Russians Can Cut Off Natural Gas to Europe Anytime They Want

In the broader world economy we are in the realm of the extraordinary. Never before have so many people in so many places had so much money. The Chinese are earning billions. The Arabs too. And Russians…

“This story coming out of Ossetia is very revealing,” said a fellow diner last night. “The region is much more complex than I realized. These people have been at each others’ throats for centuries. You know, they have about 50 different languages – and none of them related to any of the others. It is only when there is a strong imperial power in place that they settle down and behave themselves. The Tsar pacified the region in the 19th century. Then, the different cultures lived side by side. There were Catholic churches next to Orthodox churches next to mosques. And people mostly got along. And then, Stalin took over. He tried to erase a lot of the ethnic divisions…making them all communists…and forcing them all to learn Russian. But the Russians – either from the time of the Tsars or the time of the Soviets always had trouble along the southern periphery of the empire. They could never very easily bring the Muslims under control. That’s what the Crimean war was all about…and then, in Afghanistan, the Muslims kicked them out.

“But what I think is most interesting about this story is the way Russia is asserting itself. I don’t know what was going through the Georgian president’s head. You don’t attack Russia with just 17 tanks. He must have thought he had support from the U.S. and Europe. But what could the U.S. or Europe do? We know that the Russians can cut off natural gas to Europe anytime they want. They have the energy; we don’t. If they cut off the gas, it will be a long, cold winter for us. And the United States? Putin knows that the U.S. is bogged down in Iraq. And he knows too that the U.S. doesn’t have any money. In geopolitics, the country with the energy and the money wins. And right now, that’s Russia.”

Yes, dear reader, Russia looks like a winner. And China. And India. And all the countries that seem to be on the way up. Who knows which will succeed…or when? But it looks to us as though these countries are catching up – first in economic terms…later in military terms – to the United States.

What does this mean for investors? It probably means that, over the long run, shares in growing, developing countries are a better bet than those in the United States. And it probably means that the dollar is a bad way to store wealth – since it is tied to an economy in (relative) decline.

It probably also means that limited resources – gold, copper, land, water – will become (relatively) more expensive, because there are more and more people who want them and have the purchasing power to buy them.


Bill Bonner
Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

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7 Comments on "Russians Can Cut Off Natural Gas to Europe Anytime They Want"

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Oh we do get carried away. Russia has an economy smaller than Spain’s which is smaller than California’s. Both parties where stupid, unfortunately for Russia, in the long run Russia will suffer for it. Europe will pay a premium for gas from elsewhere ( or if you like a discount to Russia), the war in Iraq has cost USA, the war in Georgia will cost Russia. Military power isn’t as handy as it used to be. A long cold winter in Europe would result in a very long fiscal drought in Russia, as it is, the level of profit will… Read more »
If in fact Russia has a smaller economy that California’s (not so sure about that!!), then wouldn’t it be worth noting that Russia’s GPD is more production than consumption. Which can’t be said for California. I have the feeling that Bill is making the point that if push comes to shove Russia has the cards, a very strong point believe it or not. Russia is a country of wealth, It is important to note that the measure of wealth is how long an entity can remain functional while having no positive cash flow. The clout of the Russian army should… Read more »
* The Economist, How to contain Russia,, August 21, 2008: There is no quick fix, but an over-confident Russia is weaker than it looks… The wider aims with which Russia is presumed to have entered Georgia have not yet been achieved, however. They include toppling its pro-American president, Mikheil Saakashvili, and using intimidation to stop Georgia and Ukraine from following the Poles, Czechs, Balts and other former dominions of the Soviet Union into the orbit of the West and thence into NATO. If it pursues sound policies, the West still stands a fair chance, despite its divisions, of thwarting… Read more »
I believe that key to Russia’s strength is it’s resources. Prices are set to increase over the next 5+yrs, giving Russia a more powerful stance over Europe and USA which it sells oil/gas to. USA GPD is much larger than that of Russia, this is obvious! But take into account the USA falling into recession, real inflation is not under control, which can only be solved by increasing the FRB rate to levels not seen in 30yrs. I know this a powerful and scary statement – the USA has no way to avoid a major financial crash. In fact if… Read more »

Russia may be weak, but if I am going to get into a fight with someone much bigger than myself. I want them drugged and hog tied – just in case.


Don’t discount Russian power. They have massive power in relation to energy and military capability. They still control thousands of ICBM warheads capable of levelling anyone on Earth. They control massive amounts of gas through pipelines to Europe. Europe can not simply “buy” gas from an alternative source as the pipeline infrastructure is not in place. As chairman Mao once said “All power comes out of the barrel of a gun”.


Hey Charles, if Russia dumps the USD and turns off the oil tap then the USD buys not a zack. All of a sudden your USD GDP meaures go out the window. And an isolated Russia can survive better than just about any other sovereign state on this planet. After the US accounts its global warrior sized deficit, its household liabilities, its healthcare and its retirement benefits; then without the SWF’s and central banks continuing to suck up those US treasuries you have one very poor backwater indeed.

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