There is cold method to the seeming madness of Putin's Ukraine gambit. Under the pretense of protecting ethnic Russians (from non-existent discrimination) Putin is moving to consolidate some of the lost power of the former Soviet Union. And to Putin, power in the contemporary international arena is defined less by warheads than by control of energy resources. Russia supplies 30% of Europe's natural gas needs thus giving Putin a chokehold on the EU politically, and generating the capital that sustains an otherwise moribund Russian economy. Crimea is likely only a small step in a larger plan. Follow the gas. Follow the oil. Follow the money.
Crimea has approximately 10% of Ukraine's recoverable natural gas reserves, estimated at half a trillion cubic meters. The real energy prize in Ukraine lies in the Dnieper-Donets region in the east, with over sixty percent of Ukraine's energy reserves. Dnieper-Donets conveniently is populated by a majority of Russian ethnics. Putin can easily create incidents in this area as a pretext for his military intervention -- another case of allegedly protecting the lives of Russian nationals. Dnieper-Donets is a political and economic prize that Mr. Putin might find impossible to resist.
If Ukraine stays intact and efficiently develops its natural energy reserves of natural gas, tight gas and shale gas and proceeds with tapping its offshore reserves, it could meet its domestic needs within five years, contrasting to its current dependency on Russian gas. If Ukraine continues to efficiently and methodologically develop its gas resources, it could realistically within the next decade produce over 100 billion cubic meters annually and thus become a valuable energy supplier to Europe . This would substantially diminish Europe's dependency on Russia and Putin. It would not only loosen Putin's political chokehold on Europe, it would also greatly diminish Russian export profits, which now serve as its economic lifeline. Russia has everything to gain in making sure this doesn't happen. If Russia gobbles up Crimea and Dnieper-Donets, Ukraine would not be able to export its own gas to Europe and would be required to import much of its gas from Russia.
But if Crimea and Dnieper-Donets tantalize Putin, there is an even more luscious economic and political prize on Russia's southern border -- the mega oil and gas reserves of Kazakhstan. Kazakhstan's estimated reserves could make it the fourth largest oil exporter in the world. Its Tengiz, Karachaganak and Kashagan fields, all located in northwest Kazakhstan could potentially produce over three million barrels a day, to supply four percent of the world's oil needs. Tengiz may well become the sixth largest oil field in the world and the giant Caspian offshore Kashagan field the second largest in world.
Russia has long been attempting to manipulate Kazakhstan's oil and natural gas production. When the Soviet government began the Karachaganak project in the dying days of the Soviet Union, it ensured that oil produced in these Kazakh fields would be processed at its Orenburg processing plant on the Russian side of the border. The Russian-dominated Soviets carefully and cleverly ensured that all oil pipelines would run south to north, so that there would be no oil delivery opportunities for Kazakhstan directly to international markets. The only east-west pipelines run across Russian soil, giving Russia control of energy transport, and in large measure price. Potential pipelines have been considered from Kazakhstan west to the Mediterranean across the Caspian Sea through Azerbaijan and Georgia and south to Iran, Pakistan and India. All of these potential pipelines have been opposed by the Russians and have not gone forward..
Conveniently for Russia - and not accidentally - Russian ethnics near the Russian border populate the northeast Caspian region of Kazakhstan, which has all of that nation's vast oil reserves. This is a direct result of a concerted Soviet Russian scheme to populate non-Russian Soviet Republics like Kazakhstan, Estonia, Latvia and Lithuania with substantial number of Russian speaking Russian ethnic settlers. This classic policy aimed to and has successfully created new "facts on the ground." If Putin succeeds in Crimea and Eastern Ukraine, the opportunity for a parallel gambit to "save" Russian ethnics in northwest Kazakhstan from Muslim Kazakhs could give Putin what the Cold War lost for him, the reestablishment of Russia as an international economic and political super power.
In any business balance sheet, the negative side would seem to far outweigh the positive side of the Russian gambit in Crimea. Russia has flagrantly violated a series of international agreements from the UN Charter to the Budapest Treaty, isolating it in the community of nations. It has lost the positive image boost it gained from the Sochi Olympics. It has provoked the EU and US into almost certain economic sanctions that will further weaken the faltering Russian economy. It has created visceral hatred of Russia among non-Russian speaking Ukrainians. By removing Crimea from the Ukrainian electoral system, Russia has all but guaranteed Ukrainian nationalist domination of Ukrainian elections for decades. And by provoking the Crimean Tatar community (which in the past Russia had targeted for mass killings approaching genocide) Russia may have triggered a Chechnya-like bloody insurrection against it in Crimea and beyond. That's a whole lot of stuff on the negative side of the balance sheet. There is only one thing on the positive side -- control of energy.
These are the stakes playing out in Ukraine today and perhaps in Kazakhstan tomorrow. Putin's end game is power through energy. To understand him, follow the gas, follow the oil, and follow the money.