See also: Top Saudi lets the cat out of the bag

As Russia prepares to strut its stuff before the world at the 2014 Sochi Olympics, the economic foundation of Russian power and prosperity is crumbling, thanks to a strategic weapon developed by the United States. That weapon is fracking, and it is paying havoc with Russia's ability to exercise power on the world stage. Three articles lay out the devastating consequences of this technological revolution developed mostly not by a national laboratory, huge government initiative, or top scientists, but by guys out in the Texas and Oklahoma oil patches.

The American Interest sums it up most pithily:

North America's shale gas boom is chipping away at the market for gas producers like Russia. What's more, if the United States becomes a gas exporter, Russia's customers (especially in Europe) could decide to cancel expensive contracts with Gazprom in favor of cheaper American natural gas. Gazprom supplied 27 percent of Europe's natural gas in 2011. While American gas is trading below $2 per MMBTU (million British thermal units), Gazprom's prices are tied to crude oil markets, and its long-term contracts charge customers roughly $13 per MMBTU, says the FT. European customers would love to reduce their dependence on Gazprom and start to import American gas.

Stefan Schultz and Benjamin Bidder of Der Spiegel expand on the geopolitical impact of adding potential new American gas supplies to Europe:

Early this week, an invoice was delivered to the Ukrainian government and Naftogaz, the country's national oil and natural gas company. It was sent by Russian energy giant Gazprom, and it read almost like a declaration of war: the Russians were demanding $7 billion for 16 billion cubic meters of natural gas -- which Ukraine hadn't even used.

The principle at stake is "take or pay." According to a long-standing clause in Gazprom's supply agreement, customers are obligated to accept a contractually-agreed minimum quantity of natural gas, and even if the customer uses less, Moscow gets paid the full sum. It's a common practice in the energy business and indicative of Russia's energy clout. But now Ukraine is digging in its heels and there is a good chance it won't have to pay up.

The dispute is symptomatic of the Russian energy giant's current plight. Technological progress is threatening its business model and the company that has long monopolized the market has failed to adjust in time. "Eat or be eaten" has been its general operating principle when it comes to prices. For decades, many countries, including Ukraine, relied on Gazprom for its gas supply, but the market is becoming increasingly global. With the supply of natural gas growing and prices falling, Gazprom is beginning to lose its grip on the market. (snip)

Gazprom, as a result, has devolved from being one of the Kremlin's biggest political assets to becoming a problem child. Decades of market domination have made the company lazy and it is now failing to adapt. The company continues trying to impose costly, long-term supply contracts on its customers, even though gas prices on the spot market have long since begun undercutting Gazprom. Furthermore, it remains inefficient, often spending up to three times as much as its rivals on similar projects.

Now, reality is quickly catching up with the company -- and it has been brutal. Gazprom has beem forced to concede discounts to its customers with increasing frequency. Recently, Polish company PGNiG beat the supply price of Russian natural gas down from $500 to $450 per 1,000 cubic meters. German market leader E.on Ruhrgas, meanwhile, negotiated a price reduction of over €1 billion for 2012 alone. Customers are also buying more from Gazprom's rivals.

Gazprom is feeling the pinch. Between January and September, 2012, the company saw profits of some €20.2 billion, down 12 percent on the same period in 2011. Its turnover from gas exports dropped 8 percent to €44.9 billion. According to the former Deputy Energy Minister Vladimir Milov, now an opposition politician, the company's gas production fell by 6.7 percent to 478 billion cubic meters last year.

Gazprom has given Russia not just a critical source of funds, but also political clout, seen most dramatically in Ukraine turning its back on the European Union and aligning itself with Russia. But that power is on the wane.

Daniel Wiser of the Washington Free Beacon expands on the crisis developing for Russia:

"Russia's business model for development over the next decade is trashed," said Donald N. Jensen, resident fellow at the Johns Hopkins School of Advanced International Studies' Center for Transatlantic Relations, in an interview. (snip)

Jensen also noted that the abundance of natural gas in the United States induced Middle Eastern countries to redirect their tankers toward Europe, enabling countries like Germany to bargain with Gazprom and others for lower prices. Gazprom's exports to Europe decreased by 8 percent in 2012 to the lowest level in a decade.

"The Europeans have a lot more wiggle room in terms of the kinds of deals they can get," Jensen said.

Not only that, but the fading power of Russia's gas and oil exports is weakening Putin's hold on power itsef.

"Among the most destabilizing consequences of the continuing dependence on oil and gas will be the Kremlin's declining ability to secure the elites' loyalty," [resident scholar and director of Russian studies at the American Enterprise Institute] Aron wrote.

Virtually no one in the political, journalistic, or academic elites saw fracking coming as a major American strategic weapon, until facts on the ground began making a difference. But the Saudis, the Russians, and every other oil oligarchy in the world now understand that their power is fading. The only thing that can save them is a political movement in the United States, headed by the environmentalist groups, that could cripple this strategic weapon. That central fact must be understood in evaluating the funding and activities of environmentalists.

This revolution on world power is based on a classical American story, that of plucky people, many with grimy hands, who pursued self-interest, and in the process developed a new technology from the ground up.

Hat tip: Ed Lasky