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March 3, 2022

Is Russia making a big mistake?

After weeks of rumours, Russia has finally invaded Ukraine. Regardless of the “success” of this
military incursion, we suspect that in the long run Russia may well regret this action. Russia depends
to a large extent on export of oil and especially gas. Although it may get away with this in the short
term, but in the longer run this action could well have adverse consequences, perhaps very serious

  1. Russia may be increasingly regarded as an unreliable supplier which uses the threat of
    withholding supply to achieve political ends. This would probably have the effect of
    increasing the attraction of other sources of gas, notably LNG. This could be the biggest
    boost the LNG business has ever received and may ultimately mean a lower share of the
    world gas market for Russia. For example Germany has now expedited the development of
    two new LNG import terminals
  2.  Most countries worldwide are focused on reducing use of CO 2 producing fuels, such as gas
    and oil. Russia’s action will highlight the importance of moving swiftly away from gas use and
    give a huge boost to the spread of renewables. This could lead to a much earlier loss of
    market share for Russian gas. This is now a priority for the EU

There are other wider issues for Russia to consider. In 1979 Russia invaded Afghanistan but was
forced to withdraw a few years later after prolonged and bitter Afghan resistance. Could Ukraine
prove to be Putin’s Afghanistan? It is hard to see what effect sanctions imposed by western nations
will be but it must have some adverse impact on Russia. For example, It may finally prompt the UK
government to make a serious attempt to restrict the flow of Russian money into London.

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