Transcription
So, Russia's oil industry is currently under the most pressure it's ever seen. And that's surprising because it's actually not supposed to be that way. Right now, because of the war in Iran, Russia is supposed to be making a lot of money by selling oil and natural gas because the closure of the strait of Hormuz has sent energy prices skyrocketing. But it turns out that higher prices is not the only part of the energy trade conversation. In order to get those higher prices, you have to actually be able to deliver the energy that people are buying. And it turns out that Russia is really struggling with that right now.
And I talked about this in a video just a couple of days ago, but it turns out that that video is already a little bit outdated. The arguments are still correct, but the numbers aren't correct because Ukraine has made a lot of progress just in a couple of days. In that past video, I was talking about how throughout the length of the entire war in Iran, Russia's export capacity had been reduced by approximately 30% due to a combination of Ukrainian attacks and some other things. But now today, that number sits at 40%. And it actually seems like it's likely to grow. Ukraine seems to be taking more and more Russian energy capacity offline and they don't seem like they're going to stop doing that anytime soon.
But even more than that, on top of these trends, we're now starting to see some other international trends where other countries are getting more serious about actually taking Russia's shadow fleet offline. Not just sanctioning Russian oil, but actually physically intervening to stop Russia from making deliveries in the first place. What we're going to talk about in today's video is the new multi-layered approach to taking Russia's energy revenues offline. And we're going to build on some of the arguments I made in my previous video, if you already saw that one. But this is not just going to be a repeat because already there's a lot of new information and a lot of new data.
We're going to see how Russia is now facing problems in multiple different areas where there's now multiple different stops preventing them from actually making money from selling oil. And this is a huge problem for Russia because it's really a perfect storm. They're being hit by a lot of things simultaneously, which means even if they address one thing, they're still going to have problems in another area. But also because all of these problems are coming simultaneously, it reduces their ability to respond appropriately to each individual problem. Meaning that each problem will persist to some degree, even if Russia can have a response at some level. And we'll realize that Russia really has nowhere to go but down.
As I'm recording this video, Russia's export capacity is currently down about 40%. But we'll see how that's actually a number that's likely to increase potentially to a maximum of around a 75% reduction. And this is in the context of rising energy prices where these rising energy prices have been up by about 40%. What we realize is that as of today, Russia is already in a worse position than they were at the start of the war in Iran when you net everything out. Actually, it turns out that they're about 16% worse than they were at the start, at least as far as raw revenue is concerned. I'll put the math here on screen. It's not that complicated. And the problem for Russia is that this ratio is only going to get worse and worse. Russia's oil revenues are going to go down from both sides from here on out. And it puts Russia in a massive, massive dilemma.
A lot to talk about in today's video, but first just a quick word from the sponsor that made today's episode possible. With the theme of today's episode in mind, today I want to highlight a Ukrainian business with one of the most unique stories I've heard recently, who also makes an excellent product. That company is Art Winery, who has a profound connection to a place that the viewers of this channel will unfortunately be intimately familiar with, Bakhmut. Art Winery is famous across Ukraine for their sparkling wines, and they were born 236 feet beneath the ancient ground of Bakhmut, inside the world's deepest wine cellar, below the site of what would become one of the most famous battles of Russia's war against Ukraine.
The city of Bakhmut, of course, was completely leveled and eventually fell to Yevgeny Prigozhin and his Wagner forces. And as it fell, we got some of the last footage of Art Winery's ancient cellars, which they no longer have access to with Prigozhin walking through them and having his troops package up the bottles as spoils of war. Millions of bottles were lost, representing the life's work of people like Irina Holemova, a chemistry graduate who developed unique approaches to wine-making, including the playing of classical music in the once silent cellars. This brought calm and rhythm to the environment and aided in secondary fermentation. And this classical music was still playing when the Wagner Group entered the cellars to take them over.
These millions of bottles, which represented years of patient investment, were not only stolen, but also wasted. With little water in the occupied territories of Ukraine, Russian soldiers have actually begun using these bottles of fine wine to flush their toilets. But the Russians didn't steal all of it. Just before Bakhmut fell, some extremely brave men risked their lives to smuggle out several hundred thousand bottles of Art Wine. That might seem like a strange decision during a war, but remember this was a significant investment and products and economies and profits play a real and meaningful role in real people's lives.
These last bottles from the cellars of Bakhmut were sent to the United States, a sparkling wine that will never exist again. A piece of Ukrainian history and the legacy of real Ukrainian people who lost the bulk of a business that they methodically built over generations to Russian aggression. Art Winery has asked me to work with them to help bring awareness to these final bottles like the one I'm holding now where only 2,000 of this variant were successfully rescued. I thought it was a unique opportunity for my audience to not only own something unique and special, but to also support a real Ukrainian business in the process. These bottles are perfect for any wine collection, and they also make the perfect gift for someone you love, serving as a great conversation starter to talk more about what's going on in Ukraine. For some bottles, there are as few as 180 remaining. If you want to own a piece of history that could never be made in the same way again, you can get one of these last bottles from Bakhmut at artwine.com. They've even put together a special bundle in honor of this channel and my viewers, the full arsenal. A complete archive of 11 bottles, one of each style that made it out of Bakhmut intact. For now, these bottles are only available in the United States, so only US orders are accepted, but I'm told that some bottles will be available in Europe sometime later this year, so stay tuned. And thank you for considering purchasing goods that you already purchase on a regular basis from Ukrainian companies supporting Ukraine's economy in a real tangible and meaningful way.
So, let's get into this discussion first with an overview of the multi-layered strategy. Then we'll go in a little bit more depth on each of the layers and you'll realize how powerful each of them are, especially when they're layered together. And the multi-layered strategy is really an asymmetric economic warfare strategy. A strategy that takes special advantage of Russia's biggest weaknesses and NATO's greatest strengths without getting drawn into a massive conflict. It allows NATO and Ukraine to execute against Russia at a very high level at an extremely low cost, especially compared to the value that they're getting. And honestly, when you look at those details, you'll start to wonder why didn't we implement this like 3 years ago. And I kind of agree, but nevertheless, here we are. At least it's finally being implemented today.
The first layer of the strategy is one that I've discussed in depth. And this is Ukraine's attacks on Russia's oil and natural gas terminals, the facilities that physically load oil and natural gas onto the oil tankers that then ship Russia's energy around the world. And the idea is simple. If you cannot load oil or natural gas onto tankers, doesn't matter how much you have, and it doesn't matter how many tankers you have. If we can keep those facilities offline, then you can't make money on your energy.
The second layer of the strategy comes a little bit further down the chain. And it comes down to the fact that more countries are now showing a willingness to actually enforce the law against sanctioned Russian oil tankers. They're actually willing to stop these tankers when they enter their own coastal waters and actually prevent them from making deliveries. So this is obviously very important.
And the third layer of the strategy is similar but a little bit different to the second layer and that is the strategy of Ukraine actually potentially being willing to send drones to take shadow fleet tankers offline using force not words to stop the Russian energy machine. Something that they are able to do without actually sinking the tankers and causing an environmental catastrophe. You can see how all these layers work together at a conceptual level. But let's dive deeper because the story just gets fascinating.
For this first layer, I'll be a little bit more brief just because it was the subject of a full video that I posted just a couple of days ago. I do encourage you to watch that one because it has a ton of interesting context, but I don't want to repeat everything because obviously my repeat viewers already know that information. But the first layer of the strategy is that Ukraine is showing a willingness now to actually take Russian oil ports and natural gas ports offline. And we've seen this in several different ways. We saw this basically going into the war in Iran where Ukraine started to conduct massive drone attacks on Russia's ports in the Black Sea. Novorossiysk and these ports have essentially been offline or at least at drastically reduced capacity throughout the entire war in Iran. At the same time, Ukraine had also been conducting attacks on some gas pipelines, trying to take certain facilities offline that would effectively immobilize those gas pipelines until they were actually repaired, particularly the TurkStream and the Blue Stream pipeline. And on top of that, in recent days, we've seen Ukraine escalate this strategy to now include ports in the Baltic Sea.
With all these attacks combined, we're seeing a very interesting trend coming out of Ukraine. Because the thing is, Ukraine has done similar attacks to this in the past, basically as proofs of concept. But what's different about what Ukraine is doing now is they're now hitting these facilities over and over on a repeated basis in what seems like an attempt to keep the facilities offline for a prolonged period of time. It's similar to an escalation strategy that we saw with Russian oil refineries for example earlier in the war where at first Ukraine started by hitting certain energy targets, oil refineries with sporadic attacks. But then all of a sudden Ukraine had this massive wave where they were going after Russian oil refineries like crazy. And they were doing double taps, hitting the same refineries over and over and over again to take capacity offline and to keep capacity offline with the net result being massive gasoline shortages throughout Russia. We're now seeing a similar escalation strategy with Russia's oil ports, their terminals, where Ukraine isn't just proving that they can do certain things. They're actually now doing those things and they're actually working to create a problem for Russia that will be much more expensive for Russia to solve and potentially much more long-term even if it's not permanent.
Now, this is huge for a couple of different reasons. There's obviously the impact of the strikes themselves, which is obvious, but there's also the fact of why the strikes are happening now and what that implies. And I would argue that this is actually far more significant than the mere fact of the strikes themselves. We have to ask, if Ukraine had proved these concepts in the past, why didn't they take Russia's capacity offline earlier? And the fact that they're doing so now actually indicates something very important. It is a shift in Ukraine's approach to the war. I would argue a shift in the politics of the war because the reason Ukraine would not have struck these targets in the first place is because they were prioritizing managing political relationships that depended on them not taking Russia's oil capacity offline. Relationships like those with the United States, but also with Hungary and Slovakia, who could mess things up with the European Union. The fact that Ukraine is now doing these strikes today shows that they do not have as much to lose from losing those relationships as they once did. And that's a big deal. It indicates that Ukraine itself feels itself to be in a position of power, a position of leverage, a position where they have the cards and they can conduct this war on their own even if they risk losing the support or delaying the support of some of their most major partners. And again, a more full discussion of that in the previous video, but don't dismiss it because it is a massively significant point to make. It means that we're potentially seeing right now from Ukraine a change in positioning where they really could just continue to go after Russian energy and try to keep Russia's revenues offline in ways that we've never seen before.
Now, like the attacks we've seen before, it's quite possible that this new wave of Ukrainian attacks will not be fully effective. The thing about warfare is that the enemy always gets a say, and Russia will certainly respond to this in whatever way they can, potentially in ways that we can't even imagine yet. So, we can expect that Russia will probably manage to get these facilities back online, even if only in bits and spurts for short periods of time, for short windows. It's also quite possible that Russia will find innovative ways to get some oil and natural gas back onto the ocean, back into the markets, even if Ukraine takes offline the main loading facilities.
Let's just put all that aside, though, because this is where the genius of the multi-layered strategy starts to kick in because it's not just what Ukraine is doing. It's now what's happening outside of Ukraine, outside of Russia, outside of the coastal waters, outside of the ports. Because what we're now seeing is a new commitment to actually start to take Russia's shadow fleet offline after it's left Russia. And in particular, we've seen that in a couple of different ways. First coming from France, who recently boarded a shadow fleet tanker, showing that they're willing to do things that they've been very hesitant to do throughout the entire war. And now, as I'm recording this video, there were headlines today about the UK being willing to do the same thing. But this seems like just a step in the right direction, not the final picture.
Because the United Kingdom is doing this today as their prime minister is on the way to a conference to discuss more thoroughly what to do, for example, about Russia's shadow fleet. And so the fact that this announcement comes out today, it doesn't seem to be a coincidence, but rather a precursor to what we should maybe expect to see coming out more fully from this conference. In either case, what we're seeing is that France and Britain are showing a willingness to actually stop Russian tankers from going through their coastal waters. Now, this isn't a perfect fix, but it is a big fix. And what it will probably do in particular is it's going to start forcing Russian shadow fleet tankers who do make it out of that port when it's not offline from Ukrainian attacks to take a different route.
Currently, when Russian tankers leave the Baltic Sea, the preferred route is to head for the Suez Canal. But whether they head for the Suez or somewhere else in the global market, they have to get past something else first, which is the English Channel, which is of course surrounded by the coastal waters of the UK and France. That means if the UK and France are serious about actually preventing the Russian shadow fleet from operating within their waters, the Russian shadow fleet is going to have to take a detour. It's going to have to go to the north around Scotland and out more into the Atlantic before coming back. Now, this isn't a massive problem, but it does add time and it does add cost to the trip. The costs are not monumental, but they do amount to something like a billion dollars per year when you consider the entire shadow fleet. That's just rough napkin math. But the real problem here is the increased time. It can take anywhere from 10 to 20% longer for a ship to complete its route if that's the way they have to go. And that means that Russia's effective capacity out of the Baltic Sea, even in best case circumstances, is reduced by that 10 to 20%.
Now, this quickly becomes a big problem for Russia because the costs really start to stack up effectively with both sides of the strategy. You're taking shadow fleet capacity offline. You're either stopping those ships directly and keeping them from operating or more likely after you do that a couple of times, the ships are all going to start to take the longer route, but that still takes shadow fleet capacity offline without using up any additional resources, for example, from NATO. Effectively, if each ship is taking 10 to 20% longer, the size of the shadow fleet has been reduced by 10 to 20%. And that means that for those brief periods of time where Russia can keep the port open, they may not have enough ships available to actually use it at its maximum theoretical capacity. Normally, when things are functioning well, ships are in and out fairly quickly and there are not huge long queues. The system is designed to be relatively efficient. When Ukraine is taking capacity offline, of course, there's longer queues. But when things are back to a normal state, if Russia can get to that point, they're still going to have a pretty massive reduction in capacity.
Now, all of this assumes that only the UK and France are in the picture, and that already has a large impact. But remember, this could just be a precursor, and in that case, things get much worse. Remember, the prime minister of the UK is currently on his way to a conference to discuss with other NATO countries what to do about Russia's shadow fleet. And that is the context in which we're seeing this announcement. And so presumably we could see more countries joining the fray, especially now that the UK and France have kind of put their chips on the table. Two of the largest militaries in the European area have put their chips on the table. And that's going to cause other countries to be more willing to step up. In particular the countries that surround the Baltic. Countries like Poland, Germany, Sweden, Norway, Denmark, Estonia, Lithuania, Latvia, all of them can play a part in controlling something that's even more impactful than the English Channel, which is the choke point leading out of the Baltic Sea, which if that is shut down, Russia can get nothing to market, even if Ukraine isn't shutting down Russia's ports. And so what we see here is a multi-layered strategy where everybody is beginning to step up in ways that they've never stepped up before.
Now, I really hope that this multi-layered strategy does include these other countries and it does include a full shutdown of the Baltic because there's basically nothing Russia could do about that. They cannot retaliate against such a large coalition. But even if that's not the case, Russia's revenues have still been reduced by a massive amount. And even in the context of the rising oil prices in Iran, Russia will net out in the mid to long term in a worse position. But we haven't even discussed the third layer yet.
Now, the third layer is kind of a combination of the first and the second layers, but it's occurring in the Black Sea instead of the Baltic Sea. So, we have all of these powerful countries controlling the Baltic Sea and the English Channel, but who controls the Black Sea? Well, it's certainly not Russia. Their navy is either at the bottom of the ocean or it has retreated from Ukrainian waters. Who controls the Black Sea is Ukraine, and they do it very inexpensively with very effective naval drones. And potentially, we've seen some willingness from Ukraine lately to use this technology to take Russian shadow fleet tankers offline. Not to sink them, but to take them offline, which is a big difference. And potentially, you know, there was a recent attack on a shadow fleet tanker, and Ukraine has not taken credit yet. So, I want to be careful in what I'm saying here.
But regardless if Ukraine did this specific attack, they certainly could do things like it if they chose to. And there was an attack on a Russian shadow fleet tanker that was leaving the Black Sea that was actually full. And this is a big deal because typically if Ukraine moves to take a shadow fleet tanker offline, they've been doing it on tankers that are empty so that there's no risk of an environmental catastrophe. If this is indeed Ukraine striking a shadow fleet tanker that is full, it shows Ukraine has gotten past the concept proving phase and they're now confident that they can take shadow fleet tankers offline at scale without sinking them. And that's a big deal because it means that even if Russia can get, for example, their Black Sea ports online, the same thing is going to happen as might happen in the Baltic. Ukraine has a second layer where they can stop the trickle of traffic from getting out even past that. And that's super important because the weapon systems that you use to take the ports offline are different than the weapon systems that you use to take a shadow fleet tanker offline. And so you're using two different weapon stockpiles rather than running out of one weapon system. And you're also giving Russia multiple things that they have to learn how to respond to. And again, like I said at the beginning of this video, there's no chance that Russia can effectively respond to all of them.
I've been saying it for a long time. Sanctions are great. Sanctions reduce Russia's revenues. More sanctions is better than less sanctions. But sanctions are only a partially effective solution to a problem that has a more complete solution. A legal solution to a problem where a physical solution exists. Sanctions, great for what they are, but they'll never be as effective as countries actually boarding shadow fleet tankers or Ukraine actually taking shadow fleet tankers offline or eliminating the ports that load those shadow fleet tankers in the first place. So, while the war in Iran is going on and there's a lot of concern about rising prices, about Trump removing sanctions from Russia temporarily or not, it remains to be seen, Ukraine has taken sanctions into their own hands with kinetic sanctions. And Europe finally seems like they're willing to stop just talking about sanctions and actually enforcing sanctions. And that is going to be a big deal.
Now, like I said, there's a lot more to this story. So, if you enjoyed this video and you haven't caught the previous video, check it out. There's a lot of information in there that you're going to enjoy. Russia is in a really bad place right now, and I'm going to keep reporting on it no matter what happens. So, be sure to like this video and subscribe to the channel. Those things are free. They really help me out a lot. They help the reach of the channel, and they help more viewers like you see these videos. Thanks for watching. I'll see you on the next.