedy was president, and he hadn’t gone further in rhetoric than other members of his administration. “We haven’t faced the prospect of Armageddon since Kennedy and the Cuban Missile Crisis,” Biden said in New York. “I don’t think there is such a thing as the ability to easily use a tactical nuclear weapon and not result in Armageddon,” Biden said.

Western officials, including Foreign Minister Antony Blinken and those at NATO, have warned of the consequences of Russia’s nuclear weapons deployment. “The response will be such that the Russians regret what they have done,” Dutch Admiral Rob Bauer, head of the NATO military committee, told the Warsaw Security Forum on Wednesday: “And I think that is extremely important.”

 China’s interest in Russia’s waning influence… What was suspected for a while is now clear: China has “concerns” about Russia’s invasion of Ukraine. While this isn’t much of a surprise, the source and place of this admission: Few would have expected Vladimir Putin himself to make such a statement – and perhaps even less likely at the Shanghai Cooperation Organization’s (SCO) annual summit.

China enjoyed discounted Russian oil and gas imports, but mainland trade routes to Europe via Kazakhstan and Russia were interrupted. Increasing worldwide inflation and the possibility of a global recession should also weigh on an export-oriented economy like China. Politically, Beijing may appreciate the pressure exerted by Moscow’s energy blackmail on the west, but economically it has always supported stability in the global economy. This has been deeply shaken by Russia’s aggression against Ukraine, and its consequences remain unpredictable in its depth and longevity.

Russia’s focus on Ukraine, and Putin’s choice to frame it as a civilizational struggle with the west, has created opportunities for China to expand its influence elsewhere – at Russia’s expense. It must be humiliating for President Xi Jinping to be able to maintain his statesmanship and talk about China’s readiness to work for global stability, while Russia admits that China has concerns about one of the reasons for the lack of stability that Xi complains about.

This is a general sign of the shifting balance of power between Russia and China. And nowhere is it more open than in Central Asia – and so it matters where Putin is admitted.

US interest in oil prices in two ways: its own inflation and Russia’s interests… Oil rose on Friday and for the second consecutive week, supported by OPEC+’s decision to make the biggest supply cut since 2020 despite concerns over a recession and rising interest rates turned to his earnings.

The strength of the dollar makes oil more expensive for other currency holders and tends to put pressure on oil and other risk assets. Investors also look to the US nonfarm payrolls report for clues on how much more US interest rates should rise.

US President Joe Biden expressed disappointment with OPEC+’s plans on Thursday, and he and officials said the US is looking for all possible alternatives to prevent prices from rising.

-Impact on US inflation

Jorge Leon, senior vice president of Rystad Energy, said Brent crude should reach $100 a barrel by December. That’s higher than an earlier estimate of $89.

Some of the 2 million bpd cut is only on paper, as some OPEC+ countries cannot produce their quotas. Thus, the group can only deliver around 1.2 million barrels per day in actual cuts. Leon said this would still have a “significant” impact on prices. “Higher oil prices will inevitably add to the inflation problem that global central banks are struggling with, and higher oil prices will affect the account of further raising interest rates to cool the economy,” he said in a note.

This will exacerbate an energy crisis in Europe largely due to Russia’s interruption of the supply of heating, electricity and natural gas used in factories, and increase gasoline prices worldwide. Because this fuels inflation, people have less money to spend on other things like food and rent.

-What does it mean for Russia?

Analysts say Russia, the largest producer among the non-OPEC countries in the alliance, will benefit from higher oil prices before the ceiling price. If Russia needs to sell oil at a discount, at least the discount starts at a higher price level.

High oil prices earlier this year compensated for most of Russia’s lost sales from Western buyers who were avoiding supplies. The country has also managed to redirect two-thirds of typical Western sales to customers in places like India.

But Moscow fell from $21 billion in June to $19 billion in July, to $17.7 billion in August as prices and sales volumes fell, according to the International Energy Agency. A third of Russia’s state budget comes from oil and gas revenues, so the price cap will further erode an important source of income.

Meanwhile, the rest of the Russian economy is shrinking due to sanctions and the pullback of foreign businesses and investors.

The Saudis’ position and the US response

-According to OPEC’s cut. The timing of the cuts, which will take effect on November 1, a week before the US midterm elections, and their intensity, which has taken the market up to two million barrels a day, likely reflect Saudi Arabia’s desire to put pressure on Biden. Riyadh is not naive about the US political landscape. OPEC+ could almost certainly have achieved the same overall goal, but waited to act shortly after the US midterm elections.

Saudi Crown Prince Mohammed bin Salman (MBS) continues to demonstrate his preference for global engagement that is transactional, similar to how both China and Russia have joined the world at large. The problem is that Washington does not traditionally conduct foreign policy that way, preferring long-term strategic relationships.

MBS also certainly acknowledges the broader global context of decision making. Riyadh’s support of the cuts reflects a conscious decision to actively support Moscow at a time when the world knows that the United States is working to challenge Russia’s ability to successfully fight in Ukraine.

Inevitably, Riyadh will argue that the cuts are in Saudi Arabia’s interest, and that may be true. In the short term, an impending global recession could herald more supply and risk pushing oil prices further down.

In the long run, as global energy transitions away from fossil fuels accelerate, Riyadh may feel it’s only a few years away from taking advantage of high oil prices to generate the revenue needed to reform its economy.

-As a military. If that’s what Riyadh thinks, then its behavior now demonstrates a belief that it has nothing to lose in national security by forming an alliance with Russia. If the United States makes a hasty and unwise decision to immediately withdraw the umbrella of security from Saudi Arabia, Washington risks seeing Beijing fill that void.

On the other hand, Beijing has long hesitated to play the role of security guarantor, and China is unable to fully fill the hardware gap that would arise if the United States leaves – particularly for missile defense, an area where China is still developing its own missile defense.

To that end, the bigger question is whether European Union countries will try to jump in to fill the military hardware gap, just as French Rafale jet maker Dassault Aviation has reached an agreement with the United Arab Emirates to sell its jets shortly: Abu Dhabi, US-made F-35 after canceling the purchase agreement. If so, it would weaken the US power to redefine the boundaries of its relationship with Saudi Arabia; Otherwise, the United States will have to decide whether to force Riyadh to strategically re-engage with Washington or accept a more transactional relationship.

Riyadh can sincerely believe that the economic issues related to oil prices are different from the security requirements on which it is based on the US. But for Washington, economic security is a crucial part of national security. To that end, MBS needs to be careful. There are limits to how much of a country the Biden administration can accept from a country that should be a critical ally.

-US response. A day after OPEC+ angered Washington with sharp cuts in global oil supply, no action was off the table after the Biden administration considered responses to limit energy prices, including new emissions from the US Strategic Petroleum Reserve.

Brian Deese, director of the White House National Economic Council, called the decision “unnecessary and unwarranted” and said the United States is weighing more sales of its strategic stock, which was cut by more than 200 million barrels last year.

On Thursday, Biden said he didn’t regret the visit. “The trip was not primarily for oil. The trip was about the Middle East, Israel and the rationalization of positions. But that’s a disappointment and he says there are problems,” he said.

Democratic Senate majority leader Chuck Schumer said: “What Saudi Arabia did to help [Russian President Vladimir] Putin continue his vile and brutal war against Ukraine will be long remembered by Americans.” Referring to legislation that would remove legal protections from price-fixing actions against OPEC members, he added, “We are looking at all legal means to best deal with this appalling and deeply cynical act, including the NOPEC bill.”

Asked if he was considering easing sanctions on Venezuela, Biden said: “There are many alternatives – we haven’t decided yet.”

So the US may be trying to relax sanctions on Venezuela to allow Chevron, the last major US oil producer operating in the country, to pump oil there. Millions of barrels of Venezuelan oil could make up for Russia’s lost stocks. But first, Venezuelan president Nicolás Maduro must agree to resume talks with the country’s opposition to work for a free and fair presidential election in 2024.

Conclusion? Russia’s decline is troubling the countries in which it acts as a peacekeeping force. Due to troop deployments, these regions are re-enacting their conflicts. On Thursday, the EPC discussed such issues, and President Erdogan offered to replace Russia and mediate with neighboring countries.

Faced with criticism from both his enemies and his allies, Putin may think the only way out is to use tactical nuclear weapons. The West has given a definitive answer on how devastating such actions can be for itself. Moreover, even China turned down its support for Putin’s escalation of the war, as it would deeply damage the Chinese economy.

Kaynak: Tera Yatırım-Enver Erkan
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