NATO, acting through the G7, is to extend its economic war against Russia, by proposing to impose a cap on the price that Russia can be paid for its oil and gas. The price is to be set at only what it costs Russia to produce the oil and gas. Like all attempts to cap prices, it is idiotic, and doomed not only to fail, but to cause consequences the opposite of those intended.
Price caps always mean that demand is maintained at an artificially higher level than it would otherwise be; they reduce supply, artificially, to below what it otherwise would have been; they, thereby, cause physical shortages, requiring rationing by one means or another, which, in turn, creates black markets, profiteering and racketeering, with all of the associated criminal activities.
NATO/G7 is seeking to impose this price cap, because the other sanctions that they have imposed on Russia have already had consequences the opposite of what they sought. They attempted to boycott Russian oil and gas, a strategy which works fine for the US, because it is more than self-sufficient. As Citi group's chief commodities economist, Ed Morse, pointed out, some weeks ago, the consequence for the EU, of boycotting Russian oil, was it faced a sharp rise in the price it paid for oil, as it could only find an alternative from the US, at a much higher price. That worked out well for US oil exporters, who made a killing on selling this oil to Europe, but, by diverting supplies from the US market, it then raised US oil prices, which fed into US gasoline prices, to an extent it threatened the chances of Biden's Democrats in the upcoming elections. That led Biden to release oil from the US Strategic Oil Reserves, and to encourage NATO allies to do the same.
The result was that global oil prices rose, and one of the biggest beneficiaries of that was Russia, as it continued to be able to sell most of the oil that Europe was avoiding buying, instead, to China, India and elsewhere, but now at these much higher prices. Indeed, it was that, along with the higher prices it also obtained for its sales of gas, for similar reasons, that significantly boosted Russian foreign earnings, and pushed the value of the Rouble, against the Dollar, to an even higher level than it had been before the start of the Ukraine War. A year ago, there were 73 Roubles to the Dollar. When sanctions were increased in March, the Rouble collapsed to 130 to the Dollar. But, then those NATO sanctions led to global oil and gas prices soaring, boosting Russian energy revenues, and the collapse was quickly reversed, with the Rouble now higher than it was a year ago, at only 60 to the Dollar.
Its also why the Russian economy that had been forecast to shrink by around 12%, in terms of GDP, is now expected to shrink by only around 2% this year, and about 1% next year, whilst the EU looks set to go into recession, self-induced by its decisions to boycott Russian oil and gas supplies, for example, by cancelling the Nordstream 2 pipeline.
NATO/G7 also attempted to force other countries to join in their economic war against Russia, by excluding Russia from the global SWIFT payment system, whereby countries who buy Russian exports, usually priced in Dollars, on global markets, pay for them via this system. It was also why, Russia, flush with its increased revenues from these energy sales, was prevented from paying creditors the coupon on their Russian bonds, which itself hits the owners of those bonds, such as western pension funds.
It was in response to this exclusion from SWIFT, and other such measures that Russia announced that, although it was happy to continue selling goods, energy and so on, it would, for new contracts, require payment in Roubles. And, why wouldn't Russia want to continue doing so, particularly when it comes to oil and gas, because its otherwise rather rickety economy, is highly dependent on its sales of energy, and primary products be it minerals or grain? It was Germany, under pressure from US imperialism, that cancelled the new Nordstream2 pipeline that would now have been pumping billions of cubic metres of much needed, cheap Russian gas into Europe, not Russia, and it has been NATO imposed sanctions that meant that equipment for turbines and so on, required for the functioning of the existing Nordstream 1 pipeline, were held up from being returned to Russia, following maintenance in Canada, that has restricted supplies by that route.
Is Russia using that to also use its gas supplies as leverage? Undoubtedly, and in such conditions, why would not any other country do exactly the same thing? The fact remains that the main cause of Europe not getting the gas it requires is that it has attempted to boycott those supplies coming from Russia, for its own political purposes, to apply pressure to Russia, and those attempts have seriously backfired on it, as it now finds itself crucified by astronomically high energy prices, and with the prospect of its industry being closed down due to actual shortages over Winter.
Meanwhile, the other consequence of that is that whilst the Rouble has risen in value against the Dollar, the Euro and the Pound have collapsed. The Euro has gone from a high of around $1.40 and recent high of around $1.25 to just $0.99. The Pound, which was above $1.40 before Brexit, has dropped to $1.14 rapidly heading for parity, as the effects of Brexit, Truss, and a self-inflicted energy crisis take effect.
So, now, NATO/G7 compounds its idiocy so far, by simply doubling down on the failed strategy it has implemented. It now proposes to impose a global price cap on Russian oil and gas sales, as set out above. But, to work, it still requires all countries to participate. Russia already sells oil to China, India and other countries at a discounted price. It was able to offer this discounted price, because that price is still way above the price it was obtaining, prior to the earlier attempts by NATO/G7 to boycott Russian oil.
NATO/G7 say, China, India and other countries will now have an incentive to join them, because, they will look around and see Russia forced to sell oil at this capped level, and say, "Why should we pay more than that?" Good question, if that was the case, but the fact is that, as Russia has already said, it can and will simply refuse to sell its oil at the capped price to anyone. As with the earlier attempts, as Russia simply leaves the oil in the ground, the consequence will be that global oil prices will surge, an more than that, with an inability to increase global supply to match demand, without Russian supplies, (there is, as Morse pointed out, a global surplus with Russian oil) not only would prices rise, perhaps as high as $200 a barrel, but there would be physical shortages of oil, to go along with the physical shortages of gas!
And, there could not possibly be a worse time for that as far as NATO/G7 is concerned. Currently, global demand is subdued, because the Chinese state is repeatedly closing down parts of its economy, using the cover of its zero-Covid policy, to prevent the economy growing too fast, pushing up the demand for labour and so wages, and demand for capital, and so interest rates, which would cause its serial asset prices bubbles, most notably in property, to burst spectacularly. But, eventually, it will not be able to uphold that strategy, and as the Chinese economy opens up, the surge in demand, both in China, and spreading into the rest of Asia, and potentially into Europe, Latin America, and Africa, will cause demand for energy, primarily oil, to also surge.
Indeed, as Europe inflicts an economic crisis on itself, by boycotting Russian oil and gas, that creates conditions in which China might abandon its zero-Covid nonsense. It is using it to hold back its economy, to prevent interest rates rising and its asset price crashing, but part of that arises because it would feed into global economic growth. If Europe goes into recession, and drags the US growth down with it, Chinese growth would not feed into it. Chinese authorities could remove lockdowns, allowing the economy to expand, to compensate for reduced demand for Chinese exports, shifting the balance to meeting domestic market needs. Moreover, it could refrain from printing further Yuan, which is already at levels that presents the risk of hyperinflation once the economy is reopened, and instead, begin to sell its US Dollar assets to raise the required funds for its expansion. That would also have the advantage of exposing the weakness of the US economy, in the same way that energy is the weakness of European economies.
OPEC has made it clear that its ability to increase production is extremely limited. Biden prostrated himself to the Saudi butchers to try to get them to increase output, but they kicked him in the balls, and gave him nothing. He has also been put in a weak position in relation to the latest negotiations with Iran, because the US needs a deal so that Iranian oil might flow in larger quantities on to world markets, and similar overtures have been made to Venezuela. For every one of these that might add a further few hundred barrels a day, there is another likely to take supply out, such as Libya, and Iraq where the aftermath of NATO intervention continues to be failed states, and the continuation of anarchy.
Moreover, at the moment, global oil supply has been artificially flattered by the addition to it of millions of barrels of oil from Strategic Reserves. That is coming to the end of its potential, and, at some point, all those countries will need to replenish them, which will cause oil demand to rise higher still, potentially at a time when oil prices have risen to perhaps double their current level. And, in the immediate future, as Winter approaches, the potential of gas shortages in Europe, at a time when many EU countries are also suffering problems with their other forms of energy production, means that oil will be in demand as a potential alternative to gas, and other forms of energy.
France has problems with its ageing nuclear power stations, Germany has creaking infrastructure in general, after years of neglect and underinvestment, Norway, which has become reliant on renewable energy, has seen those sources fail it in recent months, meaning it has had to turn again to its own fossil fuel supplies, and, consequently to reduce its supply of those fuels to other parts of Europe.
And, NATO's own warmongering undermines its requirement to gain at least tacit support for its price cap from other countries. China sees NATO expansionism in Europe, as it attempts to isolate Russia, and obtains a premonition of its own future, as NATO also engages in similar expansionism in the Pacific and utilises Taiwan in the same way that Ukraine is currently being used, reminiscent of "poor little Belgium" prior to WWI. There is no reason for China, given the actions of the US, to even tacitly assist it in undermining Russia. On the contrary, much as the Versailles Treaty created Hitler, and the alliance of "democratic imperialism", supported by the Stalinists and social chauvinists, strengthened his position once in power, so too the actions of western imperialism following the fall of the USSR, and its asset stripping of the country, created Putin, and its current actions, supported by the social chauvinists and social imperialists, have strengthened his position, and created a powerful driver, forcing Russia and China together into their own strategic alliance.
As Trotsky put it, prior to WWII.
"The democracies of the Versailles Entente helped the victory of Hitler by their vile oppression of defeated Germany. Now the lackeys of democratic imperialism of the Second and Third Internationals are helping with all their might the further strengthening of Hitler's regime. Really, what would a military bloc of imperialist democracies against Hitler mean? A new edition of the Versailles chains, even more heavy, bloody, and intolerable. Naturally, not a single German worker wants this. To throw off Hitler by revolution is one thing; to strangle Germany by an imperialist war is quite another. The howling of the "pacifist" jackals of democratic imperialism is therefore the best accompaniment to Hitler's speeches. "You see," he says to the German people, "even socialists and Communists of all enemy countries support their army and their diplomacy; if you will not rally around me, your leader, you are threatened with doom!" Stalin, the lackey of democratic imperialism, and all the lackeys of Stalin —Jouhaux, Toledano, and Company — are the best aides of Hitler in deceiving, lulling, and intimidating the German workers."
And, of course, when Stalin himself saw the treacherous nature of that democratic imperialism, as it manoeuvred and jockeyed for position, such as with the Anglo-German Naval Agreement of 1935, and their failure to support the Spanish Popular Front government, enabling Franco to come to power, with the backing of Hitler and Mussolini, he followed suit, by forming his own alliance with Hitler. No socialist, as Trotsky says, should place any faith in these alliances between the imperialist robbers of whatever hue, as offering any progressive solution. They are all the enemies of the global working-class, and our only progressive solutions reside in our own hands, in militant opposition to our own ruling class, wherever that may be.
The Main Enemy Is At Home - No To War - Workers of the World Unite
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