In this final look at the "New Energy Cold War," we examine what's ultimately at stake for Russia and the West.

“We have crossed the Rubicon.”
- Donald Tusk, Polish Prime Minister

In Part I of this series, we looked at the South Ossetia conflict “through Russian eyes.” In Part II, you had plenty to say about the “Cuban missile crisis in reverse.”

Now, in Part III, we will look at the longer-term implications for oil and gas... and listen for the distant drumbeats of war.

A Deep Miscalculation

The attitude of the West -- all the more enforced by Western politicians and Western media -- is that “Russia needs to be shown who is boss.” The whole affair is seen as a sort of game... a chance for the West to thump its chest, trumpet its ideals and demonstrate moral superiority (in word if not in deed).

In reading the various Western op-eds, two assertions come to the fore over and over again. First, that “Russia is dangerous.” Second, that “Russia is weak.” (The WSJ even ran a recent piece titled, “Russia is dangerous but weak.”)

Both these assertions are true. The problem is, the pundits have the situation backwards. They recognize that Russia is dangerous, but they calculate that, because Russia is also “weak,” that lessens the danger somehow. The fact that Russia is weak, these pundits tell us, means that the West can “show them who’s boss” without much effort.

And, of course, politicians are happy to fan the flames. It’s the assumption that Russia is weak that allows John McCain to crow, “We are all Georgians” without really thinking about what he is saying.

It’s the assumption that Russia is vulnerable -- too disadvantaged, too reliant on oil and gas revenues to be a long-term threat -- that lets the West fancy itself a school teacher and Putin a bullying seventh-grader.

And perhaps most insultingly, it was the West’s fundamental inability to take Russia seriously that led to a Polish missile installation in the first place. (Remember the first excuse for wanting to put missiles in Poland? To protect Eastern Europe from Iran. That makes about as much sense as protecting Nebraska from North Korea. You don’t pass off an excuse like that with a straight face... not to someone you take seriously, anyway.)

This is foolhardy for one key reason. Yes, Russia is dangerous; and yes, Russia is weak. But Russia is all the more dangerous because it is weak.

Consider which is more dangerous: an animal fighting for sport, or a cornered animal fighting for its life. When survival is at stake, everything changes. When there is no option of backing down, the game turns deadly. For these reasons, a strong-but-weak opponent should be feared more than a conventional one, not less. Weakness tends to force one’s hand.

A Focus on Survival

An important thing to keep in mind is that Russian and Western leaders just don’t understand each other. This not a mild rift, but a chasm. Spengler of the Asia Times puts it best:

The fact is that all Russian politicians are clever. The stupid ones are all dead. By contrast, America in its complacency promotes dullards. A deadly miscommunication arises from this asymmetry. The Russians cannot believe that the Americans are as stupid as they look, and conclude that Washington wants to destroy them...

These perceptions are dangerous because they do not stem from propaganda, but from a difference in existential vantage point. Russia is fighting for its survival, against a catastrophic decline in population and the likelihood of a Muslim majority by mid-century. The Russian Federation's scarcest resource is people. It cannot ignore the 22 million Russians stranded outside its borders after the 1991 collapse of the Soviet Union, nor, for that matter, small but loyal ethnicities such as the Ossetians. Strategic encirclement, in Russian eyes, prefigures the ethnic disintegration of Russia, which was a political and cultural entity, not an ethnic state, from its first origins.

When Russia acts out on its borders, the West sees a thuggish Putin beating his chest. Putin himself -- thug that he may be -- sees a country acting in its own best interests, for the purpose of long-term survival.

It’s a natural human tendency to assume that others see the world the same way we do. Here in the West, we have been successful for so long that it’s easy to take survival for granted. We are so far removed from long-term strategic issues that we rarely think about them... or condense them into sound bites when they do come up.

As a result of this, Russia’s long-term survival focus is a doubly foreign mindset to us. We just don’t spend much time thinking 10 or 20 years into the future (though perhaps we should). And we certainly don’t spend much time thinking about survival (though perhaps China’s rise will change that).

Counting the Costs

Now let’s look at the costs of all this, and figure out how energy (oil and gas) comes into play.

First, we know that this latest escalation will prove hugely expensive for the United States.

In response to Poland’s agreement to host 10 American interceptors, Russia declared Poland a viable candidate for nuclear attack. Ukraine and the Czech Republic have also rushed to ally themselves with the U.S., and thus increased their target profile.

Europe is not going to step up here (as if that were a surprise). The United States is going to have to pay for this added defense burden in Eastern Europe. If there is any hint of a move against Poland, Uncle Sam will have to respond... just as with Taiwan, and just as with Iraq.

In short, the financial cost of being policeman to the world is about to go up, big time -- at a time when the U.S. is more financially exposed and militarily stretched than ever.

Second, we know that big oil and gas producers like Russia and Iran need energy prices to stay high.

This is one of those areas where weakness creates added danger. If Russia and Iran had more robust economies, they wouldn’t be so long-term dependent on one income stream. As it stands, oil and gas revenues are critical to both countries.

This means that if energy prices fall too much, Russia and Iran (and Venezuela and a few others) will have strong incentive to respond. If that response is unpalatable to the West, so be it -- the cash flow is too important.

This is why Russia doesn’t seem to care too much about its reputation at moment. The West is horrified that Russia would be so cavalier in throwing off cooperation with NATO, jeopardizing WTO status, and so on. But none of that stuff really matters to Russia in light of the deeper issues at hand.

The Warsaw-Tehran Connection

So, to recap: We know that Russia is “dangerous but weak,” with the weakness enhancing the danger. We know that Russia is focused on long-term survival, with acute awareness of population issues. And we know that the U.S. is badly overstretched, both economically and militarily.

Last but not least, we know that oil-and-gas-fueled regimes (like Russia and Iran) need energy prices to stay high... and have both the will and the way to push them higher if need be.

In sum, this is a lousy time to start up a new cold war. But that’s what we’ve got, and that’s what the Warsaw-Tehran connection represents.

Russia will not stand for blatant aggression on its borders. If anything, Russia needs to expand those borders, or else face demographic oblivion. Being a brilliant survivor who clawed his way to the top of a brutal system, Vladimir Putin knows this. He is thinking about the long game.

Polish PM Donald Tusk was right. The missile defense deal is a true crossing of the Rubicon, because Russian survival (as perceived by Putin) and Western democratic ideals are now squarely at odds. What happened in Warsaw (the capital of Poland) is symbolic of an epic clash, just beginning to take hold, from which neither side will be able to back down.

Tehran (the capital of Iran) is a factor because Russia is not alone in needing high oil and gas prices to survive.

What’s more, while there is certainly no love lost between Russia and Iran -- “the enemy of my enemy is my friend,” as the old saying goes -- Russia can make life extremely complicated for the West in all kinds of subtle ways.

Selling nuclear technology to Iran, or threatening to do so, would certainly count as one of those ways. Coordinating hostilities would be another. Can you imagine America’s response to high-alert sovereignty threats on, say, Ukraine and Iraq at the same time? (God forbid Taiwan got thrown into the mix also.)

No Way Out But Through

The situation has the feel of “irresistible force meets immovable object.”

Russia has the West over a barrel... a barrel of oil and gas. Meanwhile, the West can’t back down from its idealistic commitments, in spite of being tapped out on blood and treasure. And Russia can’t back down from its long-term expansionary plans, in light of the demographic survival threat.

The takeaway from all this is that oil and gas prices may continue to fall as the world flirts with slowdown... but they can’t fall too much, and can’t stay down for too long. The energy powers that be can’t afford it. And for the West, there is no way out of this mess but through. We’ll just have to play a very tough hand as best we can, financing a herculean array of defense commitments without much recourse.

The most frightening aspect of all this, as far as your humble editor is concerned, is the potential damage blowhard politicians can do. It’s not pleasant to think that, even now, very few Westerners recognize the scale or scope of what’s at stake here. Having been “on top” for so long, we’re just not used to genuine strategic challenges. If the wrong leader says or does the wrong thing in bone-headed assumption this is all just a parlor game, who knows where escalations could lead?

The positive aspect, though, is the technological one. As the West comes to realize the full cost of our oil and gas addiction, we will be motivated more than ever -- in perhaps the most urgent possible way -- to find real solutions.

Hard as it is to believe, we haven’t seen that sense of true urgency yet. You can already hear the sighs of relief as the price of a gallon of gas backs off. You can sense it in the political hopes that a little offshore drilling will make a meaningful difference. When we realize what’s really at stake -- when the West tastes fear again, for the first time in a long time -- that urgency will come.

As always, thoughts and comments are welcomed: This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

Warm Regards,

JL