In today’s Washington Post column Fareed Zakaria points out what is blindingly obvious, at least to me:
There is one path to changing Russian President Vladimir Putin’s calculus: sanctioning Russia’s oil and gas industry. This is Putin’s golden goose, the source of the state’s wealth and the reason he might believe that he can weather any storm. So far, not only have these been left untouched, but the financial sanctions have been carefully designed to allow Russia room to continue to sell energy to the world.
I do give him credit for conceding that economic sanctions have rarely succeeded in impelling a country to change course. I disagree with him about Iran; I think South Africa is the only example. Even in that case I’m not sure it was the sanctions that caused the white South Africans to end apartheid. My hypothesis is that they did so because they already knew it was wrong and the social pressure of worldwide disapproval caused them to change.
As should be needless to say, that doesn’t apply in the present case to Russia.
I don’t think that Mr. Zakaria actually comes to terms with the reasons why we haven’t imposed sanctions on Russian oil, gas, and coal or, alternatively, I think he’s entirely too generous in the explanation he offers:
The conventional wisdom is that the West cannot sanction Russian energy because it would trigger an energy crisis along the lines of the 1970s episode, which would cause deep discontent at home.
Let me put it another way: it’s domestic politics. As Joschka Fischer once put it, the politicians know what they need to do; they just don’t know how they will keep their jobs if they do it. And so far neither Germany nor the U. S. has given up anything (other than spending money to arm the Ukrainians). The NS2 pipeline was shipping zero gas to Germany. The Germans are giving up future gas not present gas. Imposing sanctions on Russian oil, gas, and coal would put Hawai’i, for example, in a real pickle.
And (to put it into econspeak) changes in U. S. oil production are not completely elastic, i.e. they won’t happen immediately or for free. Were the United States to embargo Russian oil and gas, either the price of electricity and gasoline in Hawai’i would skyrocket or (if prices are fixed by law) there would be outages and/or shortages.
“they won’t happen immediately or for free. ”
You sure about that? According to Drew if Biden were not president we would be pumping twice as much oil now. We have the ability to dill and pump oil instantaneously and the oil companies will pump how ever much we want immediately. (Note that oil prices have seen a sustained increase only very recently. The price of oil in December would have been in line with prices much of 2018 and for most of the 21st century. Most of the increase from 2020 looks like what you would expect for a recovering economy.)
Back on topic, off this week so caught an interview with Mnuchin. Since he is not in office he made the case we shouldn’t worry about prices and should sanction Russian oil. Tough call since it would hurt our economy quite a bit as shown by the steep increase in prices the last 3 months.
Steve
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RWTC&f=M
Steve
Lindsay Graham calls for the assassination of Putin, and Pompeo calls for the recognition of Taiwan as an independent, sovereign state. And you expect Washington to have an effective sanctions policy? We are governed by literal madmen.
We are supposed to be well into the beginning of “The Fourth Turning,” a favorite topic over at “The Burning Platform.” Each Fourth Turning is supposed to be accompanied by, actually defined by, a world war.
The U.S. imports 670,000 of oil per day from Russia. On day one, however, Biden promptly canceled the Keystone Pipeline, evaporating not only over 40,000 higher paying jobs but also erasing the future delivery of 830,000 barrels of oil a day to the US. A few months later Biden then gave his approval to Russia for NS2. Do the math. How has this country benefited from Biden’s energy policies and leadership?
I wonder if sanctions at least in the traditional sense are what is going on here. Since Russia launched the invasion against Ukraine, various world actors, government and non-governmental, have announced or enacted trade restrictions, asset seizures, and various measures directed at the Ruble. A lot of these measures might have been expected or warned prior to the invasion as means of deterrence, but many could not have been foreseen or credibly threatened, particularly those involving countries like Japan, Germany or Switzerland.
Instead of sanctions, this looks like most of the world has taken sides with Ukraine in a war, as secondary, non-warring participants. Finance, trade, and supplies are being used to help Ukraine defeat Russia. If Ukraine wins, the secondary support will be dropped. However, Ukraine is unlikely to defeat Russia, nor does it appear likely that Ukraine will concede defeat in any way perceived as legitimate. Without Ukraine conceding defeat, economic war likely continues with the added rationale of punishment, perhaps including war crimes trials in abstentia.
The closest example I can think of is the Suez Crisis, when the U.S. put trade and financial pressure against France and UK to withdraw from the war, particularly through Eisenhower’s threat to sell off U.S. sterling reserves and bar UK from borrowing from the IMF.
You really should follow Javier Blas from Bloomberg (specialist on energy) on twitter.
Blas’s point is despite not de-jure sanctioning oil and gas exports, de-facto the US and EU have. Private buyers and other countries are “self-sanctioning” because there is uncertainty oil and gas will stay unsanctioned (Pelosi came out in support for sanctions yesterday). Shippers are refusing to ship with war and sanctions risk. Also, the financial sanctions are making it very difficult to actually transact.
Its not just Russian oil. Kazakhstan oil goes through Russian ports so that is also impacted.
Beyond that, the dislocations from these “precision” sanctions are piling up. Wheat, fertilizer and potash prices are all increasing limit up everyday. Egypt is the biggest importer of Russian food. The deputy secretary of State just announced a visit to North Africa including Egypt next week. As a reminder, the Arab spring revolutions in 2011 started over food prices.
Or this one. Who knew semiconductors requires neon where 50% comes from Ukraine/Russia. Given the article says typical inventory is only 3-4 weeks, in as soon as 2 months we could talking about semiconductor production dropping by half. And that would cripple the automotive sector.
The observation is the unrestrained use of “precision” financial weapons resembles the unrestrained use of “precision” munitions….
“According to Drew if Biden were not president we would be pumping twice as much oil now.”
Show me where I said that, steve. Show the forum. Or are you incapable of making a rational point?
Setting aside steve the clown for a moment…….
I have been beating the energy drum forever. In fact, our reliance on foreign oil, and all the attendant problems in the Middle East have been a pet peeve for three decades. To Dave’s point, it doesn’t take a rocket scientist. The fact of the matter is that Biden’s explicit anti-fossil fuels stance has been boneheaded and cost us a year. And he continues same, so it won’t change soon. Its gotten to the point that only steve, Rashida, Biden and Psaki don’t understand the need for energy independence as a fundamental strategic need for the US.
So here we have US oil production. Toggle the 5 year history for the best perspective. Current production is 8-9% below pre-pandemic peak. The last I looked when demand exceeds supply, prices increase.
https://tradingeconomics.com/united-states/crude-oil-production
And here we have US gasoline consumption, still well below pre-pandemic levels:
https://www.statista.com/statistics/188448/total-us-domestic-demand-for-gasoline-since-1990/
And here we have US gasoline prices. A 20% increase since Biden took office compared to the 4 years of the last administration.
https://www.statista.com/statistics/204740/retail-price-of-gasoline-in-the-united-states-since-1990/
Hmmm. Less supply under Biden. Less gasoline demand than before Biden took office. Higher prices after Biden took office. Sounds like steves excuse is a bunch of bullshit.
Separately, citing domestic politics, or that Hawaii would be put in a difficult position, are simply observations demonstrating that Biden has incompetently managed, and is incapable of managing, an effective US energy policy.
A bit OT but what will happen with nuclear energy? We had been living under this false idea that wars are over, besides who would attack a nuclear plant. Now we know it can happen and we also know that modern nuclear is pretty resilient. That said if you assume an accidental major bombing how much fallout does that create? Have we understimated the risks of nuclear power?
Any reason for switching from oil production to the price of gas, which can be driven by refineries? Other than it makes it harder to make your case?
Steve