In his January 2002 State of the Union speech, delivered only months after the 9/11 attack, President George W. Bush famously called out the “axis of evil” — Iran, Iraq (still under Saddam Hussein) and North Korea. But geopolitical dynamics have evolved over the past 20 years. Today, we have the “energy axis of evil.”
Bush’s axis of evil highlighted rogue states that sponsored terrorism. For the energy axis of evil, I include countries controlled by dictators or autocrats under U.S. or international sanctions that produce and sell, or buy, significant amounts of crude oil and natural gas. The primary players in the energy axis of evil are Russia, China and Iran.
The United States, several European countries and others have imposed sanctions on Russian oil and natural gas because of Russian President Vladimir Putin’s unprovoked and disastrous invasion of Ukraine. Those sanctions may hurt a little initially, but there is likely a viable oil and gas market just among the energy axis of evil countries.
For example, the U.S. Energy Information Administration (EIA) says that in 2020 Russia produced about 10.5 million barrels per day (mbd) of “crude oil, all other petroleum liquids, and biofuels.” However, the country consumed only about 3.70 mbd in 2019, according to the EIA, leaving perhaps 6.0 mbd to be exported.
By contrast, the EIA reports that China produced about 4.86 mbd of crude oil and other petroleum liquids in 2020 but consumed 14.01 mbd in 2019.
In other words, China might be looking to buy about 9.0 mbd, while Russia would like to sell perhaps 6.0 mbd — roughly two-thirds of what China needs to buy. But where could China find another 3.0 mbd?
It just so happens that Iran is producing about 3 mpd of crude oil and is looking to export some of it.
Thus, if European Union countries stopped all oil purchases from Russia, the country likely has another autocratic ally with a common border that would be more than willing to buy any surplus.
It appears to be a similar situation for natural gas. Russia produced about 693.4 billion cubic meters (bcm) of natural gas in 2020, but only consumed about 411.4 bcm. That leaves a surplus of 282 bcm.
China produced about 204.8 bcm of natural gas in 2020, but consumed 330.6 bcm, a shortfall of about 126 bcm, which Russia could likely supply.
Iran wouldn’t be much help with natural gas since if consumes about as much natural gas as it produces.
To be sure, there are lots of caveats in this assessment. The production and consumption numbers may be some of the most recent available, but they can still be a few years old. Lots of factors can affect production and consumption, especially during a pandemic and supply chain disruptions.
And, of course, data from autocratic countries is sometimes unreliable.
In addition, Russia has current contracts for its oil and natural gas that it may want to honor, if it can. Selling energy is one of Russia’s methods for keeping purchasing countries from being too vocal about their disapproval of the Ukraine invasion or other Russian mischief. And other countries are stepping up to buy Russian energy, including India.
The point is simply that if countries outraged by the invasion of Ukraine want to take a stand against Russia by refusing to buy its oil and natural gas, there may be enough supply and demand among autocratic countries to create a viable, long-term market.
That possibility should not in my opinion dissuade the United States or other countries from taking a stand against Russia’s invasion by boycotting its oil and gas.
It’s just to note that autocratic countries may create their own markets, apart from the free world. Doing so may not be as efficient as the market was before, but willing buyers and sellers usually find a way to satisfy their wants and needs.