President Joe Biden’s approach to the conflict in Ukraine, concerns over his mental stability, and liberal intolerance could be among the reasons why over one million Democrats switched allegiances and joined the Republican Party in the past year, some analysts believe.
According to data collected by AP, more than one million Democrats have registered as Republicans during the course of the past twelve months, most notably in highly-populated suburbs, where presidential and national congressional elections are usually decided. AP in its report published on Monday said the switch also encompassed agricultural regions, poor inner cities, and small towns.
The Democratic voter mass defections coincide with Biden’s approval ratings sinking to historical lows as inflation runs at all-time highs with mid-term elections looming in November.
Meanwhile, the White House’s policies toward the conflict in Ukraine are also becoming less popular. A poll released on Tuesday by Morning Consult Global shows American support for sanctions against Russia is steadily declining – largely because of rising energy costs.
“Workers and seniors are ravaged by an inflationary curse sparked by an inept war against the fossil fuel industry,” political analyst and former hedge fund manager, Charles Ortel, said when asked about the Democratic voter exodus.
The Democratic voter defections and low approval ratings, he added, could indicate Biden administration efforts to rally patriotism around his “tough” policies against Russia over Ukraine have failed.
Political commentator and historian Dan Lazare believes the fact voters are switching parties is less an endorsement of the Republican Party than a loss of confidence in Democrats, especially in their handling of the Ukraine crisis and the related rise in gas prices.
“Skyrocketing gas prices are the gift that keeps on giving – for the Republicans, that is. The war in Ukraine is turning into a Democratic nightmare as Russia continues to reap real battlefield gains,” Lazare said. “So, what Democrat wouldn’t lose faith given a record like that?”
Ortel said history suggests that citizens reluctantly support foreign conflicts even when leaders provide compelling evidence that the causes are justified. Not to mention, US efforts that started under the Clinton administration to push NATO eastward have never been explained nor have potential costs and complaints by the Russian side, Ortel said.
“No sane actor wants perpetual conflict,” Ortel explained. “And no American would tolerate parallel expansion into Mexico or Canada by Russia.”
Other Drivers of Discontent
Ortel also attributed the voter surge away from the Democrats to the party’s “intolerant” attitude, including toward those who oppose the administration’s Ukraine policies. The Democratic Party used to be a group that embraced cooperation and was tolerant of perspectives that competed with liberal or progressive views. However, in recent years that has changed, Ortel said.
“Particularly under the Obama-Biden Administration, tolerance for other viewpoints was replaced with a ‘take-no-prisoners’ approach towards any challengers,” Ortel said.
To make matters worse, the analyst added, Biden administration officials propagate theories and slogans claiming they are succeeding “when even unschooled citizens see clearly that Biden and his team are rapidly wrecking the American economy and what remains of America’s standing abroad.”
Other drivers of voters fleeing the Democratic Party are the questions surrounding the commander-in-chief’s mental stability in light of nonstop gaffes and concerns over Vice President Kamala Harris’s capabilities, Ortel said.
“Joe Biden is clearly not playing with mental faculties intact nor is Kamala Harris fit to replace him,” Ortel said.
Lazare has pointed to Biden’s dismal domestic policy record as another culprit.
“Joe Biden is The Incredible Shrinking President: His one significant success, the $1.9-trillion COVID-19 relief bill that passed in February 2021, has roundly backfired by giving inflation a significant boost. Everything else has meanwhile flopped,” he said.
Meanwhile, Lazare added, voting reform is dead in the water, student debt relief is stalled, and there is a dispiriting deadlock over gun control in the wake of mass shootings.
Although the midterm congressional elections were still four months away, all signs already pointed to a historic catastrophe for the Democrats, Lazare warned.
“Predicting an election that’s still four months away is risky business. But given that Biden’s poll numbers are still sinking – the last is just 36%! – and given that inflation is accelerating, I don’t see how the midterms can be anything less than a Democratic debacle,” Lazare said.
Economists on both sides of the Atlantic have recently urged their respective publics to prepare for a recession, and possibly a stagflationary crisis, amid surging inflation and soaring energy costs exacerbated by Washington and Brussels’ moves aimed at dramatically reducing dependence on Russian oil and gas.
The European Union’s plan to replace Russian gas before the end of the current year isn’t only “wildly optimistic,” but will add to the economic woes the bloc is already facing, London-headquartered macroeconomic forecasting consultancy TS Lombard has predicted.
In a recent report, TS Lombard researcher Christopher Granville calculated that the EU imported roughly 155 billion cubic meters (bcm) of natural gas from Russia in 2021, with all of Brussels’ proposed measures to replace it – including diversification of gas sources, heating efficiency measures, solar rooftops, biomethane, etc. account for the equivalent of about 102 bcm of gas, leaving about a third of supplies unaccounted for.
“Apart from implementation timings of commissioning German LNG-receiving terminals, Russia is also an important supplier of LNG, underlining the challenge for Europe of sourcing adequate LNG supplies,” Granville wrote.
Amid EU efforts to source gas from alternative suppliers, including the US, Qatar and Azerbaijan, Granville’s report warned that the EU will be made to “pay more on average for its [non-Russian] oil and gas than its peers. Asian countries will buy more Russian oil at discounted prices… LNG imported by Europe from the US will cost [much] more than the price paid by US consumers owing to transit and liquefication/re-gasification costs.”
Russian officials and European energy company officials have estimated that Russian pipeline gas flowing to Europe has been 40 and 50 percent cheaper than American LNG, and less expensive than all other alternatives, owing to the shorter transit distances, larger volumes, and competitive pricing.
Last month, Russian President Vladimir Putin suggested that Moscow’s “Western colleagues” had “forgotten” the elementary laws of economics by trying to cut themselves off from Russian energy, predicting that the decision would turn Europe into the region with the highest energy costs in the world. This would undermine the EU’s competitiveness vis-à-vis other agglomerations, he said.
“Obviously, together with Russian energy resources, economic activity will also be leaving Europe for other regions of the world. Such an economic suicide is of course the internal affair of European countries. We must proceed pragmatically and primarily from our own economic interests,” Putin said.
Russian natural gas exports to Europe have declined precipitously in recent months as EU bloc countries search for alternatives. The drop accelerated earlier this month after Russian gas giant Gazprom indicated that it would be forced to reduce flows to Europe by up to 60 percent due to problems with the repair and maintenance of German-sourced turbines pumping gas through the Nord Stream 1 network. Germany and Denmark activated emergency measures as supplies dropped. Brussels accused Moscow of artificially throttling exports, with the European commission calling the emergency measures “blackmail.”
Takahide Kiuchi, an economist at the Tokyo-based Nomura Research Institute economic consultancy, warned in a research note Tuesday that if the crisis surrounding the Nord Stream 1 shortfall escalates, Brussels could add gas to the list of other Russian energy supplies that have been banned or semi-banned. This, he predicted, would push the Eurozone into a “sharp slowdown,” and plunge Germany into a recession.
The Kremlin says Russia will halt its months-long military offensive in neighboring Ukraine as soon as Ukrainian forces surrender.
Kremlin spokesman Dmitry Peskov told reporters on Tuesday that hostilities in Ukraine could end “before the end of today” if Kiev orders the nationalists to lay down their weapons and Moscow’s demands are met.
“The Ukrainian side can end all this before the end of today; an order is necessary for the nationalist units to lay down their weapons, an order is necessary for the Ukrainian military to lay down their weapons; and they must fulfill all Russia’s demands. Then everything will be over before the day ends,” Peskov said.
“Everything else are just speculations of the Ukrainian head of state,” he added. “We are guided by the statements of our President Vladimir Putin that the special military operation is going according to plan and achieving its goals.”
Asked whether the Russian side had any approximate timeframe for the end of the offensive in Ukraine, the Kremlin spokesman responded in the negative.
Peskov made the comment while reacting to Ukrainian President Vladimir Zelensky’s remark that he would like to end the hostilities before the end of the year.
Zelensky urged world powers on Monday to do their utmost to help end Russia’s offensive before the cold season, also saying that the time was not ripe for holding talks with Russia as Kiev was seeking to consolidate its positions.
In a statement on Monday, the Group of Seven (G7) countries expressed full support for Ukraine in the conflict with Russia, pledging to further tighten sanctions on Moscow.
Addressing G7 leaders at their summit in the Bavarian Alps via video link, the Ukrainian president called for arms supplies and air defenses to gain the upper hand in the conflict.
Since the start of Russia’s military strikes on February 24, the US and its Western allies have been imposing sanctions against Moscow. More than four months after the Kremlin launched its offensive against Ukraine, Russian troops have taken control of nearly the entire Donbass region, focusing their military attention on northeastern Ukraine.
In a separate development on Tuesday, G7 leaders in a statement denounced Russia’s offensive as “illegal and unjustifiable.”
“We, the leaders of the Group of Seven … were joined by the leaders of Argentina, India, Indonesia, Senegal and South Africa, as well as Ukraine,” they said in their draft final statement. “We re-emphasize our condemnation of Russia’s illegal and unjustifiable war of aggression against Ukraine.”
The G7 leaders also agreed to explore imposing a ban on transporting Russian oil that had been sold above a certain price, ramping up pressure on Moscow over the soaring global inflation and energy shortages fueled by the country’s offensive in Ukraine.
German Chancellor Olaf Scholz said an oil price cap would ratchet up the existing Western pressure on Russia, stressing that the sanctions would stay until Moscow accepted failure in Ukraine.
“There is only one way out: for Putin to accept that his plans in Ukraine will not succeed,” Scholz told a closing news conference at the three-day G7 summit, adding that the aim of the ban was to tie financial services, insurance, and the shipping of oil cargoes to a price ceiling. “We invite all like-minded countries to consider joining us in our actions.”
The International Energy Agency announced in its June monthly report that the revenues from Russian oil export had soared in May even as volumes had fallen.
The Kremlin said on Tuesday that Russian gas giant Gazprom could seek to change the terms of its delivery contracts if Western governments implemented a price cap on Russian gas.
The G7 on 26 June re-launched its previous Build Back Better World program to provide infrastructure funds to poor and developing nations under a new name, the Global Investment and Infrastructure Partnership. The project aims to compete with China’s Belt and Road Initiative kicked off by Beijing in 2013.
The Build Back Better World (B3W) program was pompously announced by the club of seven developed nations to counter China’s Belt and Road at the G7 Summit in Cornwall in July 2021. However, little had been heard of the G7’s endeavor since then. In June 2022, the Group of Seven decided to breathe new life into the project.
“So far, America has failed to build momentum on its plan to Build Back a Better World,” says Francesco Sisci, a Beijing-based China expert, author, and columnist. “However, with this new G7 plan, which includes other countries, this momentum could start to be built. It is a question mark. Nobody is sure until things are realized. But you cannot just underestimate and dismiss this plan, because there is a large commitment of many countries with a large economy and this plan could make big sense.”
The G7’s grand design envisages laying a secure sub-sea telecommunications cable that will connect Singapore to France through Egypt and the Horn of Africa; creating a COVID-19 vaccine plant in Senegal; expanding solar projects in Angola, including solar mini-grids and home power grids; and establishing an innovative modular nuclear reactor plant in Romania, among other issues.
The US president pledged to mobilize $200 billion in investments in global infrastructure projects over the next five years. The overall investment, including G7 member states and private capital, is expected to reach $600 billion.
“With two competing plans – size matters, at the end of the day,” says Sisci. “That is, China may be able to immediately finalize a lot of money in a short time in a number of projects. The G7 countries could be slower, but eventually they could build up momentum and they could channel much more money much more effectively, perhaps, in a much larger number of projects which could stifle Chinese projects.”
Sisci suggests that the club of developed capitalist countries “may end up being more effective in many ways [than China], a smaller non-capitalist country.”
“China, but also Russia, by far, don’t have the size, the gravitas to oppose even a divided G7, which is coming together because of this opposition to China or Russia-driven projects,” he notes.
G7 Economic & Geopolitical Hurdles
However, some other observers express skepticism over the ability of the US and G7 to implement the project given record-high inflation and cost of living crisis currently engulfing the states. The US, British and European central banks are struggling to tame skyrocketing inflation by raising interest rates to reduce demand, which is prompting recession fears.
“Washington claims they are going to be sending over $200 billion. But where’s the money coming from and how is it going to be really used?” asks Thomas W. Pauken II, the author of “US vs China: From Trade War to Reciprocal Deal,” a consultant on Asia-Pacific affairs and a geopolitical commentator.
He notes that previously the US Senate voted Biden’s landmark Build Back Better initiative down, and for good reason, as Republican congressmen feared that the Democratic administration’s spending spree would fan inflation and increase an already bloated national debt.
Pauken also expresses bewilderment over the G7’s apparent readiness to embark on the bold international project at a time when the group is involved in the Ukraine crisis with the UK trying to keep the military conflict dragging on. “I mean, it’s laughable that they have to think about [competing with] China at this time when they’re on the brink of a major war in Europe,” the commentator remarks.
Meanwhile, the G7’s Global Investment and Infrastructure Partnership cannot be regarded so far as a viable alternative to the Beijing-led Belt and Road Initiative that has been implemented for slightly less than a decade, according to Pauken.
“First of all, [the G7] actually need[s] to make these projects work,” says the geopolitical commentator. “Other than that solar plant in Angola, I don’t see any of these initiatives really working.”
In particular, China invested almost $59.5 billion in its comprehensive infrastructure project in 2021 alone. When it comes to crucial elements of the project, the West appears to be lagging behind. While the G7 is still considering building a subsea cable linking Europe and Southeast Asia, China kicked off its Digital Silk Road (DSR) almost seven years ago. The DSR’s backbone is the Pakistan and East Africa Connecting Europe (PEACE), a 9,300 mile long subsea cable network meant to tie Asia, Africa, and Europe together. The network is designed to transmit over 16Tbps per fibre pair with its Mediterranean section going from Egypt to France having already been laid.
Are Emerging Economies Interested in the G7 Agenda?
There is yet another problem as to how to make these Western projects attractive for Global South nations, the Asia Pacific expert continues. In particular, the G7 has been pushing ahead with a climate change agenda and the plan to cut carbon emissions, which is not relevant for the majority of third-world states which are still reliant on cheaper and more reliable fossil fuels and coal plants, he notes.
“You also have to deal with auditing issues as well as the so-called climate change consultants who go on the ground and on site,” he says. “You have to prove that those infrastructure projects are not causing much of a carbon footprint. But most of the major infrastructure does require a big carbon footprint, especially in the emerging markets, because they don’t have the same equipment or they don’t have the same standards or labor laws as they would have in Western Europe or the US.”
Many emerging economies, including African countries, are beginning to have a growing frustration with the US and Europe, according to Pauken. The reality is that Africans and many of the emerging markets want to focus on economic stuff, he notes. However, when the US officials come in, they’re talking about climate change or gender equity, and this is not as interesting to developing nations, the commentator emphasizes.
“[Developing nations] want help on improving their agricultural production levels and boosting their energy capacity, which the Russians and the Chinese have been doing,” Pauken notes.
Given all of the above, it is unlikely that the G7’s Global Investment and Infrastructure Partnership initiative is going to actually happen, argues the geopolitical commentator.
“They’re rebranding a failed policy, thinking it might work by using new names and new mergers. Last time it was separate between the EU and separate between the US and they somehow think that if you combine the two failed projects into one, that this will somehow succeed. That’s not going to work in the real world,” Pauken concludes.
Oil-rich countries Saudi Arabia and the UAE cannot radically increase crude production anytime soon, French President Emmanuel Macron was overheard saying to his US counterpart Joe Biden on Monday.
The leaders were contemplating how to curb Russia’s oil revenue without triggering more energy price increases.
The brief conversation between Macron and Biden was filmed by reporters on the sidelines of the Group of Seven (G7) summit in southern Germany.
Macron told his US counterpart that he had a call with Emirati leader Sheikh Mohammed bin Zayed Al Nahyan. “He told me two things. ‘I’m at a maximum [production capacity]’. This is what he claims,” Macron said.
The French president continued: “And then he said [the] Saudis can increase by 150 [thousands barrels per day]. Maybe a little bit more, but they don’t have huge capacities before six months’ time.”
Emirati Energy Minister Suhail Al Mazroui clarified on Twitter that “the UAE is producing near to our maximum production capacity based on its current OPEC+ production baseline” of 3.168 million barrels per day. He said the Gulf state would stay “committed” to the same baseline until the end of the year.
Western countries have been looking for ways to curb Russia’s revenue from the oil trade, all while trying to avoid further energy price hikes at home. Saudi Arabia and the UAE were seen as nations with spare capacity to boost oil production in order to reduce prices, according to Reuters.
The Islamic Republic of Iran has officially submitted its application to join the group of five emerging economies made up of Brazil, Russia, India, China, and South Africa, the foreign ministry in Tehran announced on Monday. The move comes after the Iranian president addressed the BRICS summit last week.
While BRICS is not a treaty bloc, it has a “very creative mechanism with broad aspects,” Iranian Foreign Ministry spokesman Saeed Khatibzadeh said on Monday, according to the Tasnim news agency. He added that Tehran has already had “a series of consultations” with BRICS about the application.
Iran’s membership would “add value” for everyone involved, said Khatibzadeh, noting that BRICS members account for up to 30% of the world’s GDP and 40% of the global population.
On Friday, Iranian President Ebrahim Raisi addressed the BRICS virtual summit hosted by China, and expressed Tehran’s readiness to share its capabilities and potentials with the group.
Argentina has also applied to join BRICS. President Alberto Fernandez on Friday urged the creation of cooperation mechanisms that could represent the alternative to ostensibly private institutions run by – and in the interest of – the West.
During the session on Wednesday, Russian President Vladimir Putin said that the five-member group was working on setting up a new global reserve currency “based on a basket of currencies of our countries.”
German chemicals major BASF may be forced to halt production at the world’s biggest chemicals plant in Ludwigshafen, the Wall Street Journal reported on Monday, citing shortages of cheap and abundant Russian gas.
According to the report, BASF has used Russian natural gas for years to generate power and as feedstock for products that make it into toothpaste, medicine, and cars. However, dwindling Russian gas supplies are proving a threat to the company’s vast manufacturing hub, it says.
“Cutting down production at this site will be a huge task,” said BASF senior economist Peter Westerheide, as quoted by the WSJ. “We’ve never seen situations like this before. It’s hard to imagine.”
With an area of approximately ten square kilometers, the Ludwigshafen complex spanning some 200 plants, accounts for about 4% of the total gas demand in Germany. Approximately 60% of the gas used at the plant is meant to generate electricity, while the remaining 40% is feedstock for the production of chemical products, including ammonia and acetylene.
BASF estimates that if the chemical complex continues to receive more than 50% of the maximum volume of gas, the operations could be continued. Otherwise, the work of the complex will have to be stopped.
Earlier this month, Russian gas flows to Germany through the undersea Nord Stream pipeline were cut by as much as 60% due to technical issues arising from Western sanctions against Moscow. In response to the crisis, the German government has launched the second “alarm” phase of its three-level gas emergency plan. Berlin has warned it’s facing a severe shortage of the fuel amid diminishing flows from Russia.
ACCORDING TO the Cambridge Dictionary, a sanction is ‘a strong action taken in order to make people obey a law or rule, or a punishment given when they do not obey’. The purpose is pretty obvious, to try to deter an action that is not deemed by the sanctioner as acceptable.
A child thus may be sanctioned for poor behaviour with no sweets for a week. A country is equally sanctioned in some way deemed to harm the errant country and not those giving the sanction. Russia has been sanctioned by primarily the US, UK and EU in an unprecedented fashion due to the war in Ukraine. But who is it hurting?
This article is not about the morality of the situation in Ukraine. It is simply about whether the sanctions have been effective, or have they actually been counter-productive? At the most basic level, has applying sanctions made it more, or less likely, that UK policy goals will be achieved?
A third of a year into war, the only conclusion one can sanely draw so far is that the West’s sanctions have been an unmitigated disaster in self-harm undermining domestic prosperity while causing serious inflationary and monetary dislocation.
There is very little evidence that Western sanctions have materially harmed Russia’s ability to prosecute war or (as much as we can judge) diminish Russian domestic support for it. Far from Government’s expectations that it would cripple the Russian economy and perhaps lead to regime change, if anything it is Western economies that are in desperate trouble. It seems that US, UK and EU sanctions are proving to be a lose-lose trade.
A simple test – what currency traders would say
We were told sanctions were going to cripple the Russian economy and stop its war machine. For around two weeks, judging by the currency market’s reaction to a then collapsing rouble, that superficially seemed right.
Initially the rouble halved from a pre-war 75 to the USD to a low of 140 as the West confiscated over $300billion of Russia’s sovereign assets held in the West. This, coupled with a wholesale withdrawal of Western companies, from BP to McDonald’s, and a tightening of oil and gas sanctions, resulted in currency collapse.
Such a collapse, if prolonged, would have been very dangerous for Russia’s stability as it simply destroys its terms of trade, potentially resulting in material inflation as the cost of importing goods rises significantly.
But Western policy makers did not think through the second derivative which is coming back to bite. Economically Russia to an extent is the polar opposite of the West.
The West undoubtedly has significant technological and soft power advantage over Russia. However, most Western economies have growing and inefficient public sectors and weak central banking systems impeded by the Global Financial Crisis (GFC) and particularly lockdowns, with substantial growing public debt and debased monetary systems through a new-found belief in Modern Monetary Theory (MMT) – accompanied by all the associated Quantitative Easing over the last decade. Britain and the US also run substantial trade deficits.
Russia, on the other hand, is a commodity- and primary products-led export economy running a substantial trade surplus, with weak technology and service sector exports and soft power. Its public finances are very strong with low public debt, low taxes (14 per cent flat rate income tax) and substantial cash reserves even after half were sanctioned.
This asymmetry of strategic advantage between Russia and the West has profound implications if sanctions are applied. Thus quite quickly currency traders realised what extraordinarily almost none of our current crop of virtue signalling politicians dare to say – that the sanctions were potentially more of a threat to the West (UK and EU in particular) as the impact of ‘cancelling’ Russian carbon was highly inflationary.
There are no cheap short or medium term substitutes. Much of the West is dependent on Russian primary products, while only some Russians might be upset the Prada store in Moscow had closed (but the back door from China remained wide open). An inconvenience, sure; a game changer, probably not.
Thus the rouble strengthened materially and at the time of writing is 55 to the USD, almost 30 per cent stronger than before the conflict in Ukraine. If one compares the sterling- rouble exchange rate, sterling’s underperformance is even starker.
It is quite simple. Cancel Russian oil (13 per cent global production) and India joyfully buys the discarded stock at a discount while the global price goes up as the West scrambles to find new supply. Worse, cancel Russian gas and the EU has a major crisis, as does the UK given the UK’s foolish decade-plus de-emphasising of carbon, including the closure of strategic gas storage facilities. The list goes on well beyond carbon – from titanium to fertiliser, from wheat to cod.
But it is oil and gas that are so critical as power is essential to the manufacture, to a greater or lesser extent, of most things. The irony is that as well as Saudi, Iran and Venezuela, the greatest beneficiary of soaring hydrocarbon prices is Russia. Putin’s Russia has run consistent trade surpluses but the current surplus is a record, as a direct result of sanctions, taking the spot price of oil from a pre-war $80 a barrel to $120 today.
While the rouble strengthens and the Russian trade surplus expands, the effect on Western economies has been devastating. In fairness the West had been severely undermining its own advantage for many years prior to the invasion of Ukraine, fuelled by Governmental policies based on a double fallacy: that monetary policy could solve all ills, and that centralised decision-making and excessive public spending could solve all ills.
Both fallacies are now coming with a substantial price, but to multiply that with an ill-thought-out sanctions regime that is achieving none of its underlying goals and is harming Western economies is frankly hard to fathom.
The West, particularly the EU and UK, is now in a pickle. This pickle has the potential to be calamitous as Governments remain in denial at the scale of the challenge they are facing.
We are in a situation where the inflationary surge, given supply chains, is in its embryo stage, not close to its conclusion. Sure, the price rise at the pumps is immediate, but domestic energy prices are set to increase by a further 40 per cent in September when the price cap comes off. As a warning, German producer price inflation (see chart below) is over 30 per cent, a rate not seen since post-war ruination in 1946.
I sincerely hope I am wrong but this has the potential to get very nasty. Rishi Sunak said on Wednesday: ‘We are using all the tools at our disposal to bring inflation down and combat rising prices. We can build a stronger economy through independent monetary policy, responsible fiscal policy which doesn’t add to inflationary pressures, and by boosting our long-term productivity and growth.’ That says to me he hasn’t a clue about the scale of the challenge or indeed the underlying causes.
The reality is unfortunately that both the Bank of England and the ECB are so far behind the curve as to make you weep. Interest rates of 1.25 per cent when RPI is 11 per cent are so far off-kilter while the ECB, with arguably an even greater inflation headache given German industrial reliance on Russian gas, is only now coming off negative rates.
Moreover, expanding a wantonly inefficient public sector to around half the entire economy coupled with an unprecedented regulatory stranglehold can only spell a productivity disaster. It is throwing money at the bad, paid for by the good.
Where this will end remains uncertain, so many unknowns are there. What we can predict is that this is the beginning not the end of the maelstrom. Governments do not like short-term pain as elections approach and we risk yet another debt-funded stimulus papering over the ever-wider cracks. How credible would that really be when inflation is 11 per cent? Would they dare print money again in such circumstance? I fear they would.
This country and indeed Europe generally is enduring enormous self-harm. Sanctions have backfired but the cocktail of sanctions, massive public sector expansion, delusional monetary policy and delusional energy policy risk an economic disaster of immense proportion.
There is no easy fix but unless we wish to become a northern version of Argentina, with a debased currency, constant crisis and missed opportunity, we need to understand the scale and multiple layers of our challenge.
It’s too late to avoid prolonged and meaningful inflation, and in time recession, but it’s not too late to start to rectify policy error. I can’t see the current crop of politicians analysing forensically the impact of sanctions but a great start would be to toss away the gateway drug to our delusions, the strange idea that Modern Monetary Theory works and governments can print and spend their way out of a crisis. Frankly they can’t and with that acceptance perhaps we can start the process of an appropriately balanced economy focused on private activity, not state direction. Government got us in this mess, only the people can free us from it.
According to a recent study by the World Bank, published in the journal Nature, lockdowns and the response to Covid-19 have pushed an additional 75 million people into extreme poverty, living on less than US $1.90 a day.
In the typical Walter Duranty style that’s become a kind of twisted journalistic norm since March 2020, the World Bank and Nature of course blame this on “the pandemic” rather than lockdowns. I remain baffled as to how seemingly well-meaning people are able to sleep at night repeating such nonsense—are they somehow blind to the role of their own sycophancy in perpetuating these policies?
Nonetheless, there are signs that the political mainstream is starting to realize lockdowns were a disaster. Today, the Wall Street Journal published an excellent piece titled The Revenge of the Locked-Down Voters, noting the growing political backlash against lockdown politicians from voters at the lower end of the income scale.
This comes shortly after the New York Timesquietly acknowledged a study showing that Covid lockdowns and mandates led to over 170,000 excess deaths among young Americans.
And, as in America, this comes shortly after the London Times, the UK’s centre-left newspaper of record, published a cautiously-introspective piece on its support for lockdowns.
These are promising indications that the political mainstream, especially on the right, is coming around to the fact that lockdowns were a policy catastrophe more quickly than some might have worried.
Still, there’s much more to be done. Currently, the mainstream left and right are starting to realize lockdowns were a big mistake, while many career bureaucrats are still stuck pretending lockdowns were the greatest medical breakthrough since penicillin. There really needs to be a bipartisan consensus that lockdowns were an unprecedented policy catastrophe before we can start to see justice and have undue foreign and financial influence taken seriously.
The retreat of Ukrainian troops from Severodonetsk city in the Luhansk Oblast of the country is a pivotal moment in the ongoing conflict. The Russian forces are now almost in total control over the Luhansk region. The latest reports from front lines say Russian forces entered the last remaining city of Lysychansk in Luhansk on June 25.
In a briefing today, the Russian Ministry of Defence announced in Moscow: “On June 25, the cities of Severodonetsk and Borovskoye, the settlements of Voronovo and Sirotino passed under control of the Lugansk People’s Republic. The localities liberated… are inhabited by about 108,000 people. Total area of the liberated territory is about 145 square kilometres.
“Success of the Russian army… considerably diminishes the morale and psychological condition of the Ukrainian army personnel. In 30th Mechanised Brigade deployed near Artyomovsk, there are mass cases of alcohol abuse, drug use and unauthorised abandonment of combat positions.”
However, peace is a long way off — several months away, perhaps. In the speech by Russian President Vladimir Putin last week at the SPIEF in St. Petersburg, he made no references to peace negotiations. Putin hardly referred to the fighting.
Meanwhile, three highly provocative moves by the opposing side within the past week are significant markers indicating that the conflict may aggravate. If the missile strike at a Russian oil rig in the Black Sea has been an act of provocation, the US supply of High Mobility Artillery Rocket Systems (HIMARS), a powerful long-range weapon system is intended as a potential game changer that can help Kiev turn the tide of the conflict, and, third, the bizarre move by Lithuania to block Russia’s rail transit to Kaliningrad is a reckless escalation of tensions.
On the arrival of the HIMARS, Ukraine Defence Minister Oleksiy Reznikov ecstatically wrote wrote on Twitter on Thursday, “HIMARS have arrived to Ukraine. Thank you to my colleague and friend @SecDef Lloyd J. Austin III for these powerful tools! Summer will be hot for russian occupiers. And the last one for some of them.”
Washington claims it has received assurances from Kiev that HIMARS would not be used to attack Russian territory. Moscow has warned it will attack targets in Ukraine that it has “not yet been hitting” if the West supplies longer-range missiles to Ukraine for use in high-precision mobile rocket systems.
The Lithuanian move is a blatant violation of international law and Vilnius would only have acted on the basis of prior consultation with the US and NATO to test the Russian reaction. Kaliningrad is a major Russian base with nuclear missiles, where its Baltic Fleet is headquartered, apart being the only Russian port on the Baltic that is ice-free throughout the year. Evidently, there are some insane fellows in the NATO camp who are itching to climb the escalatory ladder.
For Russia too, there is “unfinished business” ahead insofar as it holds roughly the same amount of territory in Donetsk only as the separatists controlled in February before the special military operation began. Now, seizing the administrative territories of the Donbass is only Moscow’s minimal goal. There is going to be a sprawling battlefield in the next phase, stretching from Kharkiv in the northeast to Mykolaiv and Odessa in the southwest. Much fighting lies ahead.
The New York Times reported that “Pentagon officials expect that the arrival of more long-range artillery systems will change the battlefield in Donetsk.” Gen. Mark A. Milley, the chairman of the US Joint Chiefs of Staff told reporters recently, “If they (Kiev) use it properly, practically, then they’re going to have very, very good effects on the battlefield.”
The Russian military approach doctrinally is centred on attrition warfare, which aims to grind the way toward incremental territorial gains. Therefore, the advantage goes to the side which has greater staying power on the battlefield. In a sustained war of attrition, one military is ultimately going to be depleting the capability of the other. This is where the fault lines in the western unity come into play if the current traces of “war fatigue” in Europe turns into “solidarity fatigue.”
Ukraine’s ability to shift the military balance depends critically on sustained military support from the US and other European countries. That, of course, hinges on political will and cohesiveness of the western allies. As for Russia, it is not only committed to a protracted war but also has the capacity to sustain it.
Unlike the case with Ukraine, Russia is not dependent on any other country for boosting its military capability or training and advising its military. Also, historically speaking, a defining characteristic of the Russian military is its incredible endurance and ability to sustain prolonged attrition.
The US is still betting that the Russian economy cannot hold out for a long time, since the full impact of sanctions and export controls is yet to be felt. In this calculus, the rebound of the ruble currency is seen as largely due to the strict government controls on capital flows and plummeting imports into Russia. Equally, the US has convinced itself that the restrictions on technology exports to Russia will gradually stunt the growth of its industries. Thus, the focus of the G7 summit in Germany currently under way (June 26-28) is on new plans to further “tighten the screws” on Russia’s economy.
But not much Russian budget data is available to make such daring assumptions and it is even harder to quantify how much Moscow is spending on the war in Ukraine. Certainly, there is no evidence to suggest that the Kremlin’s ability to finance the war effort is coming under pressure from sanctions.
While President Biden boasted in March that sanctions were “crushing the Russian economy” and that “the ruble is reduced to rubble,” the exact opposite has happened. Russian oil revenues have set new records and the ruble hit a 7-year high this week against the dollar. Expert opinion is also that Russia’s financial system is back to business as usual after a few weeks of severe bank runs.
Going forward, Biden must retain control over the Congress in the midterm elections in which Republicans are sure to capitalise on the rising cost of living. As for Europe, cooler temperatures in the coming months will raise alarms about energy shortages as Moscow has cutdown natural gas supplies to Europe, which would aggravate the economic pressure they now are experiencing.
Therefore, the big question is, whether the desire to resist Russia will be sustainable as the war itself grinds away. The matrix has changed. After all, Biden uttered the following about Putin as recently as in end-March: “For God’s sake, this man cannot remain in power.” But in 3 months’ time, today, Biden only says he is striving to help Ukraine negotiate optimally with Russia for a settlement. Here too, Biden needs to make sure Russia is losing ground, while also constantlyweighing that new weapons do not escalate the conflict too fast.
Admittedly, Biden is under little political pressure at home to back away. And the crack in western unity is, arguably, not to be construed as amounting to anything like a rift in the fundamental strategy towards Russia and the Ukraine conflict. That said, the bottom line is that this is also a perilous moment for the global economy.
Post-pandemic economic recovery, supply-chain disruptions, rapid price increases, infrastructure investment, trade practices, global oil prices, world’s food supply, recession — these issues surely impact the western leaders’ standing in the polls. It means economic and political pain is coalescing.
The West needs to keep arming Ukraine instead of seeking a peaceful resolution to the conflict between Kiev and Moscow, UK Prime Minister Boris Johnson told French President Emmanuel Macron, according to Downing Street. Any attempt to resolve the conflict peacefully will lead to global instability, he said at a meeting on the sidelines of the G7 Summit on Sunday.
The military action in Ukraine is at a “critical moment,” the two leaders agreed, but there is still “an opportunity to turn the tide.” According to the statement, Johnson and Macron have agreed to continue supporting Kiev militarily to “strengthen their hand in both the war and any future negotiations.”
The prime minister also cautioned the French leader against seeking alternatives to resolving the conflict.
The Prime Minister stressed any attempt to settle the conflict now will only cause enduring instability and give Putin licence to manipulate both sovereign countries and international markets in perpetuity.
Johnson took a similar stance at a meeting with Canadian Prime Minister Justin Trudeau on Sunday. “Ukraine is on a knife-edge and we need to tip the balance of the war in their favor. That means providing Ukraine with the defensive capabilities, training and intelligence they need to repel the Russian advance,” a statement from Downing Street read.
On Sunday, Johnson tweeted that Ukraine’s “security is our security, and their freedom is our freedom.”
Ahead of the summit, London pledged an additional £429 million ($525 million) in guarantees for World Bank loans in 2022 as a form of financial assistance to Kiev. According to Downing Street, the UK’s total financial support for Ukraine, including loan guarantees, amounted to £1.3 billion ($1.5 billion) and the combined UK economic and humanitarian support for Ukraine amounted to £1.5 billion ($1.8 billion) this year.
Johnson has been one of Kiev’s most ardent supporters after Russia’s military operation in Ukraine began in late February. He has visited Kiev twice since then and repeatedly called on Western nations to provide more weapons. The UK is one of Kiev’s major arms suppliers, including heavy weaponry.
In June, Johnson warned that the West must brace for a long war between Kiev and Moscow. On Saturday, he said he would consider resigning if he has to abandon Ukraine at some point.
Finland’s flag carrier Finnair has reportedly become the latest casualty of the sanctions war between Russia and the West. The airline suffered heavy financial losses due to the forced necessity to fly around Russia, after the country closed its airspace in retaliation to Western sanctions.
Since the beginning of 2022, the operating loss of one of the world’s oldest airlines amounted to €133 million, of which €51 million in expenses fell on fuel costs, the Finnish newspaper Helsingin Sanomat reports.
EU countries and a number of other Western states closed their airspace to Russian flights after Moscow launched its military operation in Ukraine in late February. Russia responded in kind, banning the airlines of 36 states and territories from its skies and, in so doing, closing the traditional routes from Europe to Asia to Western carriers.
The tit-for-tat restrictions have forced airlines in Europe to re-route flights, and have deprived some nations of the monthly air navigation fees that they used to receive when flights from neighboring states passed through their airspace.
Since December 2021, Finnair’s fuel costs have reportedly surged from 30% to 55% of its total expenses. Apart from a nearly twofold increase in prices, the Finnish airline has faced the need to change air routes.
As a result of closing skies Helsinki has lost a key advantage over other Scandinavian countries – the shortest distance to China, Japan and South Korea. Some flights to the Asia-Pacific region, which had been generating for Finnair up to 50% of its profit, were canceled. The journey to Japan that previously took about nine hours now takes 13 hours.
Moreover, the loading of Finnair planes has also significantly dropped due to the absence of Russian tourists, who used to make up about 20% of its passenger traffic. Meanwhile, EU residents have slashed their travel spending amid increased economic instability, with a reluctance to fly exacerbated by constantly rising cost-of-living expenses.
UAE security officers detained, tortured, and killed Emirati poet and news editor Habib al-Sayegh in August 2019, shortly after he published a column opposing UAE normalization with Israel, according to a newly published book.
“Princes and Thieves,” a book by investigative journalist Matthew Cole published on 25 October, alleges that UAE security officers raided Sayegh’s Abu Dhabi home shortly after the publication of the column, hooded him in front of his wife and took him to a detention facility where he was tortured to death.
His interrogators reportedly pulled out several of his teeth with pliers and beat him repeatedly with a sharp metal object.
On 11 August 2019, Sayegh criticized the UAE’s plan to normalize relations with Israel as part of the Abraham Accords in his weekly column for Khaleej newspaper. The column was titled “Israel Is Our Real Enemy and A Dangerous Project.”
Sayegh described Israel as “a real and natural enemy” while questioning “who authorized the normalizers to speak on behalf of everyone?”
Nine days after the column was published, Emirati state media announced his death, without stating a cause. … continue
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