An important conclusion from The Work-Standard (2nd Ed.) has been proven valid recently as there are now news reports coming out of the EU/NATO that Europe may face fuel shortages in the next several months. The high standard of living afforded by those Liberal Capitalist regimes, social safety nets and all, was made possible by access to cheap petroleum from Russia. Everything from the generation of electrical power and gasoline and diesel to the production of goods and services depended on it. The same is true for the flow of natural gas. Even now, Post-Soviet Russia’s Special Military Operation in Ukraine has shown that the Western Bloc countries cannot afford to resort of emergency fuel rationing.
“The gas crisis in Europe has been building for a while, and Russia’s role in it has been clear from the beginning. In September 2021 – five months before Russia’s invasion of Ukraine – the IEA pointed out that Russia was preventing a significant amount of gas from reaching Europe. We raised the alarm further in January, highlighting how Russia’s large and unjustified reductions in supplies to Europe were creating ‘artificial tightness in markets’ and driving up prices at exactly the same time as tensions were rising over Ukraine.
After Russia invaded Ukraine on 24 February, nobody in Europe or elsewhere could be under any illusions about the risks around Russian energy supplies. Just a week after the invasion started, the IEA released our 10-Point Plan to Reduce the European Union’s Reliance on Russian Natural Gas, setting out the practical actions Europe could take. It stressed the need to maximise gas supplies from other sources; accelerate the deployment of solar and wind; make the most of existing low emissions energy sources, such as renewables and nuclear; ramp up energy efficiency measures in homes and businesses; and take steps to save energy by turning down the thermostat.”
The loss of cheap sources of petroleum and natural gas threaten to send the EU/NATO and West Germany in particular into the throes of a Recession. This comes as Bloomberg reports that energy prices in West Germany rose immensely as a consequence. West Germany’s fuel reserves may not be ready in time for the winter months, where the consumption of those two strategic resources is at their highest. Should the West Germans fail to find sufficient fuel sources in time, there will be emergency fuel rationing, and the implications do not bode well.
Overdependency on petroleum and natural gas from Russia for West Germany and the Western Bloc countries is not new. The trend was already set into motion during the latter half of the Second World War, the Cold War, when the Soviet Union began its own overdependency on US Dollars and other Western currencies in exchange for its own petroleum reserves. The Special Military Operation demonstrates that Post-Soviet Russia, more than three decades since the end of World War II, is still dependent on fossil fuels for much of its economic livelihood. The fact that the Russians had to exploit this particular European weakness proves that not much has changed, despite insisting on selling the fossil fuels in Rubles instead of Dollars or Euros.
As for the German-speaking world, the heightened energy prices and dependency on foreign fossil fuels provides two instructive lessons worthy of mention from The Work-Standard (2nd Ed.). First, there is the need to minimize dependency on fossil fuels and the pursuit of alternative fuel sources. And second, a national economy heavily dependent on exports is just as vulnerable as another national economy heavily dependent on imports. The West German Soziale Marktwirtschaft (Social Market Economy)–a high-tier Market/Mixed Economy–finds its political legitimacy in dependency on fossil fuels and exporting finished goods and services. Such dependency is what keeps the standard of living higher than these United States and some European countries, but it is also its real weakness. An energy crisis, together with a breakdown in the forces of Globalization, will cause that high standard of living to diminish.
Today’s geopolitical climate, like the geopolitical climate of the previous century, continues to instill the importance of an Autarkic trade policy and the need to develop alternative fuel sources. A nation must be capable of living within its own means of production.
Categories: Economic History