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OPEC and Russia held the line last week against the Biden Administration’s efforts to wrestle increased oil production from the world’s largest producers, in the face of rising global energy prices.

Russian hawks cried foul and made parallels to Russia’s gas exports. There, it is argued that the Kremlin withholds supply to Europe as leverage for approval of its huge new pipeline Nord Stream 2.

In both cases, the hawks were wrong and the facts prove otherwise.

RUSSIA NEWS: Price hikes should have been expected

First, structural challenges in the energy marketplace, not Russia or OPEC, have led to price run-ups since last summer as economies rebound from the pandemic. The most significant challenge is the growing number of sovereign consumers that are avoiding long-term stable energy contracts and favoring real-time pricing. This strategy works well when prices are low as they have been but can prove disastrous as soon as prices rise.

Indeed. The smart money rarely invests in spot markets long-term, particularly in commodities and when production levers can be pulled by swing producers or consortiums, such as with energy.

Indeed Russia is the biggest swing supplier to the European energy market. It has served as a balanced and rational market maker during the pandemic.

For example, when COVID-19 first took hold, Russia conducted methodical supply cuts that allowed the more rapidly-deteriorating Asian energy producers a market into which they could sell their over-supply, thus providing some stability in the broader industry. It is almost certain that Russia could have benefited from the chaotic early COVID days, when demand was at its lowest point. This would have allowed them to execute market growth strategies through price war strategies or the like. Options it did not pursue.

RUSSIA NEWS: Energy manoeuvring is wholly reasonable

Moreover, and ultimately of most importance, Russia’s energy manoeuvring is in line with international trade norms.

Specifically, Gazprom, the state-owned behemoth responsible for Russia’s pipeline gas exports, has met and continues to meet its contractual obligations with Western European countries, and indeed has increased its net exports by nearly 20 per cent year-on-year. This is a remarkable feat considering the pandemic-fueled collapse in demand last winter, which was made worse by an unusually hot winter. Gazprom was forced to take negative margin positions, which led to a decrease in production of almost 10 percent for the year. As Russia enters a darker winter than the last, with wide inflationary pressures leading rapidly rising interest rates and the pandemic ravaging Russian cities and industrial centers, it seems simplistic, if not completely false, to view the actions of Russia’s energy sector as any other than the reasonable actors operating in a dynamic and challenging environment. Tom Robertson is the CEO and partner of Continental Currency Exchange in Canada, which is Canada’s largest foreign currency retailer. He also works with IDF, a strategic consulting firm that focuses on risk management.

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