The Commodity Investor: Natural Gas At Heart Of Matter In Ukraine Conflict

March 31, 2014

Europe’s dependence on Russian natural gas and Crimea’s natural resource potential at play.


Things are heating up in Crimea. Right on the tail end of the Olympic Games in Sochi, Russian President Vladimir Putin decided to annex Crimea from Ukraine through a state-sponsored referendum and under threat of a military deterrent.

Ukraine, along with some Eastern Nations and many Western Nations, cried foul. But faced with very few viable options outside of outright military confrontation with Russia, these countries were left in a “checkmate” position by the Russian president.

Many inside observers claim Russia had been eyeing Crimea for quite some time, and indeed had an interest in its natural resources from a strategic perspective. In this week’s column, we look at the importance of the latest regional developments on the global oil and gas markets.

Do War And Oil Go Hand In Hand?

It’s not the first time the region surrounding and including Crimea has been at center stage in global affairs and in the sphere of resource control. It is famously said that one of Hitler’s biggest strategic mistakes was opening the Eastern front, which stretched his troops too thin and forced them to fight a war on multiple fronts. What was the main motivator for the Third Reich’s action?

Many historians now claim Hitler’s move to the east was largely driven by the need to secure oil supplies. Indeed, German tanks and planes needed constant refueling, and having access to these Eastern oil fields and refineries would be critical for victory.

The plan backfired, as the move eastward stretched German troops too thin, and historians now believe this was the biggest strategic error of the Third Reich, which eventually led to its defeat.

Just as the region’s natural resources loomed large back in the 1940s, they are playing a significant role in the current conflict in 2014. Before providing an economic analysis of the situation and its impact on the world commodities market, it’s important to provide some background on the importance of the region’s natural resources.

Crimea And Its Importance

Crimea is situated in a strategic position on the Black Sea, between Russia on the east and Ukraine on the north. For more than a decade, Russia and Ukraine have been at odds over geography, economy and natural resources. Russia is one of the biggest natural gas producers and exporters in the world, and a large part of its natural gas is exploited by Gazprom (MCX:GAZP).

Gazprom is a major supplier of natural gas not only to Ukraine but also to Europe. Indeed, Europe gets more than 25 percent of its natural gas needs from the Russians, and more than 80 percent of that natural gas is transported via pipelines located inside Ukraine. Therefore, Ukraine is a key part in the European-Russian natural gas corridor.


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