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For Europe, From Russia, With Love

Category: Big Picture

The EU catch-22 conundrum involves many incongruous and conflicting issues each one of which must be solved first before solving any of the others in a context of constant change and dozens of mutually exclusive moving parts.

Simply put, the European situation is ultra-complex, far from enviable, and getting ever worse by the hour. Possibly a Rubik´s cube may represent the problem, but two of them would do it better. Still, you can easily google the solution for Rubik´s cube, but you cannot do that for the European conundrum. And as impossible as it may seem, I tried my best to convince the EU leadership to reverse their foolish decisions. Now, the big news is ( just as unbelievable…) that the Western collective brainos in charge are changing the MSM tune proposing that “a deal must now be made” as if orchestrated by top D.C. communication experts. And it probably is, why not ? Furthermore, most emphatically the living Henry Kissinger persona has boldly proposed the idea to the Davos crowd in.their.face.

Fool me once…

But HK is not alone and there must be some strategically huge thinking going on. Now even “The Guardian” tries to pivot realizing that “The perverse effects of sanctions means rising fuel and food costs for the rest of the world”. No kidding. ”Sooner or later, a deal must be made “. Congrats for such brilliant idea. And others also join the choir.

Pax Russiana

The problem with “a deal must be made” is it contradicts history, and Valdai Director Timofei Bordachev for one.   There cannot be any “deal” in the Ukraine conflict simply because Russia wins and it´s way too late to negotiate anything after plenty of destruction and bloodshed and with no Ukranian or European intention of ever complying with Minsk 2. So Western credibility has reached negative values in the Russian collective mindset. What should take place though is a unilateral withdrawal and full capitulation of Western military support coupled with Ukraine´s unconditional surrender with voluntary regime change and even with a ´pax Russiana´ way beyond Minsk 2. Think US public opinion re Japan 1945 and the Pearl Harbor specter roaming in their minds, nothing less.

The EU conundrum

In an age were securing energy sourcing and ensuring strategic semiconductors is essential, Europe has dug for itself an ugly Catch-22 ditch that will directly hinder the livelihood of 800 million Europeans. Most dangerously, by picking a needless confrontation with Russia and banning the purchase of its oil, Europe has now unilaterally set itself up for an unmanageable outcome with assured negative consequences. This includes severe financial instability derived from

(1) disqualifying higher prices of seaborne risked, batched, necessarily variable and troublesome non-Russian crude oil feedstocks which will turn European products, services, and labor costs utterly expensive and non-competitive.

(2) unnecessarily sacrificing the energy security enjoyed during decades through cheap and reliable Russian Urals blend for yet unknown non-Russian vendors which in the best of cases will never ever match Russia, already a fully vetted, solid, experienced, close-by provider of unlimited quantities of very specific and high quality, door-to-door oils.

(3) spending a monumentally large amount of euros that Europe does not have nor should print while simultaneously risking project non-performance through the necessarily partialized, probably interrupted, postponed or aborted, and well-known trouble full reconversion investments now required for refineries, chemical processing plants, and every logistics infrastructure throughout European industry and trade. And all of this supposedly in 6 months time when 6 years would not be enough, meaning that non-compliance will be rampant by January 2023. Worse yet, having many half-finished, half-baked, half-tested facilities will mean the European energy & fuel matrix will stand flat-footed neither reconverted to yet unknown non-Russian oils nor processing the traditional and fully proven Urals blend (!!!)

 The real ultimate EU problem is ´negotiating´ from a position of extreme weakness it has dug itself into and should have always avoided. But at the same time, Europe cannot be anywhere independent from Russia. So the above will affect current and future European production of fuels to fertilizers and everything in between, from kerosene to diesel to gasoline affecting cars, trucks, buses, plastics, pesticides, agricultural, mining and industrial machinery, foodstuffs, water quality and availability, pharmaceuticals, ships, inks, airplanes, polymers, medical and industrial gases, sealing rings & membranes, power transmission, transformer and lube oils, etc., etc., etc., etc., etc., etc., etc., etc., etc., etc.

Attempting to execute the above under the described terms – and others not mentioned but technically even far more demanding – would be outright engineering and economics madness. But simultaneously attempting many impossible projects as now required throughout Europe within an ultra-narrow 6-month time-frame and everybody at the same time is sheer nonsensical stupidity, doomed to fail. Why do it then ? Because it´s mandated by the prevailing post-Brexit-US-Anglo-Saxon Russophobia that now hypnotized European leadership foolishly and irreversibly endorses.

Davos failed

Henry Kissinger knows it, but do they?.  Naturally, the EU leadership has made mistakes all along the 21st century, both technical and political, as fallible humans cannot avoid it. But the captains of the European ship this time around are going a long step further by unbelievably forcing its sailors to run around the deck like a bunch of beheaded chickens with no sense of purpose in rapidly approaching shallow waters in what seems to be a deliberate suicidal attempt. This has never happened before in recent history as the European success we all know was always based on superb and cheap Russian energy. The plan and policies were led by former German Chancellor Gerhard Schröder who thought it out bottom-up, top-down, sideways, from left to right, from right to left, crossways, you name it. Until finally in the late 1990s reached the conclusion and convinced the European family of nations that Franz should marry Natasha. And so they remained happily married with many healthy and ambitious children until 2022 whereby the post-Brexit US Anglo-Saxon axis achieved the unthinkable by turning Europe against Russia yet again for the third time in a century as Prof. Michael Hudson has correctly observed. Meanwhile, absurdly enough, Poland is now proposing yet additional sanctions against Russia as if they did any good

Wrong policy

Mike Whitney at The Unz Review reported how Henry Kissinger nailed it at Davos when claiming that “The EU policy is wrong… and must be changed immediately…or the damage to the US and its allies will be severe and permanent. Negotiations need to begin in the next two months”. So the Davos crowd heard it directly from a very famous horse´s mouth – the still most powerful former Establishment’s Voice – as he splashed ice-cold water at their staring eyes for concocting the current EU suicidal policy. Kissinger told the Davos messenger boys to their faces “you got it wrong” guys so report to your bosses that hurting US allies and US interests must stop immediately, right now. Of course, let´s recall that the real Davos puppeteers never bother to show up anywhere public in their “rules-based order” narrative, let alone at Davos proper.

Furthermore, Whitney explained in no uncertain terms that “the basic strategy to weaken and isolate Russia by severing Russia’s economic ties with Europe and goading them into a long and costly quagmire in Ukraine” just pushes Russia and China to their mutual warm embrace. Thus, the West is making both the US No.1 and No.2 top rivals even stronger (unbeatable maybe ?) against US strategic interests. So “ the world’s manufacturing powerhouse (China) and the world’s second biggest producer of hydrocarbons (Russia) just got a helluva a lot better (together) because of Washington’s counterproductive war in Ukraine.” And forgot to add that Russia would also be the world´s topmost nuclear power with flight-ready hypersonic vector delivery capabilities. So already very much with us are supply line disruptions, food and energy shortages, with high inflation rearing its ugly head and worldwide unstoppable deglobalization. But more is coming with massive migrations and unemployment that will necessarily follow as Ukraine calls Germany´s policy “a disgrace”

Energy insecurity

Obvious to any clear-thinking and reasonably informed mind, Western energy security is not secure anymore thanks to the EU policy vis-á-vis Ukraine thus placing Western livelihoods and wellbeing at stake. So Russia now has been forced to pull a 180 on the West while successfully focusing on China, India, and the remaining 85% of the world´s population, not NATO´s 15%. Meanwhile, European mismanagement stupidly ensures no possible rewinding for such a trend while Russia can freeze and starve Europe to death anytime it wants as humans are only a few meals away from survival. By the way, Russia has just limited the export of noble gases, a key ingredient in the manufacture of semiconductor chips. So, for example, no neon means no chips which would prolong a worldwide semiconductor supply crisis already wreaking havoc for a wide swath of EU industries. Or just a bit less of Russian natural gas means deep problems for Switzerland which would have to cover its electricity import needs from its other neighbors Germany, Austria, and Italy. Yet, the power export availability of those countries would heavily depend on the available fossil fuels, mostly Russian natural gas to be paid, of course, in nothing else but Rubles.

Rubber meets road

The world oil market is finite one and the same. What you buyeth, someone else selleth. If the declared intended goal is to deprive Russia of oil revenue, that would mean that all exportable Russian oils — or a very important fraction thereof – would stay in Russia wherever (even subsurface) but not sold to anyone. That would necessarily mean that approximately 35% of the world´s currently imported oil would have non-Russian vendors. Now there´s no mystery here, so who would that be? Iran and Venezuela would not for different but still well-known technical reasons. So would it be Oman? Let alone whether Oman would have the right quality base blend oil, but still how much constant quality oil can Oman export to the EU? Would Norway suddenly supply all Europe?

(1) So, every refinery in Europe would not possibly be modified and tuned up for, say, a blend based on Oman spot crude. So which ones would and which ones would not? On what basis? Would there be EU infighting for vendors?

(2) such modifications and tuneups would be done all at the same time and with a tremendously strict deadline.

(3) is there enough deliverable surplus Oman or Norwegian blend base oil (or equivalent) to substitute for all current EU consumption of Russian Urals? What percentage then? 10% ? 20 % ? what about the remaining 80%?

(4) What about the added complication of seaborne batch delivery and still missing inland logistics infrastructure?

(5) Thousands of yet unknown people are needed to execute all of these projects with yet to be defined job descriptions, yet to be interviewed, hired, trained, teams put together, deployed, etc. etc. Current operational and maintenance + staff & field personnel would probably demand being switched to other jobs… or will drag their feet… or would simply resign thus necessarily compounding the problem to unchartered depths. New, young, inexperienced hands do not help under these circumstances. Many oldies will be called back from retirement. New managers and all sorts of office & field personnel from logistics to IT contractors, welders, etc. will not even be hired by the end of 2022

Humpty dumptyhttps://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcQopPmeftFhq2gVAehZtbudZrZTqKkwqLWQA1izvhAGG8wMhl1306k8_XmjuCo&s

The EU Russian oil ban means that the UK and others in the continent will find that they now suddenly have spanking new fully unexpected competitors – Germany and Poland and many others too – per European countries bidding for what used to be THEIR vendors, their oils, including “Norway´s or Oman´s” which, of course, have finite supply capacity and will end up exporting a bit more to their traditional European countries and that´d be IT. Same for Middle East producers that besides negative geopolitics are not stupid enough to increase production in this senseless and most probably not sustainable temporary vaccuum of sorts now created by the EU. That leaves the random boutique hit-and-miss “beach front bazaar” oil suppliers, so lots of good luck with that. True enough, the UK and others in Europe have imported non-Russian oils before but in far smaller quantities and still perfectly matched & mated to only a few processing plants and refineries which would now be hundreds all throughout Europe.

No diesel no glory

At least 50% of cars and almost 100% of trucks in Europe are diesel-powered. So, most European refineries are currently finely tuned to distill humongous tonnage from the “diesel special” Russian Urals blend in theory no longer available unless cheating prevails, of course. Venezuelan and Iran oils are way too heavy for diesel fuel production.

In turn, sweet Middle East oils are clearly not bidding for whatever reasons, even geopolitics. That eliminates the only three possible large enough providers of constant quality oils. So then the trick would be to find crude oil blends from “somewhere” that would be most similar to Russian Urals with a Nelson Complexity Index refinability of 9.8. Of course, this always assuming that European refineries will be rapidly fined-tuned to process such crude blends without problems, something which should be seriously doubted. The fact remains that refineries in the EU still are currently set up to distill diesel from a well-known Russian crude, and switching them over to a different blend would normally take many months if a single refinery were to be modified. Reconverting all refineries and processing plants in Europe simultaneously is an unheard-of experiment with most probable terribly adverse results.

Matching the Urals oil grade in theory is technically “possible” (sorta) by blending oils from different sources, BUT maintaining the blend specs and volumetric physical flow requirements to meet refinery capacity/specs is very difficult.

So, now not having available Russian Urals blend, exactly which “diesel special” crude oil blends — from where? — will European refineries process in order to distill massive amounts of high-quality diesel needed by the European transportation market? Not from Venezuela, and not from the Middle East. Maybe a little bit from Nigeria? Same as the Urals, the final supposedly constant high-quality homogenous non-Russian oil blend has got to have light-intermediate API gravity and low sulfur content. So what percentage of Russian Urals would any of these new blends replace? Anywhere near 100%? If not, how would Europeans manage with the enormous missing difference? The refineability of these non-Russian oil blends is risky and thus requires careful constant testing of all-around refinery modifications adapting internal processes to new yet unknown oil blends required to remain constant for at least 30 years, preferably 50 years. Of course, switching these European refineries over to different and varying types of non-Russian crude blends will take an enormous effort and time. But they better produce tons and tons of diesel. And it is not only a “refinery modification problem”. It´s rather a “refinery modification problem vis-á-vis a given feedstock blend, with guaranteed FIXED & CONSTANT composition, for decades, always unchanging with continuous reliable delivery despite the batch-only nature of seaborne sourcing.

Quantity

Russian Urals oil is unlimited, smooth, on-demand, door-to-door, either by pipeline or from nearby Russian ports.

For unknown new oils, chances are that there is not enough volume available, not even in Africa.

The problem is also finding non-Russian oil suppliers with possible future “incremental” export volumes beyond current production for two main reasons: one would be potential growth in EU demand and the second is that no vendor will leave traditional customers abandoned high & dry just because the EU has now launched itself to an impossible project. Furthermore, these possible future European contracts might all turn out to be short-term ephemeral unsustainable ´purchases of convenience´ with no future. If Europe were not receiving timely, large enough, and well-delivered quantities it´d mean degraded European livelihoods and a failing economy, with shut down plants and refineries affecting everything. Price would also go way up, of course. The problem is that increasing source oil-field production is a fantasy stifled by the realities of labor shortages, increased drilling costs due to inflation, and temporary or permanent lack of raw materials caused by supply chain disruptions. There is little chance that worldwide production without Russia´s EU-specific blends will ever be able to match EU demands. Meanwhile, Russia is finding new Asian markets real fast as India in 2022 has increased its purchase of Russian seaborne oil by 25 times, that is 2500%…

Weaker West

So, by banning Russia, its primary and already well-established crude oil import source which satisfied all its energy requirements, Europe will now have to laboriously find it elsewhere with far less supply bidded. So the West will be paying higher prices – possibly much higher – while China, India, and others will be taking advantage of solid, constant, on-demand supplies and discount prices from Russia. Some suicidal EU strategy no?

So, from 2023 Europe will pay very dearly for its energy, thus having much higher non-competitive costs all around. This will affect the internal cost of living and most probably will ruin its export-based business model. “The current energy crisis could be one of the worst and longest in history and European countries could be hit particularly hard”, said the head of the International Energy Agency, Fatih Birol, in a public statement. But it could be even worse.

No game in town

Europe may find itself not only paying much higher prices for the energy it requires. It may end up not even finding it at any price, period. At least not the right type at the precise time that any just-in-time economy requires thus leading to massive unemployment and massive migrations. So you either have it as you should or you actually have nothing at all. The current “just-in-time” world would obviously not function without proper and constant “just-in-time” deliveries of the right type of oil blends.

Europe has just drastically reduced the supply side of its economic equation by not allowing itself to access Russia, the world’s largest oil exporter, the world’s largest natural gas exporter, and a major supplier of coal. This means a self-inflicted severe limitation simply because not oil blends are the same (!!!) And Russia´s Urals oil may not have substitutes anywhere in the world large enough and compliant enough to satisfy European current and future needs.

Actually it´s not a “refinery problem” it´s a joint “refinery + oil blend problem”. Because the refinery is matched and mated for a given (and constant !) oil blend. Refineries do not refine just any oil. It is not plug & play, nowhere near that. So it´s a “specific refinery – specific oil blend” coupling that marries happily ever after for many years to come.

The refinery is always dependent on the input grade of the crude while following the output market requirements.

Right now the EU doesn´t even know what oil blends it will find in enough quantity, quality, and type for whichever of the hundreds of refineries and processing plants involved. That will not be known until both the right oils are secured in the required amounts and terms of delivery while whichever refinery adjusts to it, something not always possible. The much-needed end result has got to be a CONTINOUS supply of a highly SPECIFIC & UNIFORM quality oil blend in ENORMOUS quantities with the right delivery format. No occasional dating but rather a faithful MARRIAGE.

So a given plant or refinery for all practical purposes would pretty much FOREVER be fed with one and the same CONSTANT oil blend of the right formulation and specs. Repeat: it is not “plug & play”. Russia is the T-Rex supplier of a European troglodyte crude oil consumer. The problem is that Europe has just set itself up short of the QUANTITY of the right constant QUALITY of the oil blends it requires from a trustworthy and proven supplier.

Achilles heel

Finding non-Russian substitutes for Russian Urals blend will be hard enough to find and expensive enough to pay for. Constant uninterrupted physical delivery of such will be a whole new challenge which may end being the weakest link, same as yet unthought of human resources as partially explained hereinbefore.

So the process involves lots of previous lab testing trying to find the right reservoirs ( which exactly ? ) with the right type of blend base oil, with the right time window for oil-field production, the right seaborne delivery plus internal logistics and loading port capabilities, availability of the right vessel freight fleet yet unknown plus today non-existent capabilities at unloading ports, and the right land logistics for delivery per end-user requirements. This requires lots of coordination of thousands of the right people, lots of time, lots of the right policies and expertise in place, and tons of money. Russia has always complied with all of that — and even more — at cheap prices. Where will Europe find that in 6 months?

In a nutshell, the world wasn´t anywhere nearly prepared for an EU ban on Russian oil… or other Russian fuels…

Market blues

Approximately 50% of the world´s total oil imports are from Japan + South Korea + Australia + New Zealand + Canada + US + Europe. Supposedly, none of these will now be buying any oil from Russia, so they will buy non-Russian oil competing among themselves. In the case of Europe, it´s 36% of their oil imports that they now have to substitute. Obviously a huge amount and not just of any oil. So which oil-exporting countries will now replace the missing Russian oil for these “unfriendlies” to buy? For example, will they have the right quality and enough quantity to substitute Russia´s previous oil export volumes to Europe and other places? In order to substitute for Russian oil, these oil-exporting countries will have to either (a) suddenly increase their production (?) and how would they do that exactly (??) or (b) disregard their traditional clients by suddenly cutting them off high and dry to sell to Europe.

In that case, where would their traditional clients find an exporter to buy the right quality oil from? It´s a single planet Earth market no? So, by now not having Russian Urals blend available because of the EU ban, exactly which crude oil blends — from where? — will European refineries adequately process enough in order to distill MASSIVE amounts of high-quality diesel fuel needed by European cars and trucks market and still render other required distillates…?

Refineries nightmare

The fuel supply crisis will continue increasing sharply worldwide as the 2022 summer demand season kicks in while refineries everywhere keep running at an unsustainable rate. Still, refineries will not undergo major revamping & upgrades such as European refineries would now require because of new non-Russian crude oil feedstocks. Only very limited budgets would be approved for refinery modifications in the EU as the normal investment payback is 40 to 50 years, while, in the near future, fossil fuel consumption will supposedly be plummeting sharply. No incentives nor any subsidies will be awarded in any way shape or form. This year, China is expected to overtake the United States as the world’s largest oil refining country meaning it will import ever-larger amounts of crude oil, including Russia´s, so prices will go up accordingly despite any discounts. Meanwhile, the US continues to normally import Russian heavy oil on its own while telling Europe not to. There has been no announcement of any US Russian oil import reduction let alone an outright ban. I guess this piece of information makes it clear who is really running this show.

Rosneft increases share ownership in German PCK refinery

Ports

Each and every European port will require modifications adapting to new handling, unloading, storage, and additional delivery requirements of non-Russian oil from whichever tanker fleet is found, yet unknown, if any. This means designing and building new dedicated facilities per specific consumer and tanker needs (supposedly fixed and unchanging) in order to match the processing foreseen and executed until today with necessarily different non-Russian oils. An EU Russian seaborne oil ban will shrink the number of vendors and the volume of oil offered to Europe very significantly thus ruining the supply side of the EU oil price equation. The much lower the supply, the MUCH higher the price. With Russian seaborne oil banned, the potential European supply is much smaller both in number of vendors and/or of the volume available for bidding. An unnecessary procurement mess and a very harmful self-inflicted policy. No feasibility studies have been made as there has not been enough time to do any in 3 months.

Ever larger migrations will be one of the prominent indicators of Europe in the very near future while Ukraine officials exchange insults with Hungarian government officers.

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