Lauerman: President Putin’s Massive Ukrainian Blunder – Reprise II


In the two weeks following Russia’s invasion of Ukraine on Feb. 24, 2022, the DOB published my three-part “President Putin’s Massive Ukrainian Blunder” series.

In December of that year, it published a reprise of the series, looking at what I had got right and wrong about the Ukraine War up to then, the war’s impact on energy security, the energy transition and oil and gas prices, and implications for the Canadian oil and gas industry.

Related to the war, a lot has changed since then, with Vladimir Putin’s apparent “Ukraine blunder” increasingly looking like yet another shrewd geopolitical move on his part. On the other hand, things continue to play out as predicted on the energy front, although not always for the reasons I first suggested.

Here, in the second reprise of the series, I will provide a new report card on my original analysis, and discuss what we should expect moving forward based on it.

To read the past articles in this series, click on the links below:

Blunder or victory?

In the original series I argued that the Ukraine War had “a high potential of being a long drawn-out and highly destructive affair, much like the 1936-39 Spanish Civil War, with battle lines now drawn between two ideological camps, and possibly even a Spain Plus scenario given lessons learned by the democratic West from it and other acts of appeasement to the fascists in the 1930s.”

The reasons for this was twofold. I expected Western countries to provide massive financial and military support to Ukraine and punishing financial and economic sanctions against Russia for as long as it takes to keep the Kremlin from re-subjugating Ukraine.

On the flip side, I argued that “Western financial and economic sanctions would not make Putin back down on Ukraine for two reasons: Russians tend to be a highly patriotic people, and are much more likely to blame the West for their economic plight than Putin; and China is likely to do everything in its power to help alleviate Russia’s economic suffering in the short, medium and longer term given its long history of sanction-busting to support fellow authoritarian regimes.”

As of now, it appears I read the Russian/authoritarian playbook well, but may have been overly optimistic about the democratic West’s staying power. Despite the Ukraine War being unpopular in Russia, with over half of the population wanting it to come to a swift end, President Putin remains incredibly popular in the country with approval ratings above 80 per cent.

Putin has done a masterful job of painting the West’s response to his invasion of Ukraine as an attack on Mother Russia, mobilizing his country’s military-industrial complex, marshalling support from fellow authoritarian regimes — including importing one million artillery shells from North Korea in 2023 — and persuading most of the global South to not support Western sanctions against his country.

In contrast, after providing massive financial and military support to Ukraine over the first two years of the war, Western support appears to be crumbling.

The Biden administration is struggling to get the Republican-controlled House of Representatives to release over US$60 billion in financial and military aid to Ukraine, while US$56 billion of aid from the European Union (EU) is being held up, primarily by Hungary. In addition, a second Trump administration would likely lead to a swift end of U.S. financial and military support for Ukraine.

As a result, over the past few months, there has been increasing talk of a possible Russian victory in Ukraine by Western politicians, while President Putin has been saying he is now willing to negotiate a peace deal. “If Ukraine doesn't have support from the EU and the U.S., then Putin will win,” Irish Prime Minister Leo Varadkar said at a European Union summit in mid-December.

Looking forward, without substantial additional financial and military support from the democratic West Ukrainian President Volodymyr Zelenskyy will be forced to the negotiating table with President Putin. The present price for peace is likely the loss of about a fifth of Ukraine’s territory — the land bridge from Crimea to Russia proper in the southeast — and much of the country’s industrial capacity at the best, and this Ukrainian rump-state being forced back into the Russian sphere of influence at the worst.

Energy security and transition

In the original series I wrote that “Russia’s invasion of Ukraine should make it crystal clear to all that the world has entered a New Cold War ... between an authoritarian bloc led by Russia and China and the democratic West,” pushing “energy security right back to the top of the energy agenda.” In turn, this “should supercharge the energy transition in the longer term” among major oil and gas importing countries and regions “since it kills two birds with one stone. But in the shorter term, it’s likely to lead to a resurgence in coal usage and help maintain nuclear’s share of the energy mix, especially in Europe.”

There is no doubt that energy security has again become a central concern of major oil and gas importing countries and regions, with a redirection of global trade flows towards in bloc sources of supply already apparent, albeit at a slower pace for natural gas than crude oil and petroleum products because of the lower fungibility of the former. Despite this, European imports of Russian gas collapsed by almost a half to 105 BCM between 2022 and 2023, whereas Chinese imports of Russian gas jumped by over a half to 21 BCM.

But as discussed in the first reprise of the series, it is still too early to determine whether the energy security revival will bolster of the global energy transition or hinder it, although many major governments have recently doubled down on policies supporting clean energy technologies. These include: America’s Inflation Reduction Act; the EU’s Fit for 55 package and rePowereu plan; Japan’s Green Transformation program; and ambitious clean energy targets in China and India.

Oil and gas prices

In the original series I argued that we should expect Russia’s invasion of Ukraine to cause “much higher oil and gas prices in the shorter term ... due to shortage of supply, and much lower prices sooner than generally anticipated down the road due to a more rapid reduction in global oil and gas consumption.”

Oil and gas prices certainly jumped higher in the shorter term, especially spot LNG prices on international markets. But prices have dropped back to more normal levels much quicker than I anticipated, and not due to demand destruction caused by high prices and a more rapid energy transition.

Rather, oil and gas prices have fallen back down due to a slowdown in global economic growth as central banks the world over raised interest rates to quell high levels of price inflation, with further downward pressure on natural gas prices because of two extremely warm Northern Hemisphere winters in a row.

Looking forward, most forecasters are projecting oil and gas prices to decline somewhat over the next several years, partly due to relatively sluggish global economic growth. For example, the IMF is projecting crude oil prices to decline by 0.7 per cent this year and an average of 4.1 per cent per year over the 2025-28 period based on its medium-term baseline scenario.

Canadian oil and gas industry

In the original series I wrote that “the Canadian industry will certainly benefit from high oil and gas prices” over the next several months, “but it will not be able to ramp up production much to make up for lost Russian exports for a simple reason — a lack of spare oil and gas production capacity.”

However, “over the next several years the Canadian industry has the potential to ramp up oil and gas production, assuming it’s creative … because it will be difficult to justify investments in long-life — 30 years plus — production and infrastructure projects, such as new oilsands mines and in situ operations, LNG liquefaction plants and oil and gas pipelines, in our New Cold War world.”

Canadian oil and gas producers benefited from high oil and gas prices, with most companies achieving record profits in 2022, while gradually ramping up production capacity to provide fill for the federal government’s Trans Mountain expansion (TMX) and the Shell-led LNG Canada projects.

Looking forward, I continue to expect most new crude oil production to come from relatively small projects, whether by optimizing already operating oilsands assets or developing fast-decline short-life tight oil resource such as the Duvernay, and only a few LNG liquefaction projects on the West Coast to achieve FID — including phase 2 of LNG Canada — although the recent moratorium on new approvals in the U.S. by the Biden administration could provide a bit of a boost on this front.


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