A few days ago, I wrote a piece for UnHerd noting that last weekend, to little fanfare, Western sanctions against Russia started to collapse. What’s more, they started to collapse due to a clever intervention on the Kremlin’s part. The Russians said they would not be able to deliver much-needed natural gas to Europe in sufficient quantities unless the Canadians released a gas turbine that was being repaired there, and which is required to ensure the Nord Stream 1 pipeline is functional.
If Europe is unable to fill up its gas reserves this summer, the continent – and that includes Britain – will face crippling energy shortages this winter. It is difficult to overstate how bad this could be. For one, many people will freeze – especially in colder countries and regions. But in addition, whole economies will grind to a halt. That will mean less stuff is produced and distributed – and when less stuff is produced and distributed, but people still have money to spend, you get inflation.
Well actually it means extremely high inflation – or possibly even hyperinflation. Currently, inflation is running just north of 8% in Europe and 9% in the UK. We all know how painful this is. But I think that these numbers understate the impact on consumers. For the past few months, I have been missing my old personal budgeting targets by around 20%, despite having had the same amount of money budgeted as I did last year and buying the same things.
Now imagine what it would feel like if you doubled or even tripled that. Twenty to thirty per cent inflation is easily possible if European factories have to shut down, and energy prices go skyward. How would you like to see two-three times the decline in living standards you are already seeing? Now what if I told you that these living standards would take years to claw back? Could you live with this, just so that our leaders can posture ineffectively on Ukraine?
Okay, now factor in the lower, but still possible risk of hyperinflation. If prices started to spiral in this situation and the euro completely collapsed, society would fall apart. People would go hungry. Savings would be wiped out. Serious riots would break out. Governments would fall – possibly violently. Ask someone who has lived through a hyperinflation what it feels like. They will tell you that it is not simply uncomfortable; it is downright terrifying.
That should give you some idea of the risks. It should also alert you to how concerning it is that our leaders have led us to a place where we’re even contemplating the possibility.
Back to the Kremlin’s strategy to undermine sanctions. Early on, the Europeans realised they could not live without Russian energy imports, so they opened loopholes in the sanctions to allow them to continue importing. What they did not anticipate is that the process of distributing Russian energy might require parts that are made in the West. Since they did not think of this, they did not provide a carve out for these parts.
The Russians clearly noticed. They waited until summer when we need to refill our gas tanks, and they slowly choked off the supply. Then they pointed to the Nord Stream 1 pipeline and its lack of gas turbine, and shrugged their shoulders. The message was clear: if you want the gas, you’re going to have to violate the sanctions that you came up with only a few weeks ago.
Our leaders may not be the brightest bulbs, but they’re not completely crazy. So, they signed off on sending the turbine. The Russians then responded that the paperwork was a mess, and they could not guarantee the pipeline would restart supplying gas in time. Expect more legalistic back and forth.
It is clear what’s going on here: the Russians are using the issue to undermine Western sanctions. There are a few dimensions here. The first is legalistic. The West enacted the sanctions as law. Then when the gas turbine was requested, our leaders subtly undermined those laws. This creates a legal mess and makes the sanctions hard to enforce, due to the law itself becoming increasingly unclear.
The second dimension is symbolic. Laws are only credible when they are strictly followed. Think of the law against cannabis in the U.K. On the books, cannabis is a Class B drug with a maximum penalty of five years imprisonment for simple possession. Yet most major cities stink of cannabis. Why? Because the law is not enforced and so it is not taken seriously. Are the sanction laws credible after the turbine debacle? Not really. If I were a businessman that wanted to trade with Russia, I would now be talking to my lawyers about carve-outs.
The third dimension is fatigue. Defending sanctions that are damaging ourselves (while doing little to damage our adversary) takes a lot of energy. Not to put too fine a point on it, it requires a lot of lying. Telling really big lies is exhausting, even for politicians. It quickly becomes an embarrassment at elite dinner parties, for example. Now try defending these same sanctions while chatter builds as to whether you’ll even enforce them. At a certain point, you just have to throw in the towel.
All this would be funny if it weren’t so serious. Clearly our leaders have made some massive miscalculations to end up here. Historians and those who study international relations will be examining these for years to come. But right now, we have bigger problems. We need to keep the lights on this winter.
Will we? Hopefully, depending on how vindictive the Russians are feeling. That is now out of our control. Let us please never get to this point again.
Philip Pilkington is a macroeconomist and investment professional. You can subscribe to his Substack newsletter here.
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These are US sanctions and have been without effect on the situation in Ukraine since they were started in 2014. In addition to being useless, they’re not even remotely practical in Europe, hence, it’s good to see that real-world happenstance works towards disabling them.
Let me be the first one to say that it’s funny, isn’t it, that these ‘accidental’ self-inflicted wounds continue several covid-1984 themes; namely, the evisceration of western economies; the ‘cost of living crisis’, inflation and general government-directed mass formation. almost like the next phase of something organised.. 🤔
Yep. It’s almost looking as if the present circumstances would need to be interpreted as the new final phase of something preconceived as being in existence whose last final phase went past without the predictions attached to it becoming true. We must always remain at the brink of something terribly dangerous which – for some strange reason – never actually happens.
What I dislike most about these polit-muricans of all kinds of shapes, sizes and colours is that only their colours, shapes and size are different. At the core, they’re indistinguishable and all common people get to chose is by whom they’ll end up being ripped off. We urgently need a None of the above! moment in this respect.
I don’t doubt for one minute that many of our current and forthcoming problems have been planned. I also don’t doubt that the Davos Deviants think they have things under control. The problem is that in war situations rarely turn out as planned and indeed frequently take a turn for the worse for those believing themselves in charge. The ensuing months will verify this one way or another but what is absolutely certain is that the DD’s will DEFINITELY NOT have things all their own way.
A lot of people will be facing sleepless nights.
That’s half right.
The first part is certainly right. Not only are many of them stupid, but they are the worst kind of stupid – they are arrogant as well.
As for the second part, many of them are crazy. If you consider psychopathy a form of craziness.They see things primarily in terms of their power games and what they need to do to win and impose themselves. They don’t care who or what they damage on the way -whatever it takes to pursue their own personal objectives.
I encourage the author to embrace reality fully, go the whole way, and accept that our “leaders” simply cannot be relied on to make things right. They need to be stripped of their power and people have to be left freer to get on with their lives.
We don’t need state protection from idiots and psychopaths thanks very much.
Britain seems unlikely to face crippling energy shortages this winter, despite the best efforts of all the ‘net zero’ crackpots.
The tragedy is that it has taken Putin’s inhuman and barbaric invasion of Ukraine to identify as idiocies so many of the policies of so many hopelessly incompetent Western governments.
The UK has very little gas storage capability…..according to Statista as of July we have stored 9.11 TWh, (as a comparison Germany has149.28 TWh)
Apparently the UK Government have been ‘in talks’ with Centrica, about reopening its gas storage facility in Yorkshire …for months…
If we can’t store it, we have no choice but to sell it to others who can…
As Russian gas is rationed over the next few months, the gas that the UK buys from Norway will also become more expensive, as will any LNG, it’s also likely to be less freely available, as others countries will have to buy it also.
All of this will cause higher fuel prices for both the home, for industry and for vehicles…this will all have a knock-on effect in food prices and the cost of living….and it’s going to get a lot worse as winter approaches.
Is anyone aware of the Government making any statements whatsoever about turning away from the net zero agenda? Fracking? Anything?
It really is no laughing matter, but watching the entirety of Europe inflict this pain on themselves and us is indeed tragic…..and to what end? What on earth is it supposed to achieve? And moreover is it achieving anything? Like Convid…no one is asking or answering these questions before inflicting it on all of us….
As of now Russia’s account surplus which usually shrinks in the summer months….(between 2007-2021 the June account averaged at zero) is currently a record $70 billion…..a surplus gifted to them by sanctions!
https://www.businessinsider.in/stock-market/news/soaring-energy-prices-help-russia-push-its-current-account-surplus-to-a-record-70-1-billion-in-the-second-quarter-despite-sanctions/articleshow/92811610.cms
Meanwhile people across the Uk received the first part of their ‘cost of living’ payments today….and Bristol’s Mayor has said they will be setting up ‘warm rooms’ where people can go to keep warm in the winter months!
https://www.telegraph.co.uk/money/consumer-affairs/councils-plan-food-bank-style-warm-banks-help-residents-survive/
A good point about the limited storage. Several years ago, I worked with someone who had been involved with modernisation of the distribution arrangements for the firm that runs the gas network (can’t remember what it was called then), around the time that they abolished the old storage tanks that had emerged from the old coal/oil “town gas” systems. The main thing that was novel to me was that what they now do is to use extra high pressure for distribution, and also to exploit the pipelines as a storage mechanism. They reduce the pressure for local distribution at certain locations, of course, but the long distance ones can go up and down quite a lot. At times of peak demand, they can drop the pressure a bit to meet it.
The other issue is that it is not easy to do the gas equivalent of “power cuts” without various risks caused by interrupted supplies. I suppose they could exploit the advent of “smart” metering to vary the prices quite a lot though, which would have a backdoor effect of influencing demand.
We have a senile old fool in the White House who (after the debacle of the withdrawal from Afghanistan) needs to demonstrate that he has both the ability and commitment to support Ukraine against Russia.
And for the past 15 years, we had/have a generation of European Leaders who don’t live in the real world: won’t pay for their own defence and have deliberately destroyed their national energy independence on the say-so of the EU and green lunatics.
What could possibly go wrong?
And now they’re doing the same to food security.
I’m sure the UN, Klaus Schwab and the WEF are rubbing their hands in glee at the “creative destruction” they’ve instigated.