Energy exporters need to be worried

Be careful what you wish for

Just done another Gulf TV gig - I would not normally do them, but they always come on with a typically pro-Russian/anti-Western angles that I feel almost compelled to set the record strait and to give the alternative view to the Gulf/Middle East audience.

First, and I always set this out from the out-set, this European energy crisis is because of blatant and unprovoked aggression from Russia. No ifs no buts, Russia is the aggressor, don't give me the NATO provoked this bull shit. This is plain and simple imperialist expansion from Russia which is committing war crimes and genocide in Ukraine, like Putin did before in Syria.

Second, the West is not going to roll over on this, opinion polls suggest that populations understand that Putin is causing it, he is the aggressor and is attacking us, our system of governance. This is a war between Western Liberal Market Democracy versus Autocracy, actually fascism, let’s call this exactly what this is. We will rally together, with Ukraine, against this. And therein there is little to suggest that support for Ukraine is diminishing.

Third, fiscal policy will be deployed to help the poorest in our societies, with targeted support. Prices have risen massively, and likely will continue to rise. Demand will be constrained to balance markets. It will be painful, but it will happen. It is in fact happening and one thing that is already noticeable in the European energy - supply demand balance is how rapidly demand is falling, like 15-20% already.

Fourth, if I was Russia or other carbon exporters I would not be gloating on Europe's problems. Likely the result of higher energy prices and demand destruction will be global recession, and actually an acceleration in the carbon transition. Likely one year out oil/gas prices will crater because of global recession. For Russia this will be catastrophic as this will come as it is cut out of European supply chains, so it will suffer both price and volume effects. But if I were a Gulf carbon exporter I would be working overtime to supply more energy to avert a global recession which will likely future crash global energy prices.

Fifth, and related above, the huge rise in energy prices in Europe, and demand destruction will cause massive disruptions to global supply chains. Manufacturing production which used to be competitive in Germany will no longer be at this level of energy prices, which means output will be taken off line. This means that different parts of the supply chain (capital good, fertiliser, widgets that make things work but you never knew they came from Germany) will be disrupted - think of the supply chain disruptions during Covid but on steroids. This likely will accentuate global stagflationary pressures - the world will suffer because of this, and ultimately because of Putin's unfettered ambition and brutality.

So my advice to ME readers and listeners is be careful/cautious in how you view this crisis, and this is not a time for schadenfruede, but building your own economic defences for likely much harder economic times for all looming globally. I also think it is time the West pulls together with friendly nations in the Gulf and elsewhere to prevent rising energy prices causing a catastrophic global recession.