Crimea Applies to Join Russian Federation

The United States, the European Union and Ukraine all consider Sunday’s vote to be illegal. President Obama spoke with Russian President Putin on Sunday and reportedly told him that the vote would never be recognized by the international community. Putin countered by saying that the referendum met all international norms.

What the United States and the EU can do to end the Russian takeover of Crimea is a subject of wide conjecture. In fact there is very little they can do without causing at least some to suffer at least as much as the Russians.

Russia supplies as much as 30% of the natural gas for Germany, Italy and other Western European countries, and more than that for its former satellites like Poland, Ukraine and the Baltic states. Any economic sanctions against Russia almost certainly will result in that country turning off or at least reducing the flow of gas. That is not good for Russia in either the short or long run because it needs the revenue now and if it does shut off the supply of gas that is likely to force its current customers to look for other suppliers for future needs.

Russia is also the world’s leading exporter of crude oil, and about a third of that goes to Europe. The U.S. plans to release 5 million barrels of crude from the Strategic Petroleum Reserve (SPR), and that could be a warning that President Obama will seek authorization to release even more in an effort to drive down the price of crude and lower the price Russia receives for its crude. Energy exports account for about 70% of the country’s total export revenues and about half of its gross domestic product.

West Texas Intermediate (WTI) crude was down about 0.14% Monday morning to $98.75 a barrel, and Brent crude was down about 0.55% at $107.61. Russia’s main crude export is Urals crude, and it is priced at a discount to Brent. When the U.S. SPR sale was announced last week, Urals crude dropped $0.40 a barrel.