Every corner of the globe will be affected. Inflation fuelled by energy shortages will affect almost every one. The rare exceptions will be those living in mud huts heated by gathered wood and financed by a barter economy.
By Tom Arms
Enjoy the summer sun while you can. It is going to be a c-c-cold winter—literally and metaphorically.
Just about every corner of the globe will be affected. The US perhaps less than many. Europe more than most. But Inflation fuelled by energy shortages will affect almost every one. The rare exceptions will be those living in mud huts heated by gathered wood and financed by a barter economy.
The major cause is the Ukraine war, European reliance on Russian energy and Vladimir Putin’s willingness to use it as a weapon. But there are other factors: Grain and general food shortages caused by the war, slow recovery from a lingering pandemic, supply chain bottlenecks, inflation and rising interest rates to control it and political instability which is both the cause and effect of the above.
On 26 July the EU will hold a European energy summit to thrash out a coordinated response to the crisis. Failure to do so will damage the unity of the world’s biggest trading bloc with knock-on effects everywhere else.
On the agenda are increased development of green energy and boosted production of European oil and dirty coal to fill the gap. Also to be discussed will be coordinated purchases of Liquefied Natural Gas and the building of more gas storage facilities, the strength of the Euro, more help for Ukraine, holding the line against Russia, food inflation and, dare I say it, rationing. All of the above are inextricably linked.
The threat of a Russian gas blackmail has been hanging over Europe since before Putin’s tanks rolled into Ukraine on 24 February. The Reagan Administration issued warnings about it 40 years ago. Moscow supplies 25 percent of Europe’s gas. This week the main supplier—Gazprom—shut down Nordstream 1, the main gas pipeline from Russia to Europe. They claimed that the halt was for “maintenance purposes” but everyone knows that the shutdown is a thinly veiled threat.
Europeans have been actively hoarding gas supplies in storage facilities in preparation for the winter to come. German economists reckon that if they increase stocks to 80 percent of capacity by November then there will be enough for winter. Before the heatwave struck supplies were at 60 percent capacity. Now they are dropping as sweltering consumers switch on their air conditioning.
Germany has other energy problems. Consumer gas prices have been subsidized for years with an unrealistic price cap that at the moment reduces the household price by more than a third of the market price. This is unsustainable but politically difficult to change so the government of Chancellor Olaf Scholz is tiptoeing around the subject of gas rationing.
Italy is as—if not more—dependent on Russian energy than Germany. It is in the middle of a political crisis as the government of Mario Draghi this week handed in his resignation over its failure to push a financial package through the Italian parliament. The Italian political crisis occurs at the same time as a Roman financial crisis which threatens the unity of the Euro which this week dropped below parity with the dollar.
Facing even bleaker prospects are the East Europeans who are even more dependent on Russian energy and do not have the gas and oil storage facilities of Western Europe. With the exception of Hungary, most of the Eastern half of the EU has held a firm line against Russian aggression and its energy blackmail. But as companies fail and consumers shiver, it will become increasingly difficult to maintain unity.
High energy prices and the inflation it causes is not confined to Europe. Energy prices are set at a global level. If Russia reduces the flow to Europe it pushes up the price in Pakistan as well as in Berlin.
Global consumers should perhaps take inspiration from Ukraine which will be the hardest hit of all this winter. Ironically, Russian gas is still flowing into the country, but Russian artillery have been heavily focused on destroying the country’s power grid—generating plants, electricity substations and internal gas pipelines and pumping stations. Any discomfort that many will suffer this winter will be magnified a thousand-fold in Ukraine.
- A diplomatic truism is that some conflicts are insoluble. They are, however, manageable. Although the consequences of doing nothing or mismanagement can spell disaster. The Arab-Israeli conflict falls neatly into the above category. President Joe Biden obviously came to this conclusion before stepping on the plane for his tour of the Middle East this week. A succession of American administrations—except Trump’s—has paid homage to the two-state solution. Biden reiterated the pre-Trump position, but not as forcefully as his predecessors. Part of the reason is that there was little point as his Israeli counterpart, Yasir Lapid, is merely a caretaker prime minister while the Jewish state struggles through another political crisis. As for the Palestinians, they are hopelessly divided between Hamas in Gaza who are a designated terrorist organization and the PLO’s Mahmoud Abbas who, at 86, makes Biden look like the proverbial spring chicken. The result is that the two-state solution has been moved from the backburner to refrigerator. Instead the US administration is focusing on maintaining relations with Israel and trying to draw other allies—mainly Saudi Arabia but also the United Arab Emirates and Qatar—into closer relations with Israel. To help with the first point, Biden has toughened his stand on Iran and the threat of nuclear weapons. One thing that all Israeli parties agree on is that Iran represents an existential threat. Biden has agreed that he will do whatever is necessary to prevent Tehran from acquiring nuclear weapons. The second issue is more, problematic, especially as regards Saudi Arabia. There is no love lost between Saudi Crown Prince Mohammed bin Salman (MBS) and Biden and the wider Democratic Party. Clearly a problem that needs managing.
- Ukrainian military commanders are cock-a-hoop. The military equipment and training provided by the West are starting to work, especially the shoot and scoot American High Mobility Rocket Systems (HIMARS). The GPS-guided precision artillery have to date knocked out 19 forward-based Russian ammunition dumps. The Ukrainians are now talking about a major counter-offensive involving hundreds of thousands of ground troops to retake territories lost in the Donbas Region. There are, however, problems. HIMARS rockets are accurate and effective, but they are also expensive and have to be used sparingly. So far the US has supplied eight launchers. Another four are on the way. The other problem is that their range is limited to 50 miles. As the Ukrainians advance, the Russians could simply stage a tactical retreat and still control a significant slice of Eastern Ukraine. Washington could supply Ukraine with precision weaponry with a range of 500 miles. These would be a war-winner but would mean that Ukraine could strike targets inside Russia which means escalation with disastrous consequences.
- Meanwhile there appears to be the possibility of some movement on the movement of grain out of Ukraine. Between them, Russia and Ukraine account for 21-28 percent of the world’s grain supplies and 40 percent of this vital food for the inherently unstable North Africa and Middle East. A big chunk of that grain is – more than 20 million tons—trapped in Ukrainian siloes, unable to reach hungry world markets because of a Russian naval blockade. This week saw talks in Istanbul involving Ukrainian, UN, Russian and Turkish negotiators. They ended with Turkish Defense Minister Hulusi Akar promising a signed deal next week. Moscow and Kyiv have said nothing. There are several sticking points. For a start the Ukrainians have mined the approaches to their ports to prevent a Russian amphibious landing and the Russians have imposed a naval blockade to stop the import of weapons. Going into this week’s talks Moscow demanded the right to inspect incoming ships for weapons. The Ukrainians said no. The Ukrainians, for their part insisted on grain carriers being escorted by convoys of friendly ships. That is a possibility and Turkey may play a role here. A further complication, however, is that the exports would include Russian grain which Ukrainians assert has been stolen from land occupied by the Russians since their 24 February invasion. Not surprisingly, UN Secretary-General Antonio Guterres has said: “There is still a way to go.”
- The current UK leadership elections exposes some of the many failings of democracy—short termism and an unrepresentative voting system. The two are linked. The candidates for head of the Conservative Party (and thus prime minister) are campaigning on a platform which benefits the national interest but on one which also panders first to 359 Conservative Party members of parliament and then an estimated 160,000 card-carrying Tories (average age 57). That is out of a voting population of 46,560,452. The person who is elected is likely to reside in Downing Street for the next roughly three years, two at the least. Britain faces massive structural and social problems. It has to deal with massive debts inherited from Boris Johnson, the pandemic and Brexit. Then then there is the cost of living crisis, impending trade union disputes, the Northern Ireland Protocol, social divisions, food banks, Ukraine, rising energy costs, trade with the EU and US, future food shortages…. Virtually all of the fore mentioned are being ignored. Instead the candidates are ranting about wokeism, the perfidy of Brussels and pushing tax cuts—the most popular of all policies with Tory voters, who, after all, are the only ones allowed to vote in this election. I am not proposing ditching democracy. It is, as is attributed to Winston Churchill, “the worst form of government except for all the rest.” But that does not mean that any democracy cannot be improved, especially to accommodate changing social conditions. In fact, the ability to amend and reform should be one of the hallmarks of a democratic system.
- It works like this: You need to borrow money. So you go to the bank and they ask for collateral and the best collateral is property. You tell them that your Manhattan tower block is worth $200 million and so they loan you $100 million in return for the deeds until the loan is repaid. Pretty normal, legal run-of-the-mill business practice—unless you are not telling the truth about the value of your Manhattan tower block. If you lied then it is criminal fraud. Manhattan’s District Attorney claims Donald Trump and his children lied. The result, they are now facing sworn depositions. So what will eventually topple the ex-president? Will it be his business practises, his political chicanery or his sex antics?
- An amusing an interesting consequence of the overturning of Roe v Wade has emerged in Texas—that most hardline of anti-abortion states. In common with many other parts of America, Texas has high occupancy traffic lanes to help cope with rush hour traffic. To use the lane there has to be at least two people in the car. Brandy Bottone, 32, was stopped and fined $275, for being alone in her car. Not so, she told the traffic policeman, as the 34-week pregnant mother-to-be pointed to her stomach. “My baby is right here. She is a person.” It will be interesting to see what the Supreme Court says.
Tom Arms is foreign editor of Liberal Democratic Voice and the author of the recently-published “America Made in Britain”. He is currently working on a rewrite of his “Encyclopedia of the Cold War.”