 Thank you very much Well, we have had a really stimulating and challenging session on the relationship between Tangibles and intangibles Now we'll have a session on the relationship between Intangibles and tangibles and we have Remarkable people speaking all of the members of the CSIS and They have dealt with these issues both in policy and in academia They bring a wealth of experience and knowledge to each of the topics Our first speaker will be John Alterman who is the chair in global security and Jewish strategy here at CSIS and director of the Middle East program Before that he served on the policy planning staff at the Department of State And also a special assistant to the assistant secretary of Near Eastern Affairs He received his A.B. from Princeton and His PhD from Harvard According to the New York Times of yesterday that puts him in the top six percent The American public Heather Conley is the senior fellow and director of the Europe program at CSIS Prior to joining us. She served as deputy assistant secretary of state in the Bureau for European and Eurasian Affairs Heather received her BA from West Virginia Wesleyan College her MA international relations from John Hopkins of advanced international studies Chris Johnson is Senior advisor and Freeman chair in China studies here at CSIS Before joining us he spent two decades Serving in the government's intelligence and foreign affairs communities He worked as a senior China analyst at the CIA and served as an intelligence liaison for two Secretaries of state and their deputies. He's great. He's a graduate with bachelor's degree in history and political science From the University of California, San Diego and received his master's degree in security policy From George Washington University And fourth and final and the kitchens is our senior fellow and director of the Russian Eurasia program at CSIS Prior to joining CSIS. He was a senior associate at the Carnegie Endowment for International Peace Where he was also director of its Russian and Eurasian program. He received his BA from Amherst MA and PhD from John Hopkins School of Advanced International Studies Each of them has been asked very specifically because of the limitations of time To speak for no more than five to eight minutes at the maximum and at the eighth minute I will forcefully remind them of the fact that the maximum has been reached and then we'll have time for discussion In any case, it's quite obvious That the areas they are expert in are areas in which some of the issues that were discussed this morning Will be very important geopolitically and Interlating them of course will be one of our responsibilities in the course of this discussion So without further ado, John DeFluor is yours and I have just looked at the watch When he says each has been asked he has asked Which helps enforce the rules? Thank you very much. It's a pleasure in the long run I'm at CSS the more I look out at events like this and see old friends Thank you very much for coming because I only have five to eight minutes I thought I really try to boil down the Middle East consequences under three baskets The first basket is money The Middle East is a region Which runs on the money from energy and it doesn't just run on oil exporting countries taking in money from energy But it certainly has oil exporting countries whose economies rely on energy If you look at Saudi Arabia oil revenues represent 80 percent of the budget 90 percent of the country's exports in Qatar oil and gas 50 percent of government government revenues 85 percent of government exports Kuwait 95 percent of government revenues 95 percent of government of exports and even in Iran, which is a large country with a diverse economy Energy represents 50 percent of government revenues and 74 percent of exports But it's not just taking in money Governments that export oil But it's also the fact that for countries that don't export oil they export labor to countries that do export oil So if you look at a country like Egypt you look at a country like Jordan you look at a country like Lebanon It also was tied into this regional oil economy The government revenues come not just from oil prices, but also the level of exports of oil So if there's more oil in the global market that means that countries that have large reserves have to export less In order to keep prices at an acceptable level So the first consequence for the region is if you have Softening of prices you have new producers coming in because the unconventional revolution There's tremendous uncertainty throughout the region About what happens to all the national economies it has a fundamental effect. There's a fundamental sense of impending Instability which affects the way they look at all their governance issues especially in the wake of the Arab Spring because the conviction of all the GCC states is that the Arab Spring is Fundamentally a reaction to material conditions and the way to deal with it Is to give people more to give people more jobs to give people more subsidies it's part of the reason why energy consumption is high because people live in in luxury buildings With lots of greenery which takes water to sustain and all those things they've come into patterns Where the luxury that people expect takes a lot of energy to sustain the break-even price for a lot of these governments For an oil has gone from $25 a barrel up now to 85 90 95 dollars a barrel if oil prices soften significantly the governments won't fall immediately they have lots of reserves But it affects their strategy of governance and it affects it throughout the region So number one is the money piece number two is the direction of trade peace Most of the oil from the Middle East doesn't come West it goes East 75% of the oil from the Middle East goes East What does that mean Be for countries that have staked their stability on the United States helping provide security both against internal external foes When the countries that are the consumer countries Can't project power in that way and the United States seems to be more content to get all of its energy from North America That is why there's so much sensitivity about what the American commitment is not only to Gulf security But also what is the American commitment to? Protecting the Indian Ocean area and protecting all that free flow of oil across What are the u.s. Intentions with regard to China? Which is dominant power in Asia which can control the sea lanes Certainly influences security the sea lanes that the rest of Asia gets its oil from what does that mean for the US commitment to this? global market of energy and People are simply unsure What a more self-contained? Energy regime in the US means for for the US commitment to the world The third thing is the question of influence The Middle East matters in some measure because the major swing producers in the world are located in the Middle East Saudi Arabia is the global banker of oil If you need an extra half million barrels, there aren't a lot of places to go But Saudi Arabia is one in a world where generally you have rising production That ability To turn up the taps becomes less valuable Now dr. Burrell talked about how in general if you look out 10 15 years you're going to see a shortage of oil We need the Middle East and the Middle East is going to to be in a position of influence again But it seems to me that as we go through this This period of more oil coming on the market in the short term and then maybe a shortage of oil and moral you have These sort of sine waves coming in Where the Middle East is important to everybody and they're not as important and then important and important to different people and This is a region which is in the midst of fundamental economic social and political change What will that sense of rising importance diminishing importance to the world mean for the processes of change That are unfolding in the Middle East now. I hope I didn't exceed my eight minutes You still have a minute left Look, I see you to the gentle lady from Heather Conley, thank you, dr. Virginski I want to begin in offering reflections on Europe as well as the Arctic By one sentence that is in the executive summary of the report Europe will continue to face challenges under each scenario the scenario of a shale breakthrough That is quote or shale failure and this was before the crisis in Ukraine The crisis over Ukraine merely accelerates the need for Europe to make some extremely difficult economic and political and energy choices and I want to underline that Europe's choices Is in a direct line to their national security their vulnerability and it is a NATO vulnerability. So this does have National security implications for the United States in working on this project with our energy team I have to say as an analyst. I was struck by how very grim Europe's energy outlook is Europe is steadily reducing its own energy production North Sea oil is dramatically declining It's cold production is declining at the same time Demand is dramatically dropping European demand for fuel has dropped to a 19 year low and that is a result of a paralyzing economic crisis that's now entering its fifth year at the same moment the cost of energy for Europe is growing due to a combination of the decline in domestic production, but also due to choices that European countries have made About their climate change policies for example in Germany the price of electricity is three times higher In the report is Europe's dramatic decrease of oil refineries again This is a strategic vulnerability because Europe's aging infrastructure the massive investment It's going to need to invest its own refineries. It's going to be growing more dependent on refined products And if this weren't suppressing Let's look at the long-term and Europe's demographic changes. We're going to see for example in Germany They're on pace to lose 30% of their workers age 24 to 64 between between now and 2015 Italy is not far behind so you see a dramatic energy picture of declining sorry declining demand declining demographic picture increase in energy costs and ultimately increase right now in dependency on Russian resources So in a nutshell Europe is no longer Competitive with the United States and energy and so how this is manifested itself is now in the conversation on the transatlantic trade and investment partnership the lovely acronym t-tip and you see now European trade negotiators very interesting and having an energy chapter In those t-tip negotiations to try to get some parity and competitiveness and try to to narrow these bands And and this is going to be an issue of a divergence in transatlantic competitiveness I want to offer a few other reflections on Europe's future In May at the end of May Europe was going to hold a European Parliament elections We'll see a new commissioner a new commission seated. It is very likely that The new European Union energy commissioner will play a far more prominent role Than we have ever seen you were going to see Europe have an argument between Competitiveness and its climate policies and they are in a dueling battle right now And this is going to require some major rethinking of its mix. There's no short-term fix This will be a strategic vulnerability for Europe for the next several years even if they made some dramatic political changes today I know I've given you a very sober picture I want to give you one highlight of a positive in Europe last week. We hosted the Cypriot negotiator after 40 years of a divided Cyprus Negotiations to look the most promising they've looked in many years and in part that is due to The identification of offshore gas resources off Cyprus. It's bringing the parties together It is helping to realign Strategically countries in the region Israel Cyprus. So there are some very positive dynamics To energy and I wanted to end on a high note for Europe that Cyprus is a bright spot Finally a reflection on Europe. I'm sorry on the Arctic CSS has been researching Arctic policies for the last five years and what we're seeing in the Arctic that it in fact has Had an impact the unconventional revolution in some parts of the Arctic it's slowing down Interest in in those oil and gas discoveries, although they may be quite vast I think it's slowing down certainly American the American Arctic and this the discovery there the large Stockman discovery Which was in the Russian Arctic which was meant to deliver LNG to North America Of course has been shelved for future generations because again that that demand that need is no longer there However, we will see continued focus by Russia In the Arctic in its own requirements to enhance its domestic Resources and for export that will be particularly important towards Asia and of course Norway will continue to focus on its domestic Production in the Arctic as those North Sea resources continue to decline So a sober picture on Europe a strategic vulnerability for NATO for the United States And as we look to the future in the Arctic These are some new dynamics, which will change the patterns of production there. I would suspect and Dr. Brzezinski, thank you any extra minutes over to Chris Everyone is doing splendidly. Thank you very much for a very realistic assessment. All right. It's Chris now. Thank you, Dr. Brzezinski For China, I think you can summarize it quickly by saying that energy and energy security Runs through all three of the major pillars that are fundamental to securing the success of China's rise as a great power Certainly in the economy and in the economic space Chinese leaders are becoming more and more concerned about their heavier and heavier dependence on imported oil As John pointed out most of that oil is coming their way these days or Japan's way or other Asian countries and when we traveled together to the Middle East last year, this was a palpable theme, you know running through Suddenly issues that those countries hadn't had to think about before in their foreign policy are suddenly becoming very important I think it's impossible to understate as well How important energy and energy security is to the reform program that China is currently seeking to undertake at last fall's third plenum of the 18th Central Committee as many of you know the government under Xi Jinping produced a very Wide-sweeping set of reform proposals that they have given themselves a timeline to 2020 to achieve And if you look at the core of all of those key reforms, it all comes back to energy So for example, one of the things that they discussed was upgrading the status of the market In China's economy from a basic standard to a decisive role in shaping the way that the Chinese economy runs Putting aside all the communists jargony speak what that basically says is they know that a lot of the problems They're having with the state investment-led economy that they currently have have to do with the market not being sufficiently involved and what we're seeing then is the key areas that they've highlighted with regard to Realizing this new role for the market is in factor input pricing particularly energy They also see this as one of the key ways to solve the over-capacity problem in their state-owned enterprises because of course They all receive subsidized energy They also see it as a way to solve the indebtedness of local governments in the rapid building of bridges to nowhere projects and things like That so it's fundamental to this reform program that the new leadership has decided to put in place similarly The energy piece will be extremely important to the urbanization plan That the Chinese have just announced just before their national legislative session here last month They have set another ambitious goal of 2020 of moving another hundred million people from the promises are from the agricultural areas into the cities and They keep emphasizing over and over again the need for what they call smart or green Urbanization in that process and that has an awful lot to do with what types of energy they're using and how they're using it I think the the other key piece in terms of the economic development with regard to energy is simply Securing what they know that they will need to drive their economy You know, they're heavily dependent on coal of course domestically for energy But that has all of the negative side effects with regard to air pollution The interests involve the domestic vested interests involved in coal production Of course are very powerful inside the Chinese system and this is proving very difficult for the new administration to tackle But that leads to the second pillar I think which is stability of the society which of course is key from the Communist Party's point of view and to tackle that I think the air pollution problem really is becoming a bigger and bigger issue In fact, my sense is that coming out of that legislative session It's a unique time for the leaders in Beijing because what happens is you have delegates from all over the country senior provincial level officials come and they have meetings with senior leaders where they air out the concerns that they're hearing in their Localities and my understanding is that top of the list for pretty much every province was the air pollution problem especially among rising elites inside the society and the message to the senior leadership was this is rapidly becoming a social stability Problem and what's interesting about the leadership's approach? They can dither on the finer points of economic policy making and so on for a very long time That's all theory but when it comes to social stability they get take action very quickly And so there's two concerns one is that they will indeed Do what's necessary and of course that would create tremendous opportunities for many Western firms and so on in terms of providing that Better technology the scary pieces that they are concerned that the leadership will panic and move too fast and shut down a lot of these polluting factories and Risk precipitating an unexpectedly sharp down turning growth which would be bad for everyone So obviously critical on that stability issue, and then I think the last point the last pillar really is security and John really alluded to this in terms of Energy supply line security, but I think it's broader than that at the 18th Party Congress in the fall of 2012 In the government's work report for the first time the Chinese Officially stated that they are maritime power and have maritime interests. It's the first time They've really talked about that in thousands of years So it's a clear indication of what they see as their main problems going forward and that their interests are increasingly abroad and in these sea lanes It's deeply connected to their naval modernization program as well The role that they want to be able to play in terms of securing those sea lines And it also has to do with how they work with not only the Middle East We see them now understanding the region much better recognizing. I think increasingly that They can't necessarily always be a friend to everyone which has been their typical policy in the region that the bigger role They play and the more dependent they are the bigger consumer They are for oil the more they have to begin to show some Sort of interests in one direction or the other and I think the other piece is that in the Chinese National security community this debate gets fueled regularly and I think what Heather talked about with regard to tensions now between Russia and Europe my understanding is the energy security debate in China is now suddenly back at a very high level in the system And so far the response from the leadership has been to direct the national oil companies In China to think about more private investment to think about ways they can start getting at what may be the shale gas deposits in China and Western China that can be accessed and for the military planning community They have two basic fears with regard to this situation with the US increasing independence on With the shale revolution the first is that the US will simply not care and disengage simply by disinterest Wanting to get out of the region after two wars etc The darker view is that the US would use the its ability to secure those sea lanes strategically and in a potential Conflict with China would shut off the oil supply either at the source in the Middle East or further on in the Straits Malacca and so on so this issue is constantly churning inside their their system and for all those three reasons I think it will continue to kind of possess the leadership going forward and you will see I think in all the policies that they Pursue in the next several years that this will be the theme in the background consistently Thank you very much and finally Russia Thank you is big Russia I Tolds big beforehand. I'm gonna out dark you That I think he will prize the challenge You know Russians pride themselves almost on being an unpredictable country and They are I mean there is a great proclivity for nonlinear development. I mean the Mainstream kind of community not only in the United States of Sovietology But even in the Soviet Union was not in anticipating in five years before the collapse the Soviet Union that it would collapse I Think the virtually everybody underestimated the traumatic impact and the length of the impact the 1990s On Russia and virtually nobody Anticipated or predicted the rapidity and the magnitude of the economic recovery that took place in Russia beginning in Around the time that Vladimir Putin emerged on this on the scene after the On the national political scene after the global financial financial crisis So unpredict unpredictability The one piece of good news that I can find in looking at Russia and it's been a very hard to find positive data points since February 28th is that well Vladimir Putin is very good for my job security He Undoubtedly in my view plans to be dictator for life The plan he's working on I think is dictator for the afterlife Don't underestimate him An unusual thing has has happened. It's I think we all know that Revenues from the energy sector Have been the most important factor in the Russian Soviet and Russian economy I would argue as well on their Political order, I think as well in whether we see a more aggressive or less aggressive Soviet Union or Russia going back to the first oil Crises in the 1919 70s. I Mean the short story is when the revenues are high as they were from The early 70s until the mid 1980s There is less incentive for structural economic reform there is a greater inclination for Putting the screws on the political system a more closed system and a more aggressive and assertive foreign policy that was later Brezhnev and Up until the time that Mikhail Gorbachev emerged on the scene It's quite amazing from quite an achievement that And it's the West Siberian fields that have been so critical for Russia Russian oil and gas development, but on oil. This is a fun fact from 1972 1981 Russian production in the western Siberian fields increased from a little over 1 million barrels a day To about 7 million barrels a day over the course of nine years that's a 5 plus x increase in growth at the same time when the price increased by about four times So shouldn't be a big surprise that mr. Brezhnev and his colleagues, you know weren't really feeling a much Incentive to engage in structural economic reform Despite those revenues coming into the economy though when you hit the early 1980s Soviet economic growth was about zero. I mean this was the stagnation High oil prices high revenues Avoid avoid reform because they didn't feel like they really they really needed to they avoid reform Why because they feared it would attack the foundation of the political system fast forward 30 years later to where we are And this is the scene that looked to me about beginning about a year ago It's like wow it feels like deja vu all over again. You still have a high oil price high revenues coming in and it is revenues from the oil sector which are about four times those from the gas sector going into the Russian budget to ensure fiscal sustainability balance Despite that Russian economic growth as is around zero. I mean this is this is a story again Mr. and mr. Putin and his vaunted vertical of power that he has created over the last over the last 10 years, of course What was this the seminal event? It was 10 years ago. It was the Yukos case mr. Hodor Kofsky and that was all about regaining control over the revenues in the most critical sector of the Russian economy Then that was the that's where the vertical of power really really began now So Putin is looking out Why has mr. Putin been popular for most of the time that he's been in power? Dejure and de facto It's because Russia has experienced this extraordinary period of prosperity and economic growth Incomes growing pensions being paid, etc now that began obviously there was a wake-up call with the global financial crisis 2008 2009 Still the economy recovered to about 4% growth since Putin came back to power though or brought De Jure de fact De Jure and de facto power together The economy has fallen to about zero So what's interesting is that he has decided to change his strategy his political strategy and let's let us not underestimate This guy, okay, because it is the underestimation of Vladimir Putin by domestic supporters domestic opponents Foreigners over the last 14 years, which I think is kind of his sort of psychological Game they underestimate him. He manipulates it and he plays them and this is actually I think a Psychological it's a mode of behavior that began when he was a young kid It was a little kid in a very very very tough St. St. Petersburg Where he displayed actually quite significant? anger management problems and Which really haven't gone away and I'm going to come back to that in my last remark And I'm very very serious about this Because I'll be honest with you in the 35 years or so that I've been following the Soviet Union in Russia I've never before been so worried concerned and scared about the potential danger and the Unpredictability of where things can go from where they are where they are today But so Putin has changed his political strategy And it is he's kind of reverted to okay. If it's not prosperity I'm not I'm not going to take the decision to The measures to reform the economy that are going to put it on a more sustainable growth track possibly Because that is too risky. It's too dangerous. It could undermine the political foundations of my power So where do I get to my domestic support? Well, I'm going back to kind of traditional Russian values It sort of reminds me of Nicholas the first and the it's autocracy It's orthodoxy and Russian identity Russian nationalism to some extent. This is in the second quarter of the the 19th 19th 19th century and then I will bank on foreign policy victories and success and There he has been a very effective a tactician minimally in the eyes of the Russian people and not only in the eyes of the Of the Russian the Russian people. So this is a paradigm shift. I think for what he is kind of banking on that will support his is domestic political constituency on into the future so Crimea clearly that was a resounding success for him domestically Popularity has gone up now the weakness of course is that already you're at zero percent growth and There are the downside risk in the Russian economy is much greater than the upside potential Now and is in into the into the into the future sanctions Now they haven't begun to bite but they possibly another round and we're really on the precipice of kind of Moving into sort of the tipping point to sort of a going nuclear on the Russians where it would cause damage to the Russian economy How is that going to play? Well, that plays into the whole the whole psychology that ah It's the Americans the foreigners that are trying to weaken us. He will bank on that for quite a while How long this can last? I don't know How far he is willing? I don't know There's no question though that he has a greater Russia project in mind Is there a grand strategy? No, but he's a tactical opportunity will press the oppressive press and just on Ukraine last line It will be absolutely unacceptable to him to have Crimea But for Ukraine to be sovereign and independent That will not be acceptable So we're going to be in for a very very very tense period of time minimally through the Elections there scheduled presidential elections in May and probably quite a bit longer Thank you very much. So that's the overall picture now Intangible versus tangible No, as I listened to the four presentations now, it's thinking of the earlier morning presentations What does it mean for the United States? Cumulatively, what does it imply? I think probably in a shorthand one can say that it implies that we're moving into a phase in world affairs In which probably complexity and chaos are going to be the dominant characteristics And that applies to in different degrees to each of the four regions that we had already so well discussed by our colleagues Middle East. Yes oil important, but internally sectarianism a conflict nationalism historical resentment surfacing Very little hope for resolution of some ongoing problems Perhaps of the several that are facing us all of them difficult Surprisingly, maybe the deal with Iran is the more Probable one in the near future, but even that isn't far from real Europe decline vulnerability One sign of hope Cyprus Well, if Cyprus is the hope for Europe I tried Arctic I think that's a fascinating issue to look at in that context especially because of the give the growing interest of other parties in that region not just ourselves or the Russians and Then China internal problems becoming more serious great success enormous ambition China rising peacefully, but Dependence on economic security and global conditions Urbanization out of hand that out of sync with economic and social stability Massive corruption at the top leadership that calls itself communist Interesting there are more multi-millionaires actually billionaires in the standing committee of the Chinese Communist Party Then there are in the US Congress That's a pretty pretty big charge if you could think of it considering what's happening here so at least Matching us in corruption and then the emergent maritime aspirations with whom they can come into collision There's only one party that perhaps stands in the way, but here the Chinese I suspect I don't think I'm contradicting you are going to be very cautious. Yeah, and have a longer-range view and then finally Perhaps the one closest to apocalypse Your self and your analysis of Russia, but there's no doubt that we're dealing here with a serious economic decline political adventurism uncertainty and Increasing difficulty of what success for Putin can now be defined as Crimea. Yes, and then orgy on national certification collision with Ukraine That's a very big question mark in spite of the Desperate efforts from here to reduce its a danger level such as telling the Ukrainians I will not give you any arms if we're going to give you any Minute to supply we're going to send them prepackaged food. We actually told them that so this is our level of support But if push comes to shove things change very gradually we could have the equivalent of the Spanish Civil War in our hands In terms of international involvement, and you know what that preceded So we are really confronting a world in which our economic Perhaps enhancement in terms of our role globally and especially in that critical dimension In the age of modernity namely energy is being at the same time matched by growing challenges all over the place Which require a high degree of strategic direction cohesion and Determination from our leadership in a country in which democracy is a major influence on the ability of the leadership to operate And which you have an enormous gap in my view between the level of top-level understanding of the world Which even despite internal differences is high and public ignorance I dare say last week probably nobody in this country paid any attention to several of the dynamics that you were discussing But everybody's watching the basketball championships. That's what's important right now. So a relatively satiated uncomfortably relaxed but Worried public does not confront with a deep sense of understanding the kind of issues that have been raised earlier this morning or right now Can I just come in on that please come in and then Because I think what what this presentation has done is exactly what dr. Brunstein suggested I think there's a growing Gap between the level of anxiety the level of imminent threat that all of our Countries are talking about and this American sense that with energy independence North American energy independence We don't have to care about all this stuff. I mean the sense of terrorism is a threat is diminishing The sense that we don't have to worry about all the stuff in the Middle East because we have our own oil is increasing We don't have to care about Europe because the Soviet Union's gone. I mean we have this growing sense of security at a time when the world is seeing all of the volatility potentially increasing and That may be the most interesting problem is how as Americans Do we think about a global world when we are moving in a different direction? From a world that feels more threatened and more vulnerable And that could have a shock effect suddenly in the country too once everybody's stunned into realization that this Complexity is now becoming a danger all right We have four here extremely well-informed analysts statesmen and They're at your service. So whoever wishes to raise some issues the floor is yours In all right, we'll just take individual and please identify yourself and who you're addressing the question to and please don't make it too long Yes, hi, my name is JBC produce. I'm from EDF France. I've got one question for either Yeah, get one question for either either you mentioned that Europe is willing to move and and to To be more dynamic on the energy chapter of the TTIP as it takes two to dance. What is The US position or expectation or interest. Thank you Thank you very briefly. I think we're only just completed the fourth round of negotiations for TTIP. I think there's Underwhelming enthusiasm on the American side for having that Conversation about a specific energy chapter, but I would argue there has to be a Conversation and the crisis in Ukraine has accelerated that with Secretary Kerry last week in Brussels on the transatlantic Energy Council, which I'm sure very few people even knew that Mechanism existed that this has now moved to a strategic issue if European energy prices increase again Harming a very fragile economy and we're starting to see where signs of the European crisis is now affecting the core with France Italy particularly and in slowdown We're going to have to get at the heart of both the competitiveness issue, but also again the energy dependence We have had this conversation with Europe for 30 plus years. It's the problem has only grown worse They've only grown more dependent on on Russian sources Even though the mix is is increased in renewables But the dependency is still there and it won't be changed for the next several years This has an important dynamic into the crisis itself It will accelerate Europe making tough choices that it does not want to make But it does not solve the problem today. Yeah, I'm gonna go around the room. So anybody on this part of the room Okay, yes, sir right here A Herman franson in part associated with CSIS Mr. Moderator, I would first want to say that how lucky CRS is to have you Henry Kissinger and Brant Skokov all associated with CSIS and how lucky our government is not to have On a daily basis, I just like to come back to the to the Russian issue and I wonder if You know, we it appears that we are overselling our ability to sell LNG to Russia And as if we were to be able to partly solve Europe's problems Whereas on one looks at it objectively, we are basically as far as energy is concerned in Europe We are check maybe not checkmate, but check and Japan can make a bigger contribution To the security of energy of Europe today Then we can by just bringing the nuclear power plants on stream and that would release LNG that could be perhaps be shipped to Europe But we are in a situation that over the next several years the first cargo LNG may be delivered The market that end of next year will go to Asia the market will take the gas to Asia not to Europe Perhaps I wonder if our Russian experts can address this are we check when it comes to energy Related to supplying Europe and is Russia therefore continue to be in a superior position and knows it very well Thanks, it's a it's a great it's a great question. You know, I Think actually that the Russian position In Europe is Vis-a-vis supplies of gas is more fragile, but it's not for several several years out You would have thought that there might have been more of a reaction in Europe after the first wake-up call 2006 when they shut off supplies But Europe and the United States is our colleague Ed Chow as many times said pressed the snooze button 2009 it happened again But The the LNG supplies coming into Europe. I mean not from the United States from other places have dramatically increased The the the pricing contract relationship in Europe has changed dramatically where there's much more gas That's traded on spot prices rather than on on long-term Pipe piped gas which has been gas prompts business plan for Many many years and You know the Russians were had been very dismissive. I think kind of contemptuous About the prospects for shale gas and and oil and They've been late to respond to that But you're absolutely right that there's nothing that can be done overnight, you know in the next few months That's going to dramatically alleviate the the situation But I think over time their position in Europe is going to weaken and certainly Then you look at the Russian efforts to try to improve their position as a supplier to the east and Of course the the biggest buyer out there is China I think the Chinese already had a stronger negotiating position vis-a-vis the Russians on the gas price Which they've not been able to come to agree with now for ten years plus and The Russian negotiating position vis-a-vis the Chinese Just got worse Not anyone in this part of the room All right. Yes. I was wondering if perhaps Christopher would ask address the issue is there any chance that if the Chinese economy further tanks and And other problems with air pollution and so forth and the Chinese government decides to play the national Nationalistic card they look at the experience of Ukraine sees a muted response from the west and decides to up the ante in their conflict with Japan This is the theory de jour that You know the Chinese will see in the Crimea situation an opportunity to Do something with the Dealu Islands. I think that represents a misunderstanding of Chinese strategic thinking and culture I I don't think there's any Suggestion that that would be the case to meet a bigger piece in the puzzle of what's happened in Crimea is what it means for how China views its relationship with Russia and how they can use the relationship with Russia particularly in their management of Sino-U.S. Relations, you know There's a large debate inside the Chinese system right now since the new administration has come into power Xi Jinping has Certainly tilted a bit more heavily than his predecessors toward the Russia relationship Though narrowly in political and security dynamics and has actually looked to some degree given trade frictions with the United States and the Uneven track record that Chinese firms have had investing in the United States toward Europe for the economic piece and There's a school of thought also inside their system that Continues to believe that no the Sino-U.S. relationship must remain paramount So this debate is very active and I think that for those who are arguing internally that we should tilt more in The direction of emphasizing the Russia relationship if if President Putin is seen as having done this virtually unscathed It's going to strengthen the hand I think of those voices inside the system. They'll want to push that China's goal in this whole Triangular relationship is to have what they like to call an active Russia option in the man under the umbrella of the Management of Sino-U.S. relations because it helps them greater balance the power disparity between the United States and themselves All right in the spot of the room Yes, sir Yes, I'm Bronco Terzic with Deloitte Russia solved part of its Ukrainian gas interruption problem by building Nord Stream to go from Russia to West Germany Now I believe they've started construction on South Stream once again with European partners Is the difference of opinion in Europe part of the problem in dealing with this? Well, maybe a name we can share that one So it always has been a challenge for Europe on South Stream versus their alternative Which was the Nabucco line and trying to gain the the challenge is to diversify the source South Stream is simply the same source Challenge my understanding is yes part of it is being built But I think the crisis now as well as European Union the third energy package and legislative requirements that will not allow the The same company to own both the pipeline and the source that there'll be much greater focus on Uninsuring diversity of source as well as control over that you also have other variations The transandriatic pipeline and some other alternatives Again, just to pick up on on Andy's point 2006 2009 Europe has taken some steps interconnectors Enhancing storage capacity looking at alternatives you do have it's just not going to happen fast enough LNG terminal on the Baltic coast off of Poland Estonia is looking at floating offshore facilities. They're just it's not going to help right now and These longer term pipeline issues The resource question is there with the Russian economy I mean there may be the investment that they Mr. Putin is willing to make but I think again Look look at Russia's principal customer dramatic decline in demand Demographically this will just continue to it's looking at alternatives fast and furiously And it has not built its bridge to the east yet so you have the Political and the foreign policy victories are scaring its main customer and running making it run away as fast as it can that will have dramatic Implications as well as the the regional disparities that we were talking about in the markets It is starting to break down the oil and gas the price indexation that is huge the more that Europe can drive price And so all of these factors and I think you can't look at anything in isolation It is the complexity of all of all of these issues And how Europe is going to tackle it right now. They're not tackling it in a unified way Unfortunately, what's happening? It's every member state for themselves. They're trying to Germany's energy policy has certainly had a greater impact on regional policy They need to focus on this and make some hard choices The well Putin Russia gas problem. Let's put them all for the same hat You know their strategic advantage is they can act more quickly But South Stream In my view has never made any commercial sense whatsoever. I mean 20 25 billion dollar project It seems like the the strategy for Russia was to build an oversupply of transit capacity Kind of like build it and they will come And to make you know clearly the most commercially effective strategy for Russia would be to work with Ukraine to modernize the Ukrainian pipeline system and and to use that and You know we we shouldn't discount that still as a possibility that could happen, but Under somewhat different terms perhaps than than Kiev would have would have would have liked But how do you assess in this context the overall impact? Russian-Ukrainian relations of what has transpired taking Crimea has obviously outraged the Ukrainians even though the historical claims to it are questionable And the threats that are now emanating are obviously arousing further animus If there is some sort of military outbreak, it will of course create tremendous resentment But in either one of any of the four going three The residual impact is going to be to create something in Ukraine which hitherto historically has not existed When Ukraine began to surface as a problem on the international scene about a century plus ago It was first of all the Austrians and then somewhat earlier the Poles that tried to make the Ukrainians anti-Russian Now the Russians are making the Ukrainians anti-Russian On a huge scale. Yeah, how can they get out of it right now? Well, I completely agree with you this big you know historians may regard Vladimir Putin as Truly the godfather of Ukrainian Russian Ukrainian national identity and the anti-Russian national identity Yes, I've been to peace in Europe tend to be any someone and I think I think I think Mr. Well, that's true, and I think that mr. Putin. I think he's made a real miscalculation on Just how pro-Russian some of the more Russian eastern and southern regions of Ukraine? are and You know time will tell how this how this plays out and it may turn out to be his his fatal miscalculation My fear with mr. Putin is that It's something to really kind of feel in my bones Gorbachev and the Soviet Union went out with a whimper This guy and his crew they're not going to go out with a With with a whimper, so you I'm almost so many areas of a policy that I see Kind of thinking of what we might think to be logical Is not doesn't really necessarily make sense? And certainly if there were a a ground war Between Russia and Ukraine. I mean this is not going to be a five-day war They're going to be an insurgency for years and decades and decades to come and and the You know there are some very nasty weapons and things that even the Ukrainians have that could be could be used If they thought they were up against the wall and their sovereignty were really really on the line No, so I don't I don't see this this ending well, I just don't know when or how And then one can see in the Chinese reaction at the agree of caution Yeah, which I think indicates that the Chinese are worried where Putin might take everyone sure and how this may affect the overall International condition and they want him they want him to be successful to a degree, but but not too successful And obviously in implicit in the whole crime It's the Crimea situations a real dilemma for them because of the territorial insolvency issue And it highlights I think an emerging tension in their foreign policy between their traditional emphasis on principle position and a more Interest-based foreign policy that's emerging as they become take it resume their spot as a great power Of course Putin could be saying to President Xi look what I did to Crimea. It's a successful Why don't you do it to Taiwan? Well there? There are Taiwan it's not unheard of that Xi Jinping I think admires Putin at some level precisely because he does things that are unpredictable as Andy said at the begin All right, which let's see which part of the room now this time. Yes over there, please Okay, all the way over the window there all the way back Thank you Bill Murray with energy intelligence group. I was talking about all these four separate powers Trying to imagine if the trend of the last five years in Europe when you talk about Or maybe entering into a lost decade What would American diplomatic? Leverage be in 2030 if the trends don't change. I think one of the things we're trying to understand here is the Success by which the US is able to use its energy to support its economy, but geopolitically we're losing We seem to be losing a major asset diplomatically and morally if Europe continues to decline Getting all the way back to Issues of Taiwan and Ukraine and the way China and Russia look at look at the reaction to Ukraine For you answer perhaps also we should talk about the Middle East now contacts. I think and looking at senator Luecker Had the vision of understanding that this is a national security issue that our allies if they are Vulnerable need to be supported by the United States and I think very much the crisis has triggered a domestic debate that necessarily would not have happened absent the crisis to start Saying how do we do this? How do we do this very effectively? I think getting back to the gentleman's question earlier the problem is there aren't solutions today for this Neither in our own domestic decision-making process If we for gas if we require The free trade agreement. This is several years in the making. That's not going to happen Europe does not have the the facilities to accept LNG and then we got back to the cost factor as well Do you have to direct commercial ports even if the price is not right? So you have sort of the challenge of the the political and the national security imperative running straight into the physical Economic structural challenges that we are not going to be able to help Europe now Even if we wanted to and everything in the conditionality was was correct So I think it's important for signaling purposes. I think we need and this is why we have to have a very serious conversation with Europe not just Rhetorically say we want to be helpful but really dig in and look at how we can manage the challenge The Norwegian foreign minister. I think Norwegian gas is an interesting idea to perhaps look at ways that that could support Europe's markets, but there aren't easy answers here We're not in a place to help now But the the strategic vulnerabilities you ask our Polish friends our Baltic friends our friends Romanian Bulgaria that have extraordinary dependency on this. They are NATO NATO allies and should should actions be taken Similar to 2009 when three weeks, you know, no gas to Bulgaria. These are challenges We have to face now just not we're rhetorically talking about them, but the action isn't following but it seems to me that It's a very perilous time to say if present trends continue through 2030 Don't forget. No because when the Obama administration came in its energy policy was about carbon capture And now its energy policy is about unconventional exploitation and all those things It seems to me that that the key thing to pay attention to is that over the next 15 years there is likely to be a whole set of disruptions in production technology in patterns of consumption in whether we have More biofuels in what happens to conservation in what happens to energy flows It seems to me that that if there were ever a time when you were going to say I don't want to be Responsible for the EIA's long-term outlook. It's now Because it's all likely to change and then the question becomes What happens with the US position because of this sense of contentment This sense that we don't have to be out there because the ball is coming to us And that I think is the interesting thing is is not the continuity But what are the likely discontinuities and where might we be off-stripe? With the world that is changing because we've decided That we don't have to be as engaged in the world because we have this energy self-sufficiency And that's that's what would keep me up and that's I think what is certainly keeping the Middle East producers up Is this sense that that what they would love is to do a straight line? But they're looking forward to a whole series of curves curves that they can either predict Nor have much influence over controlling I have these very strict instructions here with certain segments of it highlighted and Here it says another 45 a.m.. Glad they told me it's a m in you adjourned the discussion you thank the speakers and Invite guests to get lunch from the buffet tables I think that's part is very promising And then you announce that the discussion with deputy secretary Daniel Pohnman will begin around 12 p.m. Which gives us 15 minutes to lunch. So thank you all you