By Irina Slav
It’s not often that I am rendered speechless by news and events but this week has been exceptional in this respect. Almost every day has brought news that instead of the usual resigned grunt draw a different reaction involving raised eyebrows, momentary muteness and either a burst of laughter or a string of expletives. Yeah, I’m not a lady.
The EU oil embargo
We all knew it was coming, it was only a matter of time. Now it’s here, the proposal, that is. The proposal involves a six-month grace period for crude oil imports from Russia and until the end of the year for refined products. Because, obviously, EU members would like to find alternative suppliers before they cut off Russian oil. Oddly enough, nobody seems to care that this means Russia will have six to seven months to fins alternative buyers, too. And keep getting paid for its oil and products by the EU in the meantime.
That replacing Russian oil will be tough is not news. The WSJ put it poetically: Europe Scrambles for Energy Before Cutting Itself Off From Russia. Reuters put it pragmatically: Explainer: How will Europe be affected by sanctions on Russian oil? And the FT had bad news for sanction designers: Russian economy could weather impact of EU oil ban.
In case anyone suspects there is something not quite right with these three headlines, I have to agree. The situation, as the EU conveys it, is this: Russia has done something very bad. It must be punished. We will punish it. It may cost us but punishment will be dispensed swiftly.
The situation as it actually is, leaving aside the specifics pertaining to the war in the Ukraine, is this: The EU is ready to do whatever it takes to hurt Russia financially, including suffering major financial pain itself. In fact, the EU seems ready to suffer considerably more pain than Russia, if need be, just to make Russia feel bad. A truth that seems to escape sanction designers, however, is that economic wars are won by those that have the resources, not those with the self-ascribed moral high ground and the PR machine. Sorry.
Fun local angle: Bulgaria is asking for an exemption from the embargo because we’re too dependent on Russian oil but our finance minister, who’s in the habit of commenting on all sorts of issues outside his competence said this week he sees absolutely no reason why our single refinery can’t work with non-Russian oil. Yes, he really did. Oh, and the EU is not granting us an exemption, reportedly, because apparently we don’t need it. Moving on.
The NOPEC bill
I must admit I have a special weakness for the NOPEC bill. The idea of it is so charmingly insane you can’t not appreciate it. And this week, the NOPEC bill cleared a Senate committee.
Of course, this doesn’t mean it will go any further. It’s not the first attempt of U.S. legislators to make it legal to punish OPEC for being OPEC. But it doesn’t mean a girl can’t dream, does it? Imagine that this time the bill clears the many hurdles. Imagine U.S. prosecutors going after Saudi Arabia or the Emirates. Imagine the lawsuits. And the oil shortage, of course.
One of the more fascinating realisations I’ve come to as I age has been that we really do not learn from experience. Our inability as species to draw lessons from the past and implement what we’ve learned in the present is truly striking. And I’m not talking about some distant past. I’m talking about 1973. Imagine a world with not one but two oil embargos! Now, how much fun would that be? The Third World War is clearly a war of sanctions and shortages. And high prices, of course.
Runaway fuel price inflation
Okay, this might be an overstatement but it might not continue to be an overstatement for long. U.S. fuel prices surge faster than crude as exports tighten market, Reuters reported this week, saying that the increase in fuel exports to starving Europe had caused the latest surge.
To translate this in non-politically correct terms, Americans are paying more for fuels so Europeans can…well, so they can also pay more for fuels because Ukraine. Both the U.S. and the EU governments are putting their own citizens’ interests below the interests of foreign citizens.
Noble as this may be (and there are doubts about that, and no, they do not originate in Moscow), you can’t really keep doing this for a very long time because your citizens will eventually realise they are being shortchanged in someone else’s favour. We may be an empathetic species but pure, self-sacrificing altruism is a rarity for a very good reason: it doesn’t really help our survival chances.
The SPR twist
Speaking of survival, recklessness is another kind of behaviour that doesn’t work for survival but rather against it. And yet some people seem to be addicted to it.
U.S. unveils plan to buy back 60 mln barrels for emergency oil stockpile, was the news story that made me stop and stare at the headline for a full ten seconds, temporarily incapable of processing the information. Then my brain restarted and I read the whole thing.
The news comes down to the following: after announcing it would sell 180 million barrels of crude from the strategic petroleum reserve last month, the Biden administration is now announcing plans to buy 60 million barrels in the next few years, “when prices are anticipated to be significantly lower than they are today,” per Energy Secretary Jennifer Granholm.
I suggest we all take a moment here to silently appreciate the certainty this message exudes like perfume of the more pungent variety. Every commodity analyst worth their salt knows that trying to predict oil prices even a year ahead is as useless as trying to predict the weather a year ahead but Secretary Granholm knows that “prices are anticipated to be significantly lower than they are today.” If this was a stand-up gig, I’d say “Sure thing, lady, just make sure Congress passes that NOPEC bill!”
I will leave you with the other quote from the U.S. energy secretary because I’m a fan.
“As we are thoughtful and methodical in the decision to drawdown from our emergency reserve, we must be similarly strategic in replenishing the supply so that it stands ready to deliver on its mission to provide relief when needed most.”