Prof. ST Hsieh
Director, US-China Energy Industry Forum
S T HSIEH
July 2, 2022
It is amazing to read the following announcement that EU’s executive arm (on Friday, July 1, 2022) pledged to draft an emergency plan to do without Russian Energy!
The war in Ukraine started on February 24, 2022, and EU, under the leadership of US, immediately imposed on unprecedent sanctions against Russia with the specific goal of forcing Putin to his knees and leave Ukraine immediately. Was there any planning done before those unprecedented sanctions were leveled against Russian energy? It is public knowledge that EU depends on Russian energy since the real cold war era, so what was the reason now, after the Ukraine war entered the fifth month, that “EU prepares emergency plan?”
It is obvious that the unprecedent sanctions were not planned well and they do not work after four months. Who will have any confidence that “EU’s emergency plan” will work at all? European Commission President’s explanation that “Energy prices are high. People — rightly so — expect us to do something about it” sounds like the emergency plan is an afterthought based on people’s expectation. Her statement of confidence is in sharp contrast with the reality: Germany Risks ‘Imminent’ Recession on Gas Cutoff, Deutsche Bank Says. Note the contrast of an emergency plan for Europe vs Germany’s imminent recessions.” The fact of life is that if Germany enters recessions the whole EU and event the global economy will not be spared.
In fact, even the US is self-energy sufficient and capable of exporting LNG to EU: As Biden aims to punish Russia on world stage, sanctions hurt at home! The US mid-term election is scheduled for November 8, 2022, and all polls say that the Democratic will lose. That is very bad news for Biden and his policy will not last.
EU prepares emergency plan to do without Russian energy
Fri, July 1, 2022, 10:10 AM
PRAGUE (AP) — The European Union’s executive arm on Friday pledged to draft an emergency plan this month aimed at helping member countries do without Russian energy in the wake of the Kremlin’s war in Ukraine.
European Commission President Ursula von der Leyen said the initiative would build on EU moves to ditch Russian coal, oil and natural gas and would complement a bloc-wide push to accelerate the development of renewable energy such as wind and solar power.
“We are preparing emergency plans for Europe,” von der Leyen said in the Czech town of Litomysl, where she marked the start of the country’s six-month stint as holder of the rotating EU presidency. “Energy prices are high. People — rightly so — expect us to do something about it.”
She said the contingency plan, due around mid-July, would focus on two key points including having a “clear idea” of where to cut back on Russian energy supply and to do it “in a smart way” as well as to rally around EU countries facing supply squeezes.
“We need a good, common plan that the energy flows, or the gas flows, where it is needed most,” von der Leyen said.
She said the plan would be developed in coordination with the Czech government, whose prime minister highlighted the political pressure across the EU to act.
“Energy prices are suffocating our economy,” Premier Petr Fiala said alongside von der Leyen. “This is our biggest test for the coming months.”
The commission announced in May a plan dubbed REPowerEU to abandon Russian energy amid the Kremlin’s war in Ukraine, proposing a nearly 300 billion-euro ($312 billion) package that includes more efficient use of fuels and faster rollout of renewable power.
“The next step is to make available to the EU member states the 300 billion euros that come along with REPpowerEU, and therefore, of course, we count on your presidency to reach rapidly agreement on the adoption of the REPowerEU regulation,” von der Leyen told the Czech premier.
This investment initiative is meant to help the 27 EU countries start weaning themselves off Russian fossil fuels this year. The goal is to deprive Russia, the EU’s main supplier of oil, natural gas and coal, of tens of billions in revenue and strengthen EU climate policies.
Germany Risks ‘Imminent’ Recession on Gas Cutoff, Deutsche Bank Says
Thu, June 30, 2022, 10:02 AM
European economies are facing a major new shock from slowing deliveries of Russian natural gas, which threaten to push inflation even higher than the current record levels and drive the continent’s powerhouse Germany into “imminent” recession, Deutsche Bank said.
“What is unfolding in Europe in recent days is a fresh big negative supply shock,” Deutsche Bank analysts wrote, citing a 60% fall in gas flows via the Nord Stream pipeline earlier this month. “If the gas shutoff is not resolved in coming weeks we worry this will lead to a broadening out of energy disruption with material upfront effects on economic growth, and of course much higher inflation.”
The latest squeeze on energy supplies as a result of Russia’s war in Ukraine has raised alarm levels across the continent — especially in Germany, Europe’s biggest economy and one off the most reliant on Russian gas. Economy Minister Robert Habeck has warned that turmoil from gas markets could spread more broadly, comparing the risk to the crisis triggered by the collapse of Lehman Brothers in 2008.
The Berlin government said Thursday it’s in talks to provide “stabilization measures” for utility Uniper SE, which is losing some 30 million euros ($31 million) a day because it has to cover missing Russian supplies at soaring spot-market prices. Chemicals giant BASF SE, which relies on gas for production and electricity, said it may have to cut output.
Europe’s energy crisis is spurring ever-louder recession warnings. Morgan Stanley economists said earlier this week that they now expect the euro area to fall into a contraction in the last quarter of this year, largely because of the risk of reduced natural gas flows.
Persistent gas shortfalls would “raise the risk of an imminent German recession on the back of energy rationing,” as well as signaling “clear downside” for the euro’s exchange rate against the dollar, the Deutsche Bank analysts said.
As Biden aims to punish Russia on world stage, sanctions hurt at home
SHANNON K. CRAWFORD
Thu, June 30, 2022, 2:01 AM
As the leaders of NATO’s 30 member countries convene in Madrid this week, preserving the alliance’s remarkable unity against Russian aggression is at the top of President Joe Biden’s agenda.
But as the war’s economic fallout ripples far beyond Eastern Europe, maintaining Americans’ support for Ukraine amid mounting fallout at home may be the greater challenge.
Before Russia launched its attack, the average price for a gallon of gasoline in the U.S was near $3.50. Now, it hovers near $5. Inflation concerns were already ballooning before the war, and since its onset in February, year-over-year rates continue to surge.
Biden has pledged to do whatever he can to bolster the U.S. economy while promising to take down Russia’s — pledging to make President Vladimir Putin pay a staggering price for inciting the conflict.
So far, though, higher global prices have made it possible for Russia to reap higher revenues from its fuel exports, even while it exports less.
ABC News asked experts about whether the financial penalties levied against Russia are having unintended consequences and what other tools the Biden administration could use to counter Putin’s aggression that don’t hurt American consumers.
Sanctions’ side effects?
When it comes to evaluating the efficacy of the allies’ sanctions and embargo strategy, economists stress it will take time for the measures to show their true bite — on Russia.
In fact, in the near-term, Ginger Faulk, an international lawyer at Eversheds-Sutherland who represents multinational companies in matters involving the U.S. government’s regulation of foreign trade and investment, said there’s evidence the policies have been “counterproductive.”
“The sanctions have not stopped Russia from continuing its war and they’re not even threatening Putin’s hold on power in Russia,” Faulk said. “To date, Russia has been able to increase its spending on the war in spite of these sanctions.”
While Biden might blame “Putin’s price hike” for Americans’ pain at the pump, Faulk said there’s more to the story.
“The rise in gas prices that people are seeing is caused by a lot of factors, but make no mistake — one of the big factors is the shunning of Russian oil in global markets,” she said.
“I think if we had approached the embargoes more strategically at the outset, it wouldn’t have caused this.”
Douglas Rediker, a senior fellow in the Global Economy and Development program at the Brookings Institution, argues that beyond the Biden administration’s policies, the war’s roiling of supply chains and a diminished wiliness to trade with Russia have had a much greater role in rising costs.
“To some degree, Putin’s invasion of Ukraine is what caused the price hikes, rather than the U.S. and E.U.’s reaction to it,” Rediker said.
“Gasoline prices have gone up. But they have not gone up primarily because of the sanctions that we’ve imposed on Russia. They’ve gone up because of the overall impact on supply chains, on trade, and diminish willingness to transact with Russia,” he added, noting that penalties on Moscow’s national banking system have also played a part.
Capping the cash flow
Fewer customers willing to do business with the Kremlin has resulted in other countries like China scooping up Russian oil at discounted rates. But instead of trying to hinder countries going against the U.S. and its allies from benefiting, experts say imposing a price cap on how much an importer can pay for Russian oil might be a better strategy.
“Sanctions lawmakers have to get smarter,” Faulk said. “That’s why you see the Treasury Department and the White House talking about reducing the price that Russia receives for the oil itself without actually taking those barrels off of the world market.”
Indeed, it’s a proposal that was on the table at this week’s meeting of G-7 nations, where a U.S. official said the leaders of the world’s most advanced economies were able to come “very close” to an agreement on a mechanism that would set a global price cap on Russian oil by imposing shipping restrictions on any product purchased above a certain threshold.
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In theory, the restrictions would be enforceable because a London-based company insures the vast majority of the world’s oil tankers, so only countries in compliance would be allowed to use the company’s services.
“The goal here is to starve Russia, starve Putin of his main source of cash, and force down the price of Russian oil to help blunt the impact of Putin’s war at the pump,” a senior administration official said.
In addition to being able to charge less for its product, Faulk says Moscow will have to be content with the added expense of sending oil to faraway customers.
“It’s much more complex and expensive to send oil to China or to India rather than to Europe,” she said. “Those increased logistics costs and the sanctions discount will eat into Russian revenues.”
But whether importers would follow suit with price limits or establish workarounds is still unclear.
And there’s also the possibility that the Kremlin could respond to the measure by abruptly cutting off oil exports to the E.U. before its gradual embargo comes into full effect, or halting its supply of natural gas—which Europe relies on to heat nearly half of its homes.
“Russia is responding in a kind of economic tit-for-tat by cutting gas flows into Europe. And that doesn’t bode well for this winter,” Faulk said.
No easy fixes
The key to bringing down prices at home lies in a simple economic model: supply and demand. But experts say those variables are exceedingly difficult to manipulate.
To ramp up supply, Rediker says, the Biden administration has shown a willingness to work towards expanding the amount of fuel available to the global market, even if it means courting unsavory trade partners.
“There are steps to do deals with — if not the devil — certainly do deals with countries we have demonized for human rights and political behavior,” Rediker said, referencing authoritarian governments like Saudi Arabia and Venezuela.
Trying to limit demand may be even less politically palatable.
“The Biden administration is very reluctant to see comparisons to the Carter administration,” Rediker said, recalling a speech the former president gave advising Americans to turn down their thermostats amid rampant inflation and the energy crisis of the 1970s. “I think they have that deeply penetrated in their political thinking and they want to avoid being seen as asking Americans to reduce the demand for fossil fuels.”
As for the White House proposal to temporarily lift the federal gas tax, Rediker says most economists would describe it a “political theater,” and that if it were to be enacted, it could actually result in increased inflation by prompting more federal borrowing.
With no straightforward solution, he says support for the war could wane.
“As the war has continued on, the American public may still be supportive of Ukraine. But the question is, are they willing to make an overt sacrifice that’s being reflected in higher prices at the pump?” Rediker said. “I think that’s an open question.”