Posted on by Baron Bodissey
Over the last three months or so it has become quite clear that the Western alliance has decided to commit energy suicide in order to continue to wage its lunatic proxy war against Russia in Ukraine.
Russia and China are being strengthened by the West’s foolhardy sanctions against Russia, and Europe will be impoverished as it shivers in the dark this coming winter.
The following article explains in detail what is happening in the worldwide energy markets, and especially in Europe. Many thanks to LN for translating the German-language text from the Swedish site Poddtoppen:
For the West, the day of reckoning comes in winter
by Rainer Rupp
September 2, 2022
In my Daily Dose last week, I briefly discussed an article by the British professor Helen Thompson published in the Financial Times (FT) on August 19, 2022. Ms. Thompson teaches political economy at the University of Cambridge and is no stranger to the subject. The neoliberal-oriented Financial Times is an organ of the business world read around the globe. Politically, the FT usually follows the British government line and is behind the particularly close relations between London and Washington. This was also expressed in its previous coverage of Russia and Ukraine, in which it follows a strictly anti-Russian course, along the lines of Ukraine-must-win. And that is precisely why Prof. Thompson’s article in the FT has attracted so much attention everywhere.
The sober realism with which Prof. Thompson analyzes the Ukraine crisis, omitting the politically correct anti-Russian bias, is what makes her article so exciting. For it breaks not only with the Financial Times‘ previous line, but also with the mantra constantly repeated in Germany that Russia’s economy is down because of Western sanctions. As alleged proof of this, the public propaganda organs of the German government had recently once again calculated for us that the slump in Russia’s gross domestic product GDP in the first half of 2022 was many times greater than in Europe or Germany.
Of course, the sudden withdrawal of hundreds of Western companies from Russia and the disruption of supply chains had a shock effect on the Russian economy. In March 2022, initial projections expected GDP to slump by as much as -14% for the current year. In the meantime, this bad news has been corrected to -4% percent, because inflation in Russia has fallen rapidly just as the high key interest rates of the Russian Central Bank have, the currency is super-stable, the manufacturing economy has recovered and in many sectors is already back at the level it was before the Russian special operation in Ukraine began.
Optimism reigns in Russia’s economy; new sources of supply have been found; the stores, factories and service providers abandoned by Western companies have found successors to carry on the business of IKEA, McDonald’s hamburgers, Coca Cola and hundreds of other companies. These successors come either from Russia or from friendly foreign countries such as China, Turkey or India. Recently, for example, an Indian food company took over a supermarket chain “For a penny and a pound” in Russia from which a Western company had withdrawn at a loss due to Western sanctions.
The joy of the Western economic warmongers over the collapse of Russian car production in the first months of the sanctions was also short-lived. That’s because the Russians were able to replace the microchips that had previously been supplied by cooperating Western car companies with supplies from China. A few weeks ago, Russian car production returned to its “pre-economic war” level. At the same time, the withdrawal of Western car producers has helped the good and inexpensive small and medium-sized cars from China to break through into the Russian market.
The public propaganda organs of the German government do not report on all this, because that would only illuminate another side of the EU’s bottomlessly stupid suicide sanctions. For the Western sanctions are anything but sustainable. They have only caused a short-term shock. Everything Russia has obtained from the West it either doesn’t need or can get elsewhere. The Russian population can live quite well without French cheese or Parma ham from Italy or cosmetics and luxury items from Dior. And technical products, spare parts, etc. can be produced by the Russians themselves — albeit at higher cost — or they can have them produced cheaply in China. Western technology can also be ordered on short notice from friendly third countries such as India and in Central Asia. This transition takes time but, overall, Russia has managed it so far with flying colors.
In contrast, sanctioned Russian supplies of oil, gas, coal, fertilizer, and countless other minerals and semi-products cannot be made up by the West from other sources in either the short or medium term. And even if such sources were available, the logistics would not be sufficient to transport the required quantities to Europe. For the green-smeared German government and its media megaphones, in her FT article Prof. Thompson names these and other unpleasant truths, such as the admission that the West, especially Europe, is about to lose the economic war against Russia.
The article hints at the politically incorrect, heretical thoughts being discussed behind the scenes in the top echelons of the business world. It could hint at a change of heart about restoring normal relations with Russia. Because of its importance, I have translated the Thompson article entitled “A winter energy reckoning looms for the West” in its entirety, and have commented in various places.
Here follows the translation:
Around the world, politicians are becoming increasingly desperate to contain the explosive consequences of the energy crisis. In parts of Asia, the Middle East and Africa, already mired in numerous economic and political difficulties, the crisis is proving catastrophic.
Those importing liquefied natural gas must now compete with European laggards in the LNG market seeking an alternative to Russian pipeline gas. In early summer, Pakistan failed to close a single LNG tender. In poor countries, much of governmental resources go towards subsidizing energy consumption. At prevailing prices, some cannot: earlier this month, the ‘Sri Lankan Electricity Board’ imposed a 264% percent increase on the country’s poorest energy consumers.
In Europe, governments want to reduce pressure on households and energy-intensive and small businesses, while rising prices, the campaign to use less energy, and fears of the coming winter are expected to dampen demand. Fiscally, this means government funding to reduce rising energy costs by subsidizing energy distribution corporations — as in France — or transferring money to citizens — as in the U.K. — to pay those bills.
What is not available anywhere is a quick fix to increase the physical energy supply. This crisis is not an unintended consequence of the pandemic or Russia’s brutal war against Ukraine. It has much deeper roots in two structural problems.
A key sentence from Prof. Thompson article is in the last paragraph and reads:
“What is not available anywhere is a quick means to increase the physical energy supply.” This sentence is elementary for understanding the current energy crisis. In Germany, [Economics Minister Robert] Habeck and [Chancellor Olaf] Scholz in the federal government have either still not grasped this connection or they are ignoring it because they are pursuing a completely different agenda in this crisis. Their oath of office to “prevent harm to the German people” is obviously not part of it.
In the current crisis, the federal government is indeed trying to give the people and the distribution companies a helping hand with freshly printed money to cover the higher energy costs. But it is not increasing the supply of energy. The German government has made grandiose announcements about alternatives to energy from Russia and talked about them even more. But so far, everything has turned out to be all talk. Even Habeck’s deep kowtowing to the sheikh of Qatar has not helped. Specifically, the severely shrunken total energy supply has increased and will increase only marginally, if at all, in the foreseeable future.
The German government’s makeshift policy of using more and more money to compensate for higher energy costs is, of course, having a massive impact on government budgets, and not just in Germany. And this policy is causing a deepening crisis, especially in the global South, because developing countries such as Pakistan cannot compete in the bidding war for LNG with the Europeans who have recently appeared on the market. It is no surprise, then, that the Global South blames the policies of the Europeans and the entire West for the energy crisis. And, of course, the energy subsidy policy of the Europeans is leading to a further increase in inflation, which will probably soon settle at double-digit levels in Germany as well.
Now on to Prof. Thompson and the two structural problems she mentions as deeper roots for the current crisis:
First, as uncomfortable as this reality is for climatic and environmental considerations, the growth of the global economy still requires fossil fuel production.
This is exactly what the West’s arch-villain, Vladimir Putin, had said at a conference in the Kremlin a few weeks ago.
(Continued by Thompson:)
Without more investment and exploration, there is unlikely to be sufficient supply in the medium term to meet likely (energy) demand. The current gas crisis has its origins in the Chinese-induced surge in gas consumption in 2021, with demand growing so fast that gas became available only at very high prices for European and Asian purchases. Meanwhile, the surge in oil prices this year only subsided when (short-term) economic data became unfavorable for China. But according to the International Energy Agency, it’s entirely possible that global oil production will be insufficient to meet demand as early as next year.
However, the Chinese government is currently taking massive steps to revive the Chinese economy to boost economic growth, which will put upward pressure on oil prices again. China is buying oil from Russia, and President Xi Jinping visited Saudi Arabia to finalize a mega-deal between China and Saudi Arabia, which will mainly involve supplying more oil to China. China can easily absorb all of Russia’s oil exports, and still needs oil from the Saudis as well.
The global economy got by for much of the 2010s on the shale oil boom, which more than doubled U.S. production between 2010 and 2019. Without it, the world would have been trapped in a permanent oil crisis since 2005, as conventional crude oil production — oil extracted without hydraulic fracking or from tar sands — stagnated.
American shale oil cannot continue to expand at the same pace. Although the largest U.S. shale oil formation — the Permian basin in west Texas and southeast New Mexico — is expected to reach record production next month, total U.S. production is still more than 1 million barrels per day below 2019 levels. Even in the Permian basin, daily production per well is declining.
More offshore drilling, such as that opened up in the Gulf of Mexico and Alaska by the new [U.S. law] Inflation Reduction Act, requires higher prices or investors willing to invest their capital — regardless of the profit outlook.” The best geological prospects for a game changer — similar to what happened in the U.S. in the 2010s — are in the vast West Siberian Bashenov formation with shale oil. But Western sanctions mean that the prospect of Western oil companies helping Russia technologically is a geopolitical dead end.
What Prof. Thompson fails to mention here is the fact that the Russians are quite familiar with shale oil technology. The same is true of the Chinese. But both China and Russia do not yet have the experience and expertise in this technology that the U.S. does. But they know how it works. Most certainly, at some point, if it is necessary, the Bashenov shale oil formation in Siberia will be developed. But it can also be predicted as quite certain that this will happen not with U.S. participation or to Europe’s advantage, but jointly with China and possibly with India. The West has excluded itself. As we can see, Chinese demand for oil and gas is insatiable even with restrained economic growth. And once the Chinese economy picks up steam, and India’s does too, demand for energy sources will continue to grow and prices will rise even more.
Second, there is little that can be done that would immediately accelerate the transition from fossil fuels (to renewable energy). Britain’s planned micro-nuclear reactors will not be completed until the 2030s. Operating power grids with solar and wind base loads requires technological breakthroughs in storage. It is impossible to plan with confidence what progress will be made in the next year, let alone ten years. But precisely because an energy transition is essential to reduce fossil fuel use, large-scale blue-sky investments are essential.
The only way forward is short-term realism that recognizes there is no way back to cheap energy, coupled with radical, long-term ambitions. An understanding of geopolitical realities is also essential. The U.S. remains by far the world’s dominant power. Its naval power guarantees open waters for international trade. Global credit markets depend on the dollar. But Washington does not have the power to direct China’s and India’s energy relations with Russia. The coming winter will bring a reckoning. Western governments must either conjure economic misery on a scale that would test the fabric of democratic politics in any country, or face the fact that energy supplies are limiting the means by which Ukraine can be defended.
The article ends with this remarkable last paragraph. In a convoluted yet clear manner, Prof. Thompson makes it clear that there is “no way back to cheap energy” if it is also “linked to radical, long-term ambitions” such as the Great Reset or other green brain farts. To get back to affordable and reliable energy, Prof. Thompson urges Western governments to make a deal with Russia now, without delay.
At the same time, Prof. Thompson underscores the futility of Western attempts to curtail Russia’s energy exports when they are desperately needed by the rest of the world. The West must accept the fact that it cannot dictate energy flows. Nor can the U.S. along with the EU and NATO and the rest of the G7 dictate to India and China and many other countries around the globe whom they can buy oil from and under what conditions they can do so. They can’t impose their will on the Russians, either. And to take the insanity to the extreme, the West is pursuing this policy while at the same time desperately needing more gas and oil itself and realizing that it cannot replace Russian oil and gas in either the short or medium term.
Interestingly, Sadad Al-Husseini, former vice president of the giant Saudi Arabian oil company Aramco also underlined in an interview with the U.S. news channel CNBC on Monday of this week that there is not enough capacity around the world to replace Russian gas supply to the European Union. In contrast, he said, Russia has many markets to which it can sell its energy. Literally, Al-Husseini said:
The U.S. does not have the LNG capacity to replace Russian exports to Europe… This situation is a new world and not a very good one for energy… It will take years for the EU to find resources to replace Russian supply.
This is another confirmation of Prof. Thompson’s analysis that the West can only solve its energy problem in the long term by working hard and developing new technologies, such as experimenting with sufficiently large intermediate energy storage for highly fluctuating wind and solar energy, or even hydrogen. The fact is: in the short and even medium term, there is no alternative for Western governments — especially in Europe — unless they want to subject their societies to unbearable pressures this coming winter, with significant potential for social unrest and far-reaching political consequences for the governments currently in power.
Prof. Thompson has made it implicitly clear with her FT article that if current Western sanctions policies are adhered to, governments in Europe will not only face domestic destabilization this winter, but will also further sour their relations with the Global South. If they want to avoid these domestic and international problems, Thompson says they must find some way to talk to the Russians again. But without a compromise solution on Ukraine and a Western acceptance of Russian demands for equal security, that is not possible. However, this demands of the ideologically stubborn elites currently ruling in the West that they would have to jump over their own shadows, which would mean their political end.
I do not trust any of the ruling Western elites, and certainly not the German Greens, to have the personal magnanimity to admit their own mistakes and to step back and clear the way for normalization of relations with Russia for the good of the population. For their goal of the “Green Reset” they are happy to sacrifice the modest prosperity of the population, to let people starve and freeze, which reduces CO2 emissions, and despite high inflation to demand an additional tax on meat to reduce the number of methane gas-producing cows; to name just a part of the Green insanity.
The totally-out-of-touch [Foreign Minister Annalena] Baerbock announced the day before yesterday, August 31, at Forum 2000[i] that for her Ukraine comes first, no matter what her German voters want and no matter how hard life will be for the population this winter. Literally she said (translation from English):
“When I make the promise to the people of Ukraine — ‘We will stand by your side as long as you need us’ — I want to keep it. No matter what my German voters want,” she said, adding, “We are now facing the winter that will challenge us as democratic politicians. People will take to the streets and complain that they can’t pay their energy bills. And I will say, yes I know, we will support you with social measures. But I definitely don’t want to say, ‘OK, then we’ll stop the sanctions against Russia.’ We stand behind Ukraine, and that means sanctions will stay, too, even in winter, even if that will be very hard for us politicians.”
This is an extraordinary admission that the traffic light* government in Berlin is determined to prolong the war in Ukraine, which is being abused by the West as a battering ram against Russia, come hell or high water, for as long as possible, no matter how much the German people suffer. Her promise to the Ukrainians is worth more to Baerbock than her solemn oath to prevent harm to the German people she claims to represent in the world. In fact, the welfare of the German people is worth a dog’s breakfast to her.
In the words of Professor Thompson, the Greens are ready to “put the fabric of democratic politics in our country to the test.” We all have to make sure they don’t succeed, that in the words of Baerbock, “it becomes very hard for the politicians.”