September 6, 2023 - 4:15pm
Oil prices rose above $90 a barrel for the first time in 2023 earlier this week, as Saudi Arabia and Russia indicated they would extend their voluntary production and export cuts until the end of the year. That Russia feels sufficiently confident to extend these production cuts suggests that Western sanctions are having minimal impact, as Moscow increasingly reorients its exports towards Asia (crude exports to China and India eased month-on-month but accounted for 80% of Russian shipments). All this begs the question: who is really being hurt by these sanctions?
The increasing cooperation in oil supply production between Opec and Russia also reflects deteriorating ties between Washington and Riyadh. The Biden administration has been keen to keep energy prices in check ahead of the presidential election next year, where inflation and fuel costs have already become areas of attack for the Republican Party.
More fundamentally, rising energy prices portend problems ahead for Europe heading into the colder months. This could ultimately impact Western support for Ukraine’s war effort, and significantly slow the global move towards the reduction of carbon emission.
That energy prices are rising despite mounting signs of economic distress in China, and the end of the summer driving season in the US (when demand for gasoline is at its highest) will collide with hopes that the West can ease its anti-inflationary tightening. This will prove particularly problematic for Europe, which remains the economic laggard among the global economy’s three main trade blocs.
The EU’s traditional locomotive, Germany, is looking particularly vulnerable: in July, corporate bankruptcies rose by 23.8% compared to the same month last year, according to the country’s federal statistical office. Even before this latest oil price hike, the IMF had forecast the country’s GDP to shrink by 0.3% this year.
Despite last year’s significant moves to blunt the dependency on Russian oil and gas, Europe’s energy diversification strategies are now taking a big hit, as Germany’s Berliner Zeitung notes. The latest statistics are striking: in the midst of the Ukraine war, Russia is exporting 334% more cheap fertilisers to Germany. This isn’t surprising, given that the average German business wants to survive, and so requires above all else affordable energy and fertilisers (people need to eat). Whether Washington likes it or not, German fertiliser production has collapsed and that automatically opens the door to Russian sources.
For all the talk about green transitions, the global economy is still some way off the point when it can wean itself off fossil fuels. That is why the oil price rise is so significant. A carbon-free future may one day come into being, but it simply isn’t feasible in the current moment. Indeed, the International Energy Agency has warned for months that global spare oil production capacity is at a dangerous low. Global markets have no doubt been distracted by China’s deteriorating economic indicators and the latest US jobs report (which shows job growth slowing, albeit within the context of a still robust American economy). But the pledge by Moscow and Opec to sustain production cuts in crude oil has belatedly woken up markets and Western policymakers to the negative implications.
All of these factors could impact on Nato’s cohesion going forward, especially in relation to sanctions. The surge in energy prices has done much to highlight the contrast between the comparatively muted effects of sanctions on Russia and their more deleterious effects on Europe, which begs the question as to whether they will be sustained. Against this backdrop, does this suggest that Western support for Ukraine is reaching the end of its tether?
Marshall Auerback is a market commentator and a research associate for the Levy Institute at Bard College.
Mauerback
Join the discussion
Join like minded readers that support our journalism by becoming a paid subscriber
To join the discussion in the comments, become a paid subscriber.
Join like minded readers that support our journalism, read unlimited articles and enjoy other subscriber-only benefits.
SubscribeI’m sure that our governments will rise to the occasion and successfully smudge everything over with their usual combination of smug self-assurance, political cowardice, dithering, wishful thinking, and brazen falsehood. Things might seem to be getting worse on the ground, but who are you going to believe, the elites or your lying eyes? Your eyes didn’t even go to Oxbridge!
Quite so. Such governments are schooled in the “end of history” thesis, a neo-Marxist wheeze which sees “liberalism” – so-called – as the triumphant culmination of human endeavour and hence predestined to overcome all rivals.
One wing of the movement sought to hasten Utopia with war – Blair, Bush and their neo-con advisers; whilst the other wing (Obama and his acolytes) went about it by encouraging rebellions against the likes of Mubarak, Gaddafi and Assad. And all of them thought transformative levels of immigration would be fine – just fine – because, hey, we’re all “liberals” now, right?
Hand in hand with all this went a number of typically deranged beliefs about money – that for some reason it could be spent without being earned – that perhaps China would pay.
And our current appalling condition is the result: cowed, divided, impoverished, sterile and weak; with police who patrol opinion, doctors who vanish at weekends and museums which trash their collections – not to mention “comedians” who have principled objections to most forms of laughter.
The need, then, is for a new 1989, this time in the west and aimed squarely at the malicious pupils of 68 – who swarm and multiply in the the swamps of the deep state.
Don’t worry, next year Tweedledee takes over from Tweedledum. Everything will be ok then.
Great post, SD!
Love your writing style RWH.
Seconded. His comments alone are worth the subscription fee.
I confess I did go to Oxford
The US and Canada have enough oil and gas to supply Europe with its energy requirements. Yet the EU sits by and allows them to strangle production for ideological reasons.
“…significantly slow the global move towards the reduction of carbon emission.” There is no global effort to reduce emissions. It’s a fantasy only pursued in the west. No one outside the western sphere of influence is trying to reduce emissions.
The EU uses 15million barrels of oil a day, it would be nice if the US and Canada could could produce that much extra and sell it to us, but I’m sorry its just not possible, the Saudis produce about 12million barrels a day. so you think the US and Canada have more oil than the Saudis just hiding some where. its a similar story with Natural gas
That’s fair. I overstated the case and your criticism is spot on.
Canada produces 4 mill barrels a day. The US produces 12 million. Canada could probably double production if it wanted to. The oil sands are one of the biggest reserves in the world. The US hasn’t even scratched the available reserves in Alaska and there’s more in the Gulf. Natural gas is literally everywhere.
I guess the bigger point is, we don’t have to be captured by energy reserves from hostile countries. We can produce more and drive down prices and reliance on adversaries.
One thing is for sure, I feel a lot better as an American than I think I would feel if I lived in Rome, Paris, or London.
Actually, in the case of Canada, it is the Canadian government, eager to burnish its green credentials, which has refused to supply more gas to Germany. Scholtz visited Canada last summer specifically to ask for more Canadian LNG, and Trudeau basically fobbed him off with a promise for more “green hydrogen”, even though Canada has nothing more than a pilot plant for this product (by contrast, the country still has ample LNG reserves, which could be expanded).
A good analysis. Perhaps the present US administration’s calculation is that the war in Ukraine will continue to get mega- profits for the MIC and that would offset any losses from higher fuel prices. In any case the US is fairly self sufficient in both energy as well as food resources.
What could upset the apple- cart for Biden is the BRICS increasingly shifting to national currencies. India and the UAE have just agreed on this, and I would hedge my bets on similar arrangements being worked out with MBS and Saudi Arabia.
China and Brazil are also developing similar trajectories.
Essentially it’s going to continue to be a sharp economic war of attrition between the blocs of BRICS and G7.
That appears to be the calculation. The US is the undisputed champion of weapons manufacture. Five of the world’s top 10 weapons companies are American, including all of the top 3. I increasingly suspect that in the places in Washington where real geopolitical issues are discussed, where they can say things they wouldn’t dare make public, they’ve already decided that de-dollarization is inevitable and they’re falling back on military superiority, hoping to reap gains from increased defense budgets in Europe, and the many places threatened by China. It will be interesting to see which way India falls. They appear to be trying to remain neutral as they did in the Cold War. It’s a laudable goal but I’m not sure they can pull it off this time. India is now a significant regional power and their natural regional rival is China. Can they coexist in the same economic bloc, or will politics drive them apart. India appears to be pulling in one direction politically and militarily, moving closer to the US camp, and in the other direction economically, with BRICS. At the end of the day, political considerations will trump economic ones, and I doubt the Indian people or government will like a China led world order any better than an American one.
Setting aside the ethics and moral considerations of the Ukraine war, the implications of sanctioning Russia should have been crystal clear to all concerned. China was never going to go along with sanctions, and India was doubtful given they haven’t weened themselves off Russian weapons yet. The Russian economy is mostly weapons and resource extraction, and the fact was China and India were going to be their outlet. Putin probably knew before he invaded Ukraine that the sanctions wouldn’t ultimately matter much. European leaders had to understand that Europe produces very little of its own energy and that by cutting off Russia, they were essentially eliminating any chance of forging a political destiny outside US influence. On economics alone, it appears that siding against Russia over Ukraine was a poor decision. On the other hand, in real life people can’t easily put aside ethics and moral considerations, and given what we know about the internal workings and societies of Russia and China, one can hardly fault the Europeans for picking the side that doesn’t scare the hell out of them. At the end of the day, politics trumps economics. It’s an unfortunate situation, but at least we can all blame Putin.
Agree with most of what you say. But India is unlikely to abandon neutrality for directly joining the US camp militarily. There is always a suspicion ( and maybe not without reason) of aspects of Deep State encouragement of fissiparous tendencies.
History casts a long shadow too. Aside from a hyper- realist Republican administration in power in the White House, which kind of goes back to a more Monroe Doctrine approach ( RFK Jr somewhat falls in that rubric despite being Democrat in label) the US never really gives up on support to Pakistan. Even now it is sending F16s. That always makes our policy Establishment uneasy.
Again, if you read some works like ” Conversations with the Crow” or even Narinder Singh Sarila’s ” Untold History of India’s Partition”, you can see the unfortunate tilt ( from an Indian perspective) of the West and it’s Anglosphere nations in particular for Pakistan.
India needs Russian military supplies( 60 percent of weapons are still from there, especially in spare parts).The other areas of strong military co- operation are France and Israel. They have been both more reliable as well as less pro Pakistan.
It’s still a bit unclear what is the extent of tech transfer in the present jet engine deal with the US. If it isn’t considerable, and prone to being withdrawn on ideological grounds by Biden, then India’s recent military bonhomie with the US would again thin.
And if there is a Le Pen government in France, that will be where the military ties will strengthen.
Let us see if there is a border settlement with China. An interesting emerging bloc is also with Greece,Cyprus, Israel to checkmate Erdogan.
India already gives arms support to Armenia against Turkish and Pakistani ally Azerbaijan.
You’re from India then? Thanks for the updates. I honestly respect India’s neutral stance past and present. I hope they succeed in keeping it. What are the prospects for a border settlement with China? The land itself seems strategically insignificant to me, but I’m not intimately familiar with the details. It never made sense for the Chinese to pursue this conflict when India is their only realistic potential adversary in the region. Ultimately it comes down to how reasonable Chinese leadership is willing to be, and lately they’ve not been very reasonable at all. I’ve also seen reports that public sentiment in India is very anti-China. To what extent is that true? I did not realize America was still sending advanced weapons to Pakistan. That really should stop, and not just because it’s harmful to relations with India, a far more important potential ally. Pakistan is unstable, covertly supports terrorism, and is more closely aligned with China now. Like India’s history with Russia, this goes back to Cold War geopolitical calculations that are no longer relevant. I can only assume the MIC just wants profits from weapons sales and figures the Pakistanis already have enough American tech that we’re not giving away any secrets the Chinese don’t already have. I can’t blame the Indian government for being uncomfortable giving weapons to Pakistan. I’m uncomfortable that we’re selling weapons to Pakistan given they’re almost certain to side with China in any foreseeable military or other geopolitical conflict. Over the longer term, these two problems could resolve each other easily if America offered the right incentives.India buys more American weapons in exchange for withdrawing support for Pakistan (which we should be doing anyway). Up to our government to make the right calls, but I have little faith in that. Honestly your government seems far more competent than ours does these days. I would like to see a more realpolitik and less ideological administration regardless of party. Biden is a sock puppet for the establishment. He was always a fairly bland, mainstream finger in the wind politician. Now, he’s a doddering old man that they trot out in front of the cameras to say what they want on TV. I doubt the man has made a single independent decision during his administration. As such, he’s pulled in different directions. The military establishment seems to mostly know what they’re doing, pursuing the right alliances, pushing for reshoring, finally caring about the Chinese stealing technology. I can’t say the same for our academics, politicians, or economic experts, most of whom have not given up on the globalist ‘end of history’ nonsense. Trump is just as bad in different ways. We’d probably get a more nationalistic foreign and economic policy, which would be good, but the man himself seems more mentally unstable than ever, and his election would send certain portions of the electorate into epileptic fits. What we really need is a non-Trump populist Republican, but there isn’t one in the race other than maybe Ramaswamy but I’m not convinced he’s anything but another opportunist. I’d love to see a Le Pen government in France. Anything short of WWIII that moves history forward and gets us past the idealistic nonsense that has dominated the past three decades is fine by me.
Yes, you are right in most of your assumptions.
Regarding CCP, I hear from our local media here that apparently Xi is in some trouble after he got rid of some generals, and as the whole situation economically in China is not very good.
I don’t know if that is true, as media everywhere now seems to have agendas.
The border situation can easily be settled if China doesn’t act unreasonable. It refuses to accept the Line of Actual Control which is basically a colonial legacy of the McMahon Line. Since the time of Deng till the mid 1990s there was some consensus and relations between India and China were on the mend.
Gradually as India has emerged as a strong economic competitor relations have gone downhill. Still, even till 2019, when Xi visited India and was warmly greeted by PM Modi, there was hope that we would be able to resolve our issues on the border. The dastardly manner in which CCP army attacked in 2020 was what changed the whole situation.
Trust levels are very low. Xi uses every opportunity to double- speak. Just after BRICS in South Africa, they came out with a map which has enraged not just India but Indonesia, Vietnam and Philippines.
It’s basically Greater China that Xi is dreaming up.
I think Ramaswamy and Sen Hawley are right in seeing Xi as the real threat.
Unfortunately the ideological approach of the Democrat Party in still pampering Pakistan with arms sales, when their present Army chief is the former ISI intelligence boss, is a poor decision.
The US is also playing with fire by again trying to seed pro Pakistani elements in Bangladesh( recall in 1971, it was sending the Seventh Fleet and Britain it’s navy for Pakistan) against India,till the Soviet Union threatened to intervene alongside India). All this makes the US again suspect in the long run as an ally.
Then men like Soros, who are openly funding secession in India are not helping too( and they are known for being Democrat Party donors).
Plus the present ethnic strife in Manipur is also being stoked by CCP who has a friendly regime in the Burmese military government.
It’s a very complex situation. I personally donot see our government here thus openly playing blocs. It will rather be ” co- operative” alliances, in which the aforementioned Asian allies, plus France( with a considerable Indian Ocean presence)Israel, to some extent Saudi Arabia and UAE, and Iran plus Russia which India will maintain amity with.
Excuse some of the typos in the above response. Tried to edit the same but it is not opening an edit window.
Ramaswamy seems the most populist leaning of the candidates, which makes him the most preferable to me, however Trump and others have made me suspicious of opportunists pretending to be populists for the sake of self-aggrandizement. I hope Ramaswamy is a legitimate populist and that he is successful, but I’m jaded so I’ll believe it when I see it. Hawley is the most consistently populist character we have on our political scene and has never really varied much in his stance. As a Senator from a predominantly rural but otherwise historically neutral state, he has always had some latitude to deviate from the party line, and has always done so. More than anyone else, I think Hawley is the type of person we need in the White House but he’s universally loathed by the establishment of both parties, even more so than Trump in some cases (because unlike Trump, he can’t be so easily distracted or manipulated). It will take time for the populist wave to crest in America, but given time and enough successive crises and failures by the establishment, it will. Trump getting out of the way would help but that’s not happening. I think your government is doing things the right way, honestly. America isn’t reliable at this point and probably won’t be until the globalist establishment is defeated entirely or at least sufficiently humbled by external events that they are forced to concede they can’t run the whole world in a top down fashion. There is no unified vision of America’s future internally or externally. Globalism is dead to all but the handful of super-rich American and European elites throwing their entire fortunes into keeping the undead corpse shambling along with the support of enough idealistic young people who aren’t experienced enough to know better. The US government sending weapons to Pakistan and meddling in Bangladesh and all these other things you mentioned tells me people at the defense department are basically running their own games without much oversight. It’s a failure of leadership, and the only way to resolve it is for some new leader to come along with a new vision that moves the nation forward (like Lincoln in 1860, Teddy Roosevelt in 1900, FDR in 1932, etc.) and takes the country in a decisively new direction, with a popular mandate that cows deep state actors and wealthy magnates (like Soros) into at least ceasing to create obstacles to change. In many ways, Biden is a perfect representative of America’s establishment. Elderly, doddering, basically incompetent, still living in the past, clinging to old glories, fighting old battles with old rivals over issues that were relevant decades ago, using institutional control to cling to power and keep alive the dreams of decades past. After all, that’s what globalism is, a product of the Cold War, its end, and the unipolar moment when it seemed that neoliberalism would overcome traditional cultures and rivalries and usher in a new golden age of mankind. That isn’t happening, and the sooner everybody lets go of it, the better off we’ll all be (this includes abandoning the notion that there is anything that can actually be done about climate change, regardless of whether its happening or not).
I am glad you think similar on Sen Hawley. I think he is the most superior candidate who isn’t even running in the primary.
As an outsider I find his views on masculinity, foreign policy, the Deep State very sensible.
He seems to have depth too.
It’s sad if he isn’t even being considered as a likely candidate.
I hope UH clears the longish response I gave to your views and answered some of the queries.
The keys to the border solution lie with China.
And there is a lot of money being pumped from outside to stoke unrest, which is deep state in origin – all the more why the US can be co- operated with but not ” allied” with.
Seems my long response is censored.
The sheer stupidity of our governing class’s delusions makes you want to tear out your hair. Do they really think that the people of the global South are going to forego the transformation of their lives by air-conditioning? Of course they’re not. And without that nothing our ‘leaders’ do will make a pinprick of difference.
This deliberate pauperisation of hundreds of millions of people in Europe and North America is the most futile gesture in the history of mankind.
The only way to replace fossil fuels is to develop cheaper sources of energy.
It wasn’t a surprise, Saudi Arabi announced months back that OPEC+ would reduce production to keep the price of a barrel above 100 USD as global demand was expecting to fall with a Chinese economic slowdown, and also to give those shorting oil a bloody nose.
So now is of course the Ideal time to discourage oil and gas production from the North Sea by a punitive tax regime.