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Putin Strikes Back Against Sanctions, What Price is Anyone Willing to Pay to Stop Him?

Putin still finances the war in Ukraine with oil. Sanctions are in name only. And Putin struck back with export controls of his own.
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Inage courtesy of Eurointelligence

Inage courtesy of Eurointelligence

Ban Russia Oil? How?

There's momentum in Congress to ban Russian oil. Does it matter? 

Oil is fungible, assuming it trades at all. Germany made exceptions on SWIFT for energy. Yet, some contracts have been cancelled. 

And natural gas futures have soared. So has wheat.

Record High Wheat Price

Wheat futures chart courtesy of Barchart.Com

Wheat futures chart courtesy of Barchart.Com

European Natural Gas Surges To New Record Highs As Russian Pipeline Flows Stall

Zerohedge notes European Natural Gas Surges To New Record Highs As Russian Pipeline Flows Stall.

Similarly, OilPrice comments on Intermittent Gas Flow Supply From Russia to Germany

Natural gas, except for liquid natural gas, is much more of a local thing and crude.

The Internal Energy Agency (IEA) says Europe can cut natural gas imports from Russia significantly within a year

By "significantly " the IEA means by a third and it is at a steep cost.

"Reducing reliance on Russian gas will not be simple for the EU, requiring a concerted and sustained policy effort across multiple sectors, alongside strong international dialogue on energy markets and security." says the IEA. 

It also requires Germany to step up nuclear energy despite Green demands.

U.K. Factories Halt Some Production as Energy Prices Surge

Bloomberg reports U.K. Factories Halt Some Production as Energy Prices Surge

A survey by Make UK, the manufacturing industry group, found that 17% of companies have had to “temporarily halt production of products that are energy intensive to fabricate” this year.

Gas prices have risen 59-fold since May 2020, and oil prices are at a seven year high, making it increasingly costly for factories to maintain output. Russia’s invasion of Ukraine has made a bad situation worse, driving energy prices higher and leading to shortages of essential components. Car makers in Europe have closed factories for a lack of parts in recent days. 

Huge Warning Shot by Russia 

In what is clearly a huge warning shot by Putin, ZeroHedge reports Russia "Recommends" Fertilizer Makers To Halt All Exports

  • RUSSIA RECOMMENDS FERTILIZER MAKERS TO HALT EXPORTS: IFX
  • RUSSIAN MINISTRY CITES LOGISTICS ISSUES ON FERTILIZERS: IFX

I like the quotes around recommend.

Fertilizers include nitrogen, potash, ammonia. Russia accounts for around 18% of potash and 20% of ammonia.

Global Fertilizer Flows Could Face “Prolonged Disruptions” 

Farm Policy News reports Global Fertilizer Flows Could Face “Prolonged Disruptions,” as Grains Extend “Blistering Rally”

  • Reuters writer Rod Nickel reported this week that, “Canada’s Nutrien Ltd, the world’s biggest fertilizer producer, said on Tuesday that Russia’s invasion of Ukraine could result in prolonged disruptions to the global supply of potash and nitrogen crop nutrients.
  • “The United States, European Union and other countries have imposed economic sanctions against Russia, moves that could hinder its exports of natural gas, potash and nitrogen. Belarus, Russia’s ally, is already subject to European and U.S. sanctions that have restricted its potash exports,” the Reuters article said.
  • “If the global trade in fertilizer is further disrupted, it will mean higher costs for farmers across the globe, and in turn more food inflation at a time when global food prices have already been hitting record highs. Prices for the widely used nitrogen fertilizer urea in New Orleans surged 29% from the previous week—a record for the 45-year Green Markets index—after Russia invaded Ukraine.”
  • A New York Times opinion column by Michael J. Puma and Megan Konar noted on Tuesday that, “Fertilizer scarcity jeopardizes global crop production at a time when some or all of the 13 percent of global corn and 12 percent of global wheat exports from Ukraine could be lost.”
  • Bloomberg writer Chunzi Xu reported on Tuesday that, “U.S. farmers and truckers are paying the highest price for diesel in nine years after oil soared above $100 a barrel amid intensifying sanctions against Russia.”
  • The EU as a whole is usually a net importer of corn for its livestock sector, with Ukraine one of its main suppliers. The bloc’s agriculture ministers will hold a special meeting on Wednesday to discuss the impact of the war in Ukraine.
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I totally agree with the following assessment.

So Many Holes in SWIFT Sanctions on Russia, those Sanctions are Useless

Yesterday, I noted So Many Holes in SWIFT Sanctions on Russia, those Sanctions are Useless.

I did not think the EU would pay the SWIFT card on Russia. It turns out I was correct.

Time to Ban Energy Imports?!

"It is our continued flow of money that has paved the way for Vladimir Putin’s war. Time to end it," says Eurointelligence founder Wolfgang Münchau.

Please consider Time to Ban Energy Imports.

Robert Habeck, the German economics minister, has categorically ruled out an energy import ban, on the grounds that it would endanger Germany's social peace. It was a revealing comment. Social peace in Germany, whatever that is, has a higher value than peace in Europe.

To be able to invade a country the size of Urkaine, Putin needs western money. He did not anticipate the west freezing around half of his $600bn in foreign reserves. But this will not stop him from waging war because each year, he receives some $250bn in revenues from energy sales. The higher the oil and gas prices, the higher the revenue.

Francois Hollande, the former French president, said yesterday that the EU should consider an import ban of Russian energy, and that Germany would have to accept to shoulder that burden. I agree.

The imposition of a total import ban falls into the category of things that are both necessary and impossible. 

The EU and the US will need to do two things right now. Impose a total import and export ban. And declare that any transgression of Nato will be met with a total destruction of Russia's military capabilities.

Social Peace and the DAX

Does "social peace" mean the German stock market?

What Price is Anyone Willing to Pay to Stop Putin?

Münchau is willing to risk a global depression. He also wants to taunt Putin with threats of nuclear war.

Fortunately, or unfortunately (depending on your view towards global wars), Münchau concludes that his ideas are both "necessary and impossible".

Meanwhile, food prices are going through the roof for multiple reasons with no clear end in sight.

No Recession?

Global Recession Coming Up

I believe it's pretty obvious a global recession is coming right up.

When it happens, everyone will blame Russia. Although Russia will certainly exacerbate the recession, one was coming anyway.

The Fed and Biden both made major policy errors. So did Trump before Biden. Russia supplies a huge amount of icing for the recession cake.

For discussion, please see A Recession Looms, Blame the Fed and Biden, Not Russia.

This post originated at MishTalk.Com

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