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Russia’s fuel export ban will hurt the West

Europe is a giant in energy consumption, but a dwarf in production. Credit: Getty

September 30, 2023 - 8:00am

The late US Senator John McCain quipped in 2014 that Russia is “a gas station masquerading as a country”. It got a few laughs at the time, but as Europe found out, the joke isn’t so funny when it is the only gas station available. Russia is one of the world’s largest diesel exporters, but a recently announced export ban seems to indicate that Moscow is getting stingier with this particular resource.

Last year the world found out how crucial natural gas is for an economy, and this year we are repeating the same experience with diesel. As it turns out, without this distillate it is almost impossible to move goods along the supply chains, since everything from ships, long-haul trucks to agricultural machines and mining equipment depends on it.

Until the invasion of Ukraine, most people in the West accepted an abundant supply of gasoline, diesel, natural gas, and electricity as a simple fact of life. So did most governments: despite all the rhetoric about transitioning away from fossil fuels, the year 2022 saw a record distribution of subsidies for consumers of fossil fuels, either in the form of price caps or direct transfer payments.

What happened in 2022, however, cannot be repeated every year. The United States has already drawn down its strategic petroleum reserve (SPR) to historic lows, and French president Emmanuel Macron recently announced that he would push the country’s oil sector to sell gasoline and diesel at cost. Alas, it is not in the French president’s power to simply dictate prices to companies, however much he might like.

By the same token, it’s easy to see why he’s so desperate: Europe is a giant in energy consumption, but a dwarf in production: the EU’s global share of oil production is less than 0.4%. Subsidies are the only option because the producers of crude oil and refined products would simply take their business elsewhere.

Unfortunately for Macron, Joe Biden, and other Western politicians, the limitations on diesel supply are not solely determined by crude oil producers, but by available refining capacity. Among the 15 countries with the largest refining capacities are two European nations, Germany and Italy. And in these two countries, capacities are already squeezed, since it has become almost impossible to build new refineries in Western nations (for environmental reasons). Europe has outsourced too much of its energy infrastructure — from raw materials to refining — to other nations, and this strategic mistake is becoming ever more problematic in a world of strategic rivalries.

The financial analyst Luke Gromen talks about the tendency of Western governments to try to “ride two horses with one ass” — a colourful description of a policy that simultaneously tries to abandon fossil fuels but also to get others to produce them for you. At some point, policymakers will have to make a decision about which horse to ride.

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Mark Goodhand
MG
Mark Goodhand
6 months ago

From the linked article:

“The other 82 percent of fossil fuel subsidies were implicit. These included tax breaks for oil firms, but also the unpaid cost of climate change and air pollution as a result of burning fossil fuels. ”

These are not subsidies, as normal people would understand them, and it’s disappointing to see UnHerd repeat this nonsense uncritically.

And this is before fuel duty, which (along with VAT) accounts for about half of the price at the pump.

By contrast, huge actual subsidies flow to providers of “renewable” energy.

Andrew McDonald
AM
Andrew McDonald
6 months ago
Reply to  Mark Goodhand

Well, yes – but air pollution is ‘actual’ too, actually, and has a depressing habit of, er, killing people. It’s complicated, isn’t it?

Jim Veenbaas
JV
Jim Veenbaas
6 months ago

If you add up the negative externalities, you should add up the positive ones as well.

John Riordan
JR
John Riordan
6 months ago

Well yes, so the ideal thing would be to stop burning fossil fuels. The only way to achieve that is nuclear power, but for some reason governments seem to prefer renewables, which cannot replace hydrocarbon energy on timescales shorter than multiples decades.

It is also worth pointing out, by the way, that one of the principle effects of the West’s thirty year attempt to suppress demand for fossil fuels in the developing world in favour of renewables has been to prolong the practice in the poorest regions of using wood and dung for indoor heating and cooking. This kills over 3million people a year from smoke inhalation-related diseases, but it’s fine apparently because the energy source in question is regarded as renewable. This has been one of the more “successful” attempts by the global climate lobby to suppress fossil fuel use, and it almost certainly is killing far more people than would be killed by the equivalent amount of energy if derived from diesel and natural gas.

So there’s that.

Jim Veenbaas
JV
Jim Veenbaas
6 months ago
Reply to  Mark Goodhand

Just another dishonest argument from the climate change industrial complex.

Steve White
SW
Steve White
6 months ago

Hungary, having good and wise pro-Hungarian-people-governance, and who doesn’t take the EU bribe money, or give in to their threats, is the only EU nation exempt from that ban.

Billy Bob
BB
Billy Bob
6 months ago
Reply to  Steve White

Hungary has been a major recipient of EU funds. Orban has been very clever in portraying himself as an anti EU statesman while simultaneously standing there with his hand out begging for more money from other European nations.
This isn’t a criticism by the way, he’s simply playing the game but I don’t get this heroic image some have portrayed him to be

Albert McGloan
Albert McGloan
6 months ago
Reply to  Billy Bob

“I don’t get this heroic image”. Orban and his guys have been denounced by the USA and the EU and increased Hungary’s marriage and birth rates. The latter is impressive but in the face of US hostility it’s positively heroic.

D Walsh
DW
D Walsh
6 months ago

The EU are trying to cut Russian oil income so I sure they support this Diesel export ban, right thinking people will also like the reduction in evil Diesel entering Europe

At this rate Vlad will only see his popularity rise

Nik Jewell
NJ
Nik Jewell
6 months ago
Reply to  D Walsh

There’s a story in the Guardian today that insurers have suddenly massively hiked the insurance on electric cars. The DT says John Lewis will no longer insure electric cars.
Interesting times.

Tyler Durden
TD
Tyler Durden
6 months ago

Only Washington, London and Warsaw want this war, and the Polish are rapidly polling against it much like the Germans.
The hope is that the BRICS will organise some kind of compromise that might turn the heads of Kiev and put some pressure on the North Atlantic. I can only imagine that will be a guarantee that Luhansk and Donesk will be made autonomous publics with some power-sharing arrangement that will exclude Azov and the ultranationalists.
Zelensky would have to go for that to happen as, sadly, the neocons will still labour under the delusion that Crimea can be retaken. That was Obama’s call and to his credit he opted for peace. Less so his old VP.

R E P
RP
R E P
6 months ago

Religious thinking on fossil fuels is hard to extirpate.

Last edited 6 months ago by R E P