6 -- Boycotting Russian Gas and Oil: What it Means
For recent subscribers many thanks for joining. This is the sixth edition of my new free newsletter. I began writing it to shed light upon and in some small way to counter Putin’s odious invasion of Ukraine. For obvious reasons, that has been the driving focus of the newsletter, and will continue to be, with the inclusion (today and last week) of the war’s impact on South America, Africa, and Asia.
For anyone who has subscribed lately, let me recap the first week of the newsletter:
1 – “The Coming of World War III;” 2 – “Will Russia Remove Putin;” 3 -- “Cutting Oil Imports Will Help,” 4 – “Putin, the War Criminal;” and 5 -- “Putin’s Private Army.” Each is available at the bottom of today’s newsletter.
Comments and critiques, and suggestions for improvement, are more than welcome -- rirotberg@gmail.com
Russia has oil and gas, and lots of valuable minerals. The United States will stop importing Russian petroleum and purchases no Russian natural gas. The United Kingdom will slowly extricate itself from dependence on Russian natural gas and oil. As soon as they can, other European nations will follow. But there is much more to be done to support valiant Ukraine and reduce Russia’s income stream from oil, gas, potash, wheat, maize, diamonds, gold, nickel, manganese, vanadium, lithium, and a clutch of other important commodities.
Sixty percent of Russia’s GDP before the invasion derived from oil and gas sales, mostly to Europe. Presumably, President Putin relied to significant extent on the pre-invasion, Covid-influenced rising global prices of petroleum and natural gas to time the launching of his criminal attack on Ukraine. As he assaulted, he reckoned, scarcity would keep revenues to pay his soldiers flowing, and no one would dare to cut off imports because of the impact of such a loss on Europeans -- in winter. Thirty-four percent of Europe’s natural gas (for heating and manufacturing) comes from Russia. But the free world is pulling back, as quickly as possible, and China is neither well placed nor ready to pick up too much of the slack. Indeed, Chinese banks have ceased issuing letters of credit for Russian trades. Furthermore, and a little below the radar, foreign ships are avoiding the Black Sea (where some ships were struck last week) and other Russian ports. Insurers are raising rates and, in many cases, refusing to cover vessels.
For the consumers of the world, the embargoing of roughly 8 million barrels of Russian oil per day and the ability at a big stretch of the United States and other oil producers to fill 4 million barrels per day of that deficit is still going to mean massively higher prices at the pump ($200 per barrel for Brent crude?) and, even with winter ending, correspondingly skyrocketing prices for gas. All South Asian nations are net importers of oil, and will suffer correspondingly. Overall, poor countries will be hit horrendously with “walloping” current account deficits, says the Economist. Belts are going to have to be tightened, possibly radically. The faster Putin is defeated, overthrown, arrested, and bundled off to some place like Elba or St. Helena the better -- but how?
Natural gas is an even more crippling factor than oil for Europe, but the invasion of Ukraine has turned Europe against Russia. Shipments of liquefied natural gas are on the way from the United States, which has plenty, and from places like Qatar, Norway, and Azerbaijan. But shortages will not be redressed quickly, so the lives of Europeans will be at risk so long as the Ukrainian war continues and so long as Putin remains in power.
The war’s impact on wheat and maize supplies and shipments is equally dire, especially for those Arab-speaking nations like Egypt, Lebanon, and Morocco whose peoples depend for most of their caloric intakes on pita and other breads made from Russian and Ukrainian wheat (30 percent of world sales). Ukraine usually provides 13 percent of global maize supplies. It exports barley and sunflower oil as well, but can no longer access its ports or rail networks. Wheat prices are 30 percent higher than they were before the invasion, and are rising. Nigeria and other sub-Saharan African countries will also be hit hard by reduced availability of wheat and even maize (corn). The United States is the world’s greatest producer of both crops, and often has massive surpluses of maize. And so does Brazil, especially if it can suspend making much of the ethanol that it blends together with petroleum. Australia can supply some added wheat. But even the U. S. and Brazil together cannot quickly make up for the loss to world markets of massive Russian and Ukrainian supplies; furthermore, Ukrainians will be hard-pressed to plant new crops this summer.
Then there is fertilizer, a key input of farming everywhere. Russia and Belarus supply nearly 33 percent of the globe’s potash. Together with natural gas, both are key ingredients of fertilizer. China is another major producer; but Canada supplies 32 percent of the globe. Only with difficulty will it be able to ramp up potash manufacturing in the short run. That will create critical food growing lags. For example, Brazil depends on potash from both Russia and Belarus to produce meat, soy, and all of its other agricultural staples. Deposing or defeating Putin will prevent millions from going hungry this year and next, even beyond the current war zone.
Putin’s vain determination to subjugate democracy and overturn the norm of warfare deserves massive retaliation. Boycotting Russia’s exports is essential, as much as doing so will make life and livelihoods more difficult in Europe, North Africa, and beyond.
Tomorrow: Stopping Russia’s Exports of Minerals