Where finance and media intersect with reality

In the Blind Spot (Energy distress, Melilla, Rocky IV)

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Economics, finance, markets:

  • The BIS is definitely not on team transitory.
  • G7 proposes price cap on Russian energy.

    “The gas cap would operate simply by European countries refusing to pay above an as-yet unspecified fixed price for Russian gas.” This is the most absurd idea I have seen yet from our side. One doesn’t have to be a Diocletian scholar to recognise the folly of such a proposal. Not only will it not work, it stands to make things much worse in the long run. Who is advising the G7? Seriously. Is it Wile E. Coyote?

    The idea may be to cut off Putin’s income. But markets don’t work like that. A buyer’s strike doesn’t work if the buyers doing the striking are desperate and suffering from shortages. It’s like going on hunger strike during a famine. Or telling a mafia boss you’re just not gonna pay up. Or the USSR in 1989 pretending it could really stand up to the West.

    I have been pretty clear from the start of the war that the sanctions policies we put in place would do little to thwart Putin. And that (despite our volumous internal propaganda) Putin has the economic leverage because of his commodity position. That’s the uncomfortable truth our side still won’t admit to for unknown reasons. Our side prefers to misleadingly cite intraday moves just to make it sound like these rouble and Moex rebounds aren’t happening.

    It’s really not that complicated though. Commodities, and specifically energy, represent the oxygen in the lifeblood of the system. You can have all the fancy assets and economic value in the world, but without a consistent supply of oxygen you and all your asset wealth will die. And it matters not that it it’s just a small energy deficit that you may be experiencing. It only takes a little bit of an oxygen deficit to kill you.

    What I am most shocked by, however, is the degree to which serious economists and financial media commentators (who should know better) have been supporting this delusional G7 stance. It’s almost like conscious self-sabotage. In fact, it’s almost like they have been paid off by Putin to propagate such nonsense.

    Naturally, I am also asked by those defending sanctions policy what would I do differently. Simple. I would draw lessons from Sun Tzu and recognise that we are in no position to wage war or assert ourselves over Russia. The better pathway, at least if the priority is death avoidance, would be to encourage the Ukrainians to drop arms and save lives, while never giving up claims over annexed territories via diplomatic channels. I would then encourage Europe and all NATO countries to spend the next two to three years reversing the madness of net zero in a bid to make ourselves truly energy resilient. If we can shut our economies off and suspend freedoms for two years to save Covid lives, it shouldn’t really be that illogical to encourage the Ukrainians to bear the yoke of Russia until we have the means to come in and fight Putin properly. Once strong, we move strongly.

    The logic of this is hardly rocket science. In fact the strategy is an ever present plotline in almost every Cold War movie. Russian advantage is eventually turned into schadenfreude by plucky Western come-back kids. Has no-one at the G7 seen Rocky IV?

    This is literally what we should be doing, but in energy terms:

    It doesn’t even matter that the Russians would be watching us “getting strong now”.

    The only logical explanation for this crazy policy is that we are playing some sort of Sun Tzu game ourselves — appearing weak when we are really strong because secretly we have discovered cold fusion. Somehow, however, I doubt that. It’s far more likely that we are the ones about to suffer from schadenfreude. Sorry to be blunt. -IK

Commodities crisis:

  • Helium shortage forces Harvard lab to shut down.
  • Ecuador’s president has promised to lower fuel prices across the country after weeks of disruptive mass protests over the cost of living.
  • Millions told to turn their lights off in Japan.
  • Sri Lanka has run out of fuel.

    Sri Lanka’s entire cabinet resigned from their posts on Sunday following mass protests in the country owing to growing signs of an economic collapse.

  • French power supply is teetering in the face of Russian gas cuts.
  • Poles are being encouraged to gather firewood.

    This is precisely what those who warned about the follies of net zero policy predicted would happen. Faced with growing energy insecurity, they said people would end up turning to coal and firewood — the dirtiest and least efficient of all the hydrocarbon fuels – to survive, putting the green transition backwards in the process. It didn’t have to be this way. – IK

Crypto non-resilience:

  • Goldman cuts Coinbase to sell.
  • Solana unveils Web3 mobile phone, which would include an integrated, decentralised Web3 mobile store.

    It appears questionable at best that Solana, whose digital cryptocurrency has been in severe turmoil in the recent crypto-crash, will be able to muster the commercial prowess needed to fully launch an allegedly groundbreaking mobile phone.Nevertheless, the promise to integrate decentralised mobile stores, and other Web3 features, is interesting nevertheless. Let’s watch this space. – DGG

From the “fake news” zone:

  • The Putin speech nobody in the mainstream wants to talk about.
  • Peter Doshi, a senior editor of the BMJ, has a paper out with other peers flagging mRNA vaccine safety issues.
  • Qanon is back.

WW3 Watch:

  • Lithuania’s blocking of EU-approved goods through the Suwalki Gap, a region that separates Russian Kaliningrad from its ally Belarus, has inflamed tensions in the region – with Lukashenko being particularly pronounced in denunciations of Lithuania’s move.
  • Poland displays wrecked Russian tanks in central Warsaw square.
  • Raytheon and Northrop win US defence contract to develop missiles to intercept hypersonic weapons.

Rumblings in the pacific:

  • Australia, Japan, the United Kingdom, and the United States have formed the informal Partners in the Blue Pacific Alliance to convene and discuss pressures in the Pacific region.
  • Taiwan struggles to fix its plummeting fertility rate, which is set to decline by around 13 per cent by 2050 based on current estimates, recently released figures have shown.

Italian droughts:

  • As if this year’s energy crisis couldn’t get worse, Italian hydroelectric power production plummets due to a severe drought. Italian commentators are fearful this may lead to water restrictions and difficulty for the country’s agricultural sector’s activities.

Troubles in Spain’s Melilla border:

  • Gigantic migrant assault on Melilla’s border fence, one of Spain’s historic enclaves in North Africa, leaves 23 killed and several hundred injured among migrants, Moroccan and Spanish police.

    Yours truly was partially raised in this unique city and can detect prominent blind spots in mainstream coverage of this issue. The migrants typically originate from sub-saharan Africa and are always camped out at a nearby forested hill. They are drawn there by the promises of human trafficking mafias.

    This ready reserve of desperate victims can be easily manipulated to exert PR pressure on Spain (or Morocco, as we will see). For instance, sources tell me that in Spain and Morocco’s recent spat over Western Sahara’s diplomatic status, which was actually over the control of rare-earth minerals in Western Sahara, it was Morocco which encouraged migrants to carry out the largest assault on the border fence yet this March.

    However, in this most recent recent Spanish-Moroccan entente the sides have changed – on this occasion five Moroccan police were severely injured (with dozens more wounded) protecting the Spanish border fence.Though the Spanish government has blamed unspecified ‘mafias’, Andros Lozano of Elmundo highlighted the critical role Algeria played by relaxing its border to allow thousands of illegal immigrants through into Morocco. It may be no coincidence that Algeria recently broke its decades-old ‘friendship’ treaty with Spain, which committed both sides to cooperating in controlling migration flows, as a result of the Spanish-Moroccan entente. Algeria has also banned imports from Spain as of June 9.

    The centrality of Melilla’s art-deco buildings, where imams, rabbis and Spanish generals converse in palm-tree-covered cafes, to this region’s emerging geo-political intrigue is something to watch closely. Notably, because the ‘door to Africa’ is sure to rise in value; the region’s rare earth minerals extraction and logistical infrastructure will continue to gain in strategic importance for the West – DGG.

Angry vegans in Bristol:

Middle East heating back up:

  • Nationwide Iranian protests continue, which the Ayatollah attributes to foreign enemies attempting to topple the government.
  • Fascinating Der Spiegel article on the Assad regime’s dependence on the exporting of Captagon amphetamines.
  • Hamas restored ties with Assad’s Syria, 10 years after the Palestinian Islamic group closed relations owing to their opposition to Bashar al-Assad’s crackdown against the Syrian rebels.
  • Turkey potentially renews military operations against the YPG/SDF in north-eastern Syria.

    Our subscribers know we have been paying a watchful eye for potential geopolitical bartering to meet Turkey’s demands vis-a-vis Finland and Sweden’s entry into NATO. For those who haven’t; Turkey has threatened to block these countries’ entry should they continue to allegedly support the PKK and other Kurdish forces in Anatolia and beyond. Several items point to the solution of this barter resulting in additional territorial gains for Turkey in north-eastern Syria.

    Erdogan has mentioned intentions to venture southwards towards Manbij and Tall Rifaat – currently held by the YPG dominated, US-aligned Syrian Democratic Forces coalition that holds most of east and north-east Syria. Local movements make clear such an offensive is likely, particularly since in recent months the YPG has been moving closer to Bashar al-Assad’s government (and Russia), likely in exchange for an autonomous status similar to that of the Kurdish Regional Government in neighbouring Iraq.

    It would be entirely unsurprising if the United States’ regional balancing act entailed forcing a renunciation of YPG/SDF claims to the two key cities in exchange for Turkish concessions to Finland and Swedish NATO accession requests, and allowing a YPG-Assad rapprochement to conclude in a solid regional autonomous state for the SDF. Autonomy in the oil-producing region may procure benefits for American allies and industry, while an SDF entente with Assad will surely facilitate the extraction of such dividends.

Libyan turmoil continues:

  • Parliament-appointed Prime Minister of Libya visits London, and tells Reuters he approves removal of foreign fighters and mercenaries from Libya, including Wagner.

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10 Responses

  1. “The better pathway, at least if the priority is death avoidance, would be to encourage the Ukrainians to drop arms and save lives, while never giving up claims over annexed territories via diplomatic channels.”

    A serious flawed position. For a start, there’s no guarantee Russia would stop where it is today, instead it just might keep pressing forward.
    Second, Russia has so far not given up an inch of territory it has illegally occupied since the end of the Cold War. Highly unlikely they would do so in the case of occupied Ukrainian territories. Moreover, a Ukraine with strong territorial claims is a Ukraine that will find it hard to seek closer integration with the rest of Europe and will be a permanent drag on development (both political and economic).

    1. I hesitate to call the position dishonest, but it slides around it’s obvious pitfalls in a way that looks bad faith in the least. They cannot seriously believe that territory taken from a surrendering Ukraine would be returned under Western democratic pressure, nor are they willing to suggest that an energy independent NATO would suddenly be willing to initiate direct war with Russia on Ukraine’s behalf to gain those territories back.

      In the absence of either of these conditions being met, the argument boils down to allowing Russia to have its way with Ukraine so that the West can get its energy house in order, after which they would presumably say: “that’s far enough Mr. Putin!”. That sounds a lot like a massive strategic failure for the West. I am not very familiar with that book of idioms written by an imaginary Chinese General, but I’m pretty sure he would agree that it doesnt cut the jeimo.

      As far as the loss of life argument goes, it is assumed that the Ukranians would lay down their arms without Western support, and that any lives lost to insurgency, imprisonment and generalised violence against civilians would be less than would be suffered in a conventional conflict. For an operation called the blindspot, this is a remarkable assumption to make. We don’t know how much of the country would be occupied without western support (or even western discouragement) and we dont know the future course of the conflict.

      1. There are only four scenarios: 1) Russia takes the bits of Ukraine it wants and we and the ukrainians do nothing, other than flee if they fear a loss of life. 2) Russia tries to take the bits of Ukraine it wants but the Ukrainians fight, but we still do nothing 3) Russia tries to take the bits of Ukraine it wants but the Ukrainians fight, and we do sanctions. 4) All out economic and kinetic war between Nato and Russia.

        As I’ve written before, we really should have taken Crimea as a signal to start bolstering up energy independence. The fact we didn’t was a wasted opportunity. Had we done so, we would be in a totally different (and improved) position now.

        Speaking as someone whose grandparents come from Warsaw, living under occupation was still preferable to all out war. Of course it wasn’t brilliant. There is no rainbow happy days scenario. Obviously. All options are crap. But some are more likely to lead to outright success and minimise pain than others. Yes there were insurgencies during Polish occupation. In fact I literally came back from the funeral of my great aunt who was in the Polish resistance. But temporary occupation until a strong ally like the US can properly come in and kick ass is IMHO preferable to WW3, or sanctions that make the kicking ass possibility ever less conceivable, not just because of ability but also because of popular backing for any such action. The more we hurt ourselves with sanctions, the less popular will there will be to help Ukraine at all. You just need to look at Google Trends to see the degree to which interest in Ukraine in general has collapsed.
        THis is not a bad faith argument. It is potentially retrospective and redundant now because we haven’t done it, and life has already been lost. But that doesn’t mean the critique shouldn’t be aired. At this point the next best thing is the Kissinger plan, but this is inferior not least because it involves a negotiated peace which will call for some permanent loss of territory no doubt. Under the “allow occupation but never deny a claim” plan, there is and always remains the option of reconstituting all territory once we are able to.

        1. G7 seems to have reached consensus for building up a 300,000 NATO rapid deployment force (2 to 3 years…). Soonest, Ukraine should make Russia responsible for occupation safety. Ukrainians can thereafter make life hell for the occupier through insurgency. It will be the most costly to Putin.

        2. The history of the former Soviet sphere demonstrates that “frozen conflicts” are perhaps the worst of both worlds. It’s better either to formally cede territory (in exchange for some meaningful gains in other areas) or keep fighting because these suspended war dramas keep draining the countries’ economies, societies and political life. More importantly, should those countries somehow manage to try to go beyond the conflicts and seek economic development, Russia will rekindle the conflict. Georgia did provide a very powerful lesson.

          The Polish analogy is misleading. Poland did fight for as long as its armed forces existed as coherent units and its government structures remained intact. Yes, it did surrender eventually, but only once the government and large chunk of the armed forces actually fled to Romania and no coherent force was left to fight, in addition to no significant territory being left in the control of the Polish government.

          Once occupation regime was established then yes, most people preferred misery (and life) to partisan warfare (and death), though eventually the boundaries between the two became so blurred (with death penalties for even minor acts of disobedience and outright genocide) that ordinary people chose to fight even against all the odds.

          In the case of Ukraine, the government remains in control of most of the territory, their armed forces remain a coherent and effective force. Giving up the territory now would just mean a disastrous frozen conflict for a few years and then, once Russia rebuilds its army, a return to hostilities. By then however the society would be deeply demoralized and impoverished by years of living in suspension and lack of secure prospects. Again, Georgia comes to mind.

        3. Another lesson of the World War II, if you feel inclined to revisit those old analogies, is that if the West had actually intervened on behalf of Poland in 1939 (by actually attacking Germany), it’s likely Germany would have been defeated. Waiting for Germany to capture Poland, consolidate its gains etc was a disastrous policy error.

          1. Does the fact that Russia have nuclear weapons mean that it can do whatever it pleases? You started with an argument that the West should encourage Ukrainians should surrender and give up whatever territory Russia wants to save lives. What if Russia chose to take territory and lives? The Russians would still have nuclear weapons, so I suppose your argument would remain that the West should not oppose it? The irony is that for as long as Ukraine is capable of continuing a conventional war against Russia, it is possible to resist it without risking an out of control war involving NATO. If Russia succeeded and, say, occupied/controlled the whole of Ukraine and chose to annex it then nothing short of a global war or a revolution could make any difference, regardless of what Russia did inside its occupied territories.

            Ultimately, Russia’s invasion today and Hitler’s invasion of Poland were opposed by the West not because it cared all that much about Ukraine or Poland, but because it believed such actions were destroying the fundamental rules underpinning the international system.
            Sam Greene captured it quite well (while first noting that the West itself had done a lot to damage some of those rules):

            “The idea of the ‘rules-based order’ comes closer to explaining why the West should be party to this war — because it raises the question of what the world would look like if Russia wins. A world in which Russia wins is a world in which great powers go to war over trade treaties. It was, after all, a trade treaty with the EU that prompted Russia to invade Ukraine in 2014, and it is still that geo-economic relationship that motivates Russia’s present war. Now, project that scenario onto relations among the monarchies of the Persian Gulf or any point along China’s ‘belt and road’ initiative. How will we handle tensions in, say, the Horn of Africa, where American, Chinese and Gulf interests all intersect? Likewise, a world in which Russia wins is a world in which medium-sized powers will never again be dissuaded against pursuing a nuclear weapon. For Iran, North Korea, Israel and any number of other states flirting with nuclear weapons, if Russia wins, nuclear arsenals will look a much more powerful source of protection than any imaginable treaty. Western leaders, then, may find that there are reasons to engage in this war that go well beyond abstract principles of justice and ‘order’ — reasons that come down to whether we want to live in a world characterized by war and the threat of mass devastation. f the West wants to avoid the emergence of a world of permanent peril, it will need to focus on something more than Ukraine’s victory. A Ukrainian victory will need to be symbolic of the ability of great powers to prevent one another from bullying smaller powers.”

          2. To a certain degree yes. That’s why we don’t want nuclear weapon proliferation or North Korea or Iran getting nukes. Innit.

            That’s why there is a security council. And why we had detente. But what we have de facto done is alienate, ridicule and snub a nuclear power state. It’s the moral of the story of sleeping beauty, where the king and queen snub maleficent and she decides to have her revenge.

  2. “Helium shortage forces Harvard lab to shut down.”

    My oh my, Beijing will be lodging a formal complaint with the US State Dept that its ‘sponsored professors (with not so secret RMB bank accounts) can’t do lab work. The Harvard Crimson won’t miss reporting this news…

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