Escalation

The price rollbacks we enjoyed last Tuesday will be short-lived. All indications point to another price hike next week. As this is being written, crude oil is trading in the vicinity of $120 per barrel.

One of our energy officials was quoted as saying we might need to begin printing coupons in case rationing happens. That will be a prudent move. It is entirely possible that over the next few weeks, supply and not only prices will be an issue.

EU countries are reportedly considering banning oil imports from Russia. That will be painful for the Europeans but it will be even more painful for the Russians who depend on exports of oil and gas for foreign exchange.

At the moment, most Europeans are paying about $8 per gallon of gasoline, about double what Americans pay to fill their tanks. This is because of heftier excise taxes imposed on the highly polluting product. The price of fuel has been rising in Europe the past few months. It could spike significantly the next few days.

The prevailing oil price regime brings a financial windfall for the oil exporting countries even as it impoverishes the oil importing countries. We should be seeing a repeat of the “petrodollar” phenomenon that happened after the oil price shock of the early seventies.

Awash with currency windfall they could not immediately use, the oil exporters dumped the money on the international banking system. Since the price shock also produced a recession in the industrial economies, the banks were saddled with cash they could not lend but pay interest rate on. To help relieve the predicament of the international banking system, developing economies were encouraged to avail of sovereign debt at low interest rates. When interest rates began rising a few years later, a debt crisis was produced for many economies including ours.

The current price regime for oil will once more increase the economic and political clout of the oil exporters. This will define geopolitics in the coming period. See how Iran, in the present circumstances, was able to negotiate a new nuclear treaty with the western powers and how the US is suddenly courting Venezuela for its oil supply.

Russia will probably pressure her ally China to purchase her oil. Beijing, however, may use its geopolitical advantage to win a significant discount or any number of concessions. The Chinese have so far been smartly playing the Ukraine crisis to their long-term advantage.

Even if Russian troops pull out of Ukraine today, the invasion has redefined the global energy and security order. The longer this crisis persists, the more profound that redefinition will be.

The NATO summit begins today in Brussels. Some hard decisions will have to be made in this meeting. Those decisions could include building up the alliance’s military presence on its eastern flank, in countries such as Romania, Poland and the Baltic states that now feel vulnerable to the menace Putin presents.

For many years after the end of the Cold War and the dissolution of the Soviet Union, NATO seemed to be an alliance without a purpose. Some countries, notably Germany, began reducing their military spending.

After Putin’s invasion of Ukraine, however, the once flagging military alliance rediscovered its purpose – as well as its solidarity. The Soviet Union may be gone, but a tyrant like Putin, unaccountable to his own people and controlling over half of the world’s nuclear warheads, could resurrect some poor facsimile of the menace the old empire posed.

NATO intelligence reports that Belarus will likely send its troops into Ukraine over the next few days. They will obviously be doing so under tremendous pressure from Putin. But the entry of Belarus will widen the scope of the conflict and the coverage of economic sanctions imposed.

Remember that old saying about slaying the chicken to scare the tiger. Any Belarusian involvement in the war must be dealt with in the severest manner to dissuade China from joining this calamitous orgy.

US intelligence, quoted by Biden, warns a desperate Putin could resort to the use of chemical weapons against the Ukrainian population to break its will to resist. It is for NATO to draw the line on this one. It will be a line that the desperate Putin will surely challenge.

Putin’s own spokesman refused to discount the use of tactical nuclear weapons in the Ukrainian theater. That raises the stakes immensely.

Putin’s invading army has so far proven itself to be the Russian version of the Keystone Cops.  They have bungled this “special military operation” every step of the way.

To offset battlefield incompetence, the invading army has been using the most expensive weapon in Russia’s arsenal: the new hypersonic missiles that are impossible for existing air defense systems to intercept. They are using these costly weapons to murder children huddled in shelters. There is no valor in that; only desperation.

Ukrainian intelligence, for its part, reports that Putin’s invading army has only about three days of food, fuel and ammunition left. If this is true, then Putin truly needs the support of Belarusian troops for relief. The Belarusian dictator’s involvement in this war, however, could provoke more domestic turmoil.

Numerous indicators, therefore, point to the escalation of this unwarranted war. This will translate into numerous strains across the global economy. The global system could break at points we did not expect.

For as long as Putin holds all the levers of power in his forsaken country, the world cannot be at peace.