Joanne Thornton is a managing partner at Policy Connections International, LLC, a GBD member, and she was one of those who weighed in with well-researched comments at GBD's March 28 lunch on the crisis in the Ukraine. As we noted in an earlier entry,
Terence Stewart of the law firm of Stewart and Stewart led off that discussion with a presentation that highlighted Ukraine's WTO issues. Ms. Thornton's comments focused on trade in energy.
A write up of her remarks, which she shared with us, set the stage this way:
"Like Alice's step through the looking glass, Russia's use of force to dismember Ukraine is a disorienting event, from the perspective of a generation of post-Soviet East-West engagement. Within the next decade, Russia itself may be surprisingly challenged by the re-casting of international relations that it has set in motion, not least because of the new economics of global energy."
Much of what Ms. Thornton said on March 28 - including today's quote - flowed from a few big-picture facts and in particular these:
"Oil and gas account for nearly 70% of Russian export value (about four fifths of that is from oil, and one fifth from gas) and 50% or more of annual domestic budgetary revenues. Excluding these revenues, Russia's budget deficit exceeds 10% of GDP."
She began, however, with more subtle observations. Though not large, U.S.-Russia trade reflects some very big developments. U.S. exports to Russia have grown over the last few years, but U.S. imports from Russia have fallen by almost 23 percent since 2011. Ms. Thornton explains:
"The magnitude of the bilateral trade numbers isn't significant for the U.S. or Russia; neither one is a top-tier trading partner for the other. But the pattern is interesting because it reflects a long-standing economic dilemma for Russia - namely, its heavy reliance on the energy sector."
Plus, of course, America's growing strength in the same sector. And it isn't just America. The development of oil and gas resources around the world is moving ahead dramatically from North Dakota to Poland and from Australia to China.
Ms. Thornton said quite a bit about trade in natural gas or LNG and the on-going policy debate in the United States over approving projects for LNG exports to non-trade agreement countries, like the EU and Japan. While actually getting LNG from here to one of those many theres may be a long-term project, project approvals can have an immediate effect. Ms. Thornton put it this way:
"Even if half or less of the proposed U.S. export capacity eventually is put into place, the prospect of nearly 10 TCF/year [trillion cubic feet] on offer now to the highest bidders in Europe and Asia could affect the pricing of new long-term gas contracts, forcing Russia to offer better terms and eroding its revenue stream."
