Date: 9/07/2022
Author: Mr. X
It’s going to get very bad in Europe. Worse than people expect.
Natural gas prices were up almost 30% on Monday after Russia said a “leak” was halting gas through Nord Stream 1 pipeline.
Several hundred local utilities are under fiscal strain and need some kind of a bailout. They simply can’t afford the increased prices now that Russia has cut off natural gas. Green energy has become a joke, as Germany is now relying on coal for up to a third of its electricity. Germany is extending the life of its remaining nuclear reactors, though it has so far resisted speed limits on the autobahns. The German government is promising $65 billion in relief.
France and Germany are going to work together to try to overcome power shortages, but even this is likely to be a temporary solution. French President Emmanuel Macron is also urging his population to turn down air conditioners and embrace energy “sobriety.” The state-owned EDF is planning to restart its entire nuclear fleet.
In the Czech Republic, about 70,000 demonstrators protested in Prague, demanding that its government negotiate a new energy deal with Russia to reduce electricity prices. The Swedish government is offering $23 billion in liquidity until March. Don’t worry though, Finance Minister Mikael Damberg says that some electricity providers just risk “technical bankruptcy.”
The United Kingdom faces similar problems. New Prime Minister Liz Truss is considering her own aid program of about $115 billion to help with energy costs. Her Conservative government will be under tremendous pressure from its rivals in Labour. The Labour Party is calling for a price freeze, which may not be practical, but will be highly attractive politically.
In Italy, a new government is likely to be formed after elections on September 25. Currently, the Brothers of Italy Party, (FdL), which hostile commentators call “far right,” is leading in the polls. There’s a division between that party and the Lega party of Matteo Salvini. Salvini is suggesting that Italy put itself deeper into debt to bail out the people, while the FdL is resisting such a campaign. Brothers of Italy, amusingly enough led by a woman, Giorgia Meloni, said that “going into debt is the last resort, because Italy is already indebted out of control.” Meloni’s priority if she takes power is going to be to keep international authorities and banks from freezing out her country on account of her party’s “post-fascist” roots. She may benefit here from the fact that the EU also has limited freedom of action because of the economic crisis.
Ukraine’s First Lady, Olena Zelenska, said to her fellow Europeans that “I understand the situation is very tough.” However, she said that her country is making greater sacrifices. “The prices are going up in Ukraine as well,” she said. “But in addition, our people get killed. So when you start counting pennies in your bank account, or in your pocket, we do the same and count our casualties.”
That sounds very noble. Yet there will be some Europeans who note that Ukraine is not a NATO member and that they never voted for this proxy war. For that reason, anger at economic problems is also manifesting as anger at NATO and the United States. In some scattered protests, some Europeans have gone so far as to wave Russian flags.
Yet Russia has its own problems. The government of President Vladimir Putin has thus far refused to fully mobilize its military (much to my own surprise). This makes little sense militarily, as the Russians lack the manpower in order to hold on to the ground it has conquered. The stakes are high, because there is no way the Russian government can afford to lose Crimea, which it held securely before the “Special Military Operation.” While the Russian economy has survived collapse, the Kremlin’s caution suggests that its popular support is weak. International reporters have observed that discussion of the war is relatively limited in Moscow, with the government seemingly promoting apathy and distraction rather than a Great Patriotic War style “Enemy at the Gates” mobilization to push back enemies it still insists (all evidence to the contrary) on calling “fascists.”
Who then is fighting the war? Russia has been heavily recruiting in many of the impoverished regions of its vast country. There are also reports of the government offering enlistment deals to prisoners. Finally, the war effort is dominated by professional military companies, notably Wagner, as well as the battle-hardened “militias” (but really professional armies) of the Donetsk and Luhansk People’s Republics. The casualties suffered by the private military companies and the DPR/LPR can be safely kept out of the official figures, which is high on the Kremlin’s priorities.
Of course, this won’t work if Russia starts actually losing territory, and that’s what appears to be happening. The long-delayed Ukrainian counteroffensive in the south has begun and most observers are surprised at the speed and the extent of the Ukrainian gains. Ukraine is using its manpower advantage, advanced Western weaponry, and internal lines to concentrate force more effectively than Russia. Russian positions have already broken in several regions, and considering the way Ukraine (with American artillery) has been hammering Russian supply and ammunition depots, there is a real danger Russian forces could be driven back from Kherson.
The United States is already broaching ideas about “decolonizing” Russia, i.e. breaking up the vast country and offering freedom to the many nations contained within Moscow’s empire. To President Vladimir Putin, who has called the breakup of the Soviet Union the greatest geopolitical disaster of the last century, this would be the ultimate nightmare. If a certain line is crossed, and that line is almost certainly Crimea, he would have no choice but to fully mobilize the country, whatever the cost. Not just the regime’s political survival but Russia’s territorial integrity (as Moscow sees it) would be at stake. Of course, Ukraine, along with the West, still regards Crimea as Ukrainian territory.
Henry Kissinger recently warned that the United States is at the brink of war with both Russia and China, seemingly with no plan of how to get out of it. That can also be said of Moscow’s strategy regarding Europe and the United States. Instead of confronting the political dangers of mass mobilization, Russia is trying to win its war on the cheap, banking on economic turmoil in Europe to stem the flow of supplies to Kyiv. The United States and EU leaders seem to be vaguely wishing that the government in Moscow will fall and somehow be replaced by one favorable to the West. In reality, what replaces Putin would likely be far more revanchist. Even if it isn’t, a collapsing Russia unable to secure nuclear material is hardly an ideal situation for world stability, especially if China redirects its territorial aspirations westward in the event of such a catastrophe.
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World leaders have put us all at the brink of chaos. Recession in Europe is inevitable. A recession in the United States is likely. The good news for Americans is that it represents a massive opportunity for our own natural gas and oil supplies to gain market share if the Biden Administration (or a GOP majority in Congress) reopens production. Yet it appears no one in Brussels, Moscow, or Washington has thought how all this is supposed to end. Russia’s only way out appears to be escalation.
The “plan” of both Moscow and Washington seems to involve the political collapse of the entire opposing order. Calling this risky is charitable. It’s insanity. And capital is a coward.
I was wrong that Russia would use Victory Day as an opportunity to declare war and fully mobilize its military, declaring war instead of just a Special Military Operation. However, Ukrainian military advances may force it into this position. If Ukraine threatens Crimea, look for Moscow to act in ways that will be devastating for the global economy.
Mr. X is an investment analyst working in the Washington DC area who specializes in the intersection of business and public policy. After fifteen years working in politics, he writes on a classified basis for RogueInvesting.com to bring you news on what those with power are debating, planning, and doing.
