Russia may move to restrict gas flows to Europe via the Nord Stream 1 pipeline, Alexander Novak said, during a speech late Monday.
Novak’s remarks came on a day when the threat of a US embargo on Russian crude exacerbated a historic commodities rally and undercut risk sentiment on Wall Street, where equities careened lower again, building on recent losses.
It was the worst session of 2022 for US shares (simple figure below), no small feat considering all the rough days traders have already endured just two months into the new calendar.
Global shares are likewise beset by war worries. Bear markets abound and where they aren’t established, they’re beckoning.
Novak went on to threaten “catastrophic consequences” for the energy market in the event the US and Europe move to declare Russian crude contraband. Oil prices, he warned, could rise to $300 a barrel.
At the highs, Monday’s harrowing surge in European gas brought prices to the equivalent of $600 per barrel, a move that left market watchers speechless. Germany said it doesn’t support an embargo, but then again, Olaf Scholz was against a SWIFT ban initially too. He eventually acquiesced on the way to a remarkable about-face that saw Berlin break with precent to allow weapons shipments to Ukraine. Germany also committed to more military spending.
The point is, Scholz could change his mind. After all, he iced Nord Stream 2 last month, so he’s not totally opposed to targeting Russian energy, even as he emphasized Monday that “there’s currently no other way of securing Europe’s supply for heating, mobility, power and industry.”
As the figure (above) makes clear, it’s time for a rethink. Putin may be reliable as an energy supplier, but he’s not reliable on much else. Being beholden to a KGB agent for one’s heating and power needs isn’t ideal. European leaders are prepared to say as much later this week in a joint declaration calling for a “thorough reassessment of how we ensure the security of our energy supplies,” according to a draft document seen by Bloomberg.
Regardless of whether Europe ultimately decides against a ban on Russian energy in the near term, more sanctions are coming, possibly as early as Tuesday. And that’s unlikely to sit well in Moscow, which is already having a difficult time selling its oil, Novak’s protestations notwithstanding. There was no indication that a decision to cut gas flows to Europe was imminent.
Also on Monday, JPMorgan said it’ll boot Russian bonds from its indexes effective later this month, the latest sign that Russia is being totally isolated from the global financial system. Last week, MSCI and FTSE decided to kick Russian stocks out of their indexes. MSCI called them “uninvestable.” Bloomberg is also removing Russian bonds from its benchmarks.
In case this somehow isn’t clear by now, Russia has no path to victory in an economic war with the rest of the world. It’s true that Europe might freeze, and that the ongoing commodities shock may worsen food insecurity around the globe. But without access to hard currency, the Russian economy will simply implode. A strategic alliance with Beijing isn’t enough. Novak’s threats may not be empty, but they’re foolish.
Russia appears to be inching back its demands at same time. Promise to be neutral, cede a bit of territory, we’ll call it good, cool?
Not something Ukranians will accept at this point, I’d think, but different from “puppet state and Zelensky’s head”.
Seems to me:
Russia should try to improve its position militarily (if can’t take Kyiv, cut it off from resupply) and show that it can hold out economically.
Ukraine should try to attrit Russia’s forces and supply chain, and show that it can hold out militarily.
Ukraine’s allies (US/West) should tighten the economic screws and help Ukraine hold out with weapons, supplies, intelligence.
Russia’s allies (China) should . . . that’s unclear to me. We’ve discussed China’s complex interests here, they don’t really (my opinion) support going all-out to help Putin crush the world’s now most sympathetic nation. I still think some combination of being the global peace-bringing hero, keeping US/West busy for years with Europe defense, keeping Russia busy and dependent, and learning lessons for Taiwan project, while avoiding a global recession or worse, is China’s best-realistic-outcome.
I don’t see Russia self-sanctioning on gas exports as fitting into its logical strategy. If Europe decides to stop buying gas or to cut purchases by 80%, then sure Russia should cut off gas and pretend it was their intiative.
I hope you are correct that Russia”‘s alliance with China is not enough but it is worrisome. Their needs and resources seem to fit like hand and glove and China’s payment system and economy seems like it could save Russia. could you write further on why you don’t believe that the alliance is sufficient?
Their payment system absolutely can’t save Russia. Note that Chinese state-run banks already pulled back on extending dollar financing for Russian commodities. I don’t think most people fully understand what’s going on here. Outside of the commodities trade, it is effectively illegal to provide Russia with dollars, euros, pounds, yen, francs, etc. That’s not tenable. You can’t run a modernized economy without access to hard currency. It literally won’t work. China isn’t going to risk getting cut off too to save Russia. The world doesn’t run on yuan. You can survive on Jolly Ranchers and storm runoff from your roof for a couple of weeks, but eventually, you’ll die if you don’t get real food and clean water.
I’m guessing that if China drops Russia it’s the aforementioned checkmate for Putin…the question is when will Xi see fit to make its influence known…I guess when it suits Xi and China’s interests which may not be for awhile…just thinking out loud…
Russia made Security Requests , got ignored and the crisis was existential in their minds . This ain’t all just Putin unless the info comes from the punch bowl marked Blueberry special A lot of opinions from a lot of smart people out there but it’s a lot of work to sift and sort it out.
Russians are over their head as H….says but all this could have and still can be minimized . The Genie is not going back in the bottle. Europe is going to take the poison pill as American interests do not jibe with theirs. The rest is History in the making and that will as always be written by the Victor…I’d consult my magic * ball before I make another guess at this point .
My view: “in their minds” is the important part.
No informed or even semi informed observer could have sensibly seen Ukraine as a military threat to Russia. All the problems Russia has had invading Ukraine would be 20X worse if Ukraine’s smaller, less mobile, less well-armed forces tried to invade Russia. The Russia forces have struggled to move 200 km south from Belarus to Kyiv. It is 10X further from Ukraine to Moscow.
As for NATO being a threat, said observer would have seen the ill-prepared state of Germany’s forces and the meager defense budgets of it and other European NATO members and the US de-focus on Europe – because it’s not even secret. https://globalriskinsights.com/2018/03/state-germanys-military-readiness/
The sensible approach would have been to continue to use Russia’s (formerly) effective propaganda operations to erode Europe’s commitment and readiness, use Gazprom and the gullible Greens to displace even more of Europe’s energy alternatives, and support separatist groups to gradually digest Ukraine from within. It would have been easier to assinate Zelensky during peacetime too.
Instead, Putin has reinvigorated NATO, driven Western defense budgets up, pushed Finland, Sweden, the Baltics away, imperiled his ally in Belarus, united most of tue world against him, kneecapped his economy, started turning even his GOP into an anti-Russia mob, etc. He may yet take or destroy Kyiv and other major cities, but with the anger, nationalism, and resistance he’s created, that will get him an endless and draining insurgency a la Afghanistan.
I don’t think Putin is a stranger to reason. In recent years he has likely been misled by syncophant advisers, and pushed away other advisors, but his direction has been this for much longer than that. I think his “threat from Ukraine/NATO” talk is merely justification for his desire to rebuild Greater Russia aka USSR. Add Belarus and Ukraine and that’s a great big part of the job done.
Re:. “”If you want to reject energy supplies from Russia, go ahead. We are ready for it. We know where we could redirect the volumes to…”
The interesting thing about oil inflation is the relationship with the dollar, and exchange rates. Even if India and China decide to play digital games and create special purpose entities, and pea and she’ll games, their devalued cash supplies will be impacted by inflationary oil. Thus if we get to $300 oil in a global market, will India be willing to bet the farm in this deadly Russia game? Are these other outlets willing to pay the cost of pissing off the rest of the world? That seems unlikely.
Actually, there’s one other tidbit to ponder.
Note that the threat from Russia related to the increase in oil cost was given in dollars, e.g. $300 and not rupees or Bitcoin…
True, they didn’t say “1900 RMB”…
At some point the U.S. government will need to call eminent domain on some oil fields in the Permian Basin and start pumping. The SEC better be looking into collusion between U.S. companies.
With oil this high and foreseen to remain above the break-even of $60 pbbl, it makes no sense for a free enterprise to not try to capture more of the market. Investors will reward any oil company that says they’ll pump more; why aren’t they stepping up?
U.S. Oil rigs decreased this month: https://tradingeconomics.com/united-states/crude-oil-rigs
Ok Vlad, let’s review 1991, and exchange rates:
“Coupled with the doubling of the crude oil prices by the Persian Gulf nations in 1990, India faced a serious Balance of Payment crisis in 1991.
The interest payment made up 39% of the government’s revenue and the fiscal deficit decreased to 7.8% of GDP. ”
So, how will $300 oil impact India and China? Sure, that spike will shock the EU and Americans but because of cross currency realities, that shock will shock your trading buddies too and make them weaker, which apparently is somehow related to decreased global GDP.
It’s as if Russia wants to punish the entire globe with a game plan that destroys Russia.
I’m sorry if this is annoying, but it seems valid.
@oldbird: This war is the ‘real deal’, and, no pertinent ideas, thoughts, or ponderings are “annoying” coming from allies. Recognizing that is our strength. Failure to understand that is always the eventual downfall for the authoritarian ‘personalities’ that would seek to lord over us. Few things of late gave me more satisfaction than to observe Pigtootin putting his politbur[r]os out to early pasture, on the world stage nonetheless. War, the ‘real deal’ kind, is a rapid sorting machine for taking sides. We need to be very cognizant in these early stages of this process to give our natural allies time to process events. Whether the Allies with Wardogs already in the fight use carrots or sticks to speed up the process is best left to the gutted remains of the State Department the Trump administration’s attempted final demolition left behind in rubble long before their feces smeared Insurrection even got off to such a smashing start. Let’s pray we hear stories about departed foreign service servants quietly taking pay cuts and returning to their old posts soon. For the time being it appears we’ll have to continue to place undue reliance on their ‘foreign service’ replacements that wear pixellated combat fatigues when they meet with foreign dignitaries and cram their faces with Ruskie caviar on the People’s dime 😉 . Of course, that fratricidal bureaucratic turf war for power and funding started before Trump the Putin Appeaser (a recent post by @jyl I believe brought to our attention Trump and Murdoch’s desperate attempt to spin away this sordid relationship) tried to pick a winner. And what greater testament to the power of shared determination to stand together as free people in the shadow of looming tyrants than a hungry worm willing to take a chance and beat the war drums beneath a wily oldbird! Heres to Tyrannicide instead of Fratricide!
My how I do get carried away on my own spilled ink sometimes once the crescendo of a movie soundtrack gets playing in the back of the old echo-chamber. Anyway, to zero in on a specific event of great historical interest that ties in with the issues heisenbergreport tends to focus on, when not exploring avant guard European thinkers, I’ve been puzzling myself over the seemingly monumental Zig Und Zag in German military policy and NATO commitments.
At first I kept mulling over the obvious sorts of coincidences you’d expect the QAnon wing of the GOP to make. Stuff like Rex Tillerson being the Earl of Exxon, prior to falling on the pointy end of a golf tee, no doubt, on a sward of Trump’s, and agreeing to become the under-secretary of state department demolition. “Obvious”, cuz, we know one of the new “Seven Sisters”, now locked in a little room under the stairs leading to the garret where embarrassing relatives of the rich are locked away, that is never mentioned outside of the politest of companies, has nothing less than an ex-chancellor of Germany for a long serving board member. Yeah, it probably is Qluelss fodder, but, dagnabbit if it doesn’t remind me of the old timey Industrialist cabals Americans and Germans are kind of famous for from past periods that rhyme with today.
Next I took a stab at being rational. For me, sadly, that rarely ends well. Yet, pressing on, I thought what about China? How must the German Industrialist set be reevaluating the likelihood of a full return on their invested capital if Pigtootin ‘wins’ in the near term and Xi, already well down the path of a Mao revival in an “obvious” preparation for the justification of, as of yet, unknown but almost certainly, irreversible ends, takes to heart the ‘wrong’ lesson(s)? Ignoring what must really be sticking in craw of Industrialists around the world that have publicly committed billions in future outlays for the greenwashing projects their gambling on (not really of course cuz they know in their bones now, “14 years post GFC”, that their tentacles on the levers of democratic power riddled with inequality virtually ensures any private losses shall be made whole via taxpayers … or will they? cue the maniacal laughter …). This leads to the rabbit holes Musk creatures pop in and out. Don’t have space or time here to go down those holes other than to suggest there is some seriously dark moist stinking sh*t down there. So I’ll drop that line of pursuit for now with something grossly oversimplified and ask if a truly Muskiod creature could of arisen in the prior “Cold War” period, or, even in the first quarter or third portion of the flowering of the lowercase “l” liberal democracy period? (Hint: No, and don’t think for a nanosecond Armand Hammer and Musk share DNA/RNA.) Somehow I have to drop this without noting the Musk creature attempting to insinuate himself among the ancient Teutonic clan of Industrialists this very moment no less! The mind explodes :).
What was the (multipronged) point? Oh yeah, 1) Scholzian about-faces , 2) German Industrialists groping about for new lines of revenues once the all to probable-for-comfort tax losses (secondary to National appropriations the “Sisters” with their long memories are very familiar with) get written off against their global operation’s profits, and 3) the kind of incestuous boardroom affairs amongst the frenemies in the mover and shaker set…. Then I stumbled across this in F0r3ign Affa1r5 (20220226):
“Meanwhile, Shoygu [Remember the look on his face when Putin had a long-table propaganda photoshoot with this guy? Precious it was!] began to enjoy a bigger military budget and a growing profile in the Kremlin. In fact, the successes in Crimea and Syria had another important consequence: it brought the oligarchs closer to the military and helped jump-start a new Russian military-industrial complex. Paradoxically, this effect was driven by the Western sanctions imposed on Russia’s elite following the annexation of Crimea. Because of these penalties, many oligarchs were losing money and contracts in the West; to compensate, the Russian state rushed to help them by providing their companies with huge military contracts. For example, before the sanctions were imposed, Siemens, the German company, provided engines for the Russian navy; today, the Ural Mining and Metallurgical Company, a Russian firm, holds that contract. Buttressed by this combination of rising popular support and powerful ties among the Russian elite, the military had emerged by 2017 as one of the most powerful institutions in Russia.”
Sort of wrapped it all up, nice and neat, complete with a pretty bow. Try replacing “Russian” with “German” here and there listen to the strings it plucks in your mind. Anyway, this was fun, for me at least. My apologies to anybody that wasted their time reading it, but, you would be a tiny select few and you don’t know where I live, so I’m not worried 🙂