Tag Archives: economics

Oil Price Caps

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The G-7 is floating a new sanction against Russia in response to Russian President Vladimir Putin’s invasion of Ukraine. That sanction centers on capping the price nations would pay for Russian oil.

The Group of Seven leaders are expected to agree to start work on a mechanism to cap the purchase price of Russian oil….
Leaders will direct relevant ministers in their countries to work on the details of Russian oil caps, which would create a buyers’ cartel of Western nations and their allies, the official said.

To the extent such a cap would have a material effect on Putin’s economy, or more importantly on Putin’s war (how many battalions have the current sanctions forced Putin to withdraw from Ukraine?), and I’m not convinced a cap would have any material effect, I suggest a cap with which to begin would be the deeply discounted price at which Putin already is selling his oil to India and the People’s Republic of China.

On the other hand, though, there’s likely not much urgency to this virtue-signaling move:

There is no timeline yet on when the details will be worked out.

No, He’s Not

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Energy Secretary Jennifer Granholm—who thinks it’s laugh out loud hilarious that the Biden administration could impact the cost of energy to us Americans—made the patently erroneous claim that President Joe Biden (D) is doing everything he can to reduce [gasoline] prices for American families.

Oil is a global market, and so Biden is helpless alone?

High school economics: increase the supply of something relative to demand for it, and prices for that something come down. Conversely, reducing supply relative to demand drives up the price.

Oil is a global market, and until January 2021, not only was the US a major player in its production, we were a net exporter of oil (and of natural gas) and essentially energy independent.

However, acting on his campaign promise to eliminate the oil and natural gas industries, Biden canceled a major oil pipeline project that would have fed refineries producing (among other things) gasoline, imposed regulations that made it difficult to build other pipelines, stopped issuing oil and gas leases on Federal lands and waters, outright canceled leases in Alaska and the Gulf of Mexico, is sitting on thousands of permits necessary to act on remaining leases, and generally inhibited our ability to produce oil and natural gas.

The Biden administration policies also (deliberately, I say) make oil and natural gas and gasoline companies reluctant to build or even to reopen additional refineries, much less restart or drill new oil and natural gas wells so those potential refineries would have something to refine.

The Biden-Granholm reduction in the supply of American oil—and so their reduction in the global supply of oil—is what’s responsible for today’s high gasoline prices.

Biden alone can, indeed, impact the cost of energy to us Americans. He’s already done it negatively. He could just as easily (or maybe not—there’s a serious trust problem now) impact the cost positively by getting his administration out of the way of the American energy industry.

And that’s just for starters.

Both Biden and Granholm know this full well; they know that Biden absolutely is not doing everything he can to reduce prices for American families. Not for gasoline, not for energy generally, and not for any of the inflationary forces in our economy.

Germany’s Energy “Crisis”

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The Russian “slowdown” of natural gas deliveries to Germany is beginning to convince the German government that they’re overly dependent on Putin’s whims for the nation’s energy.

Minister of the Economy Robert Habeck:

The reduction in gas supplies is an economic attack on us by [Russian President Vladimir Putin]. We will defend ourselves against this. But our country is going to have to go down a stony path now.

That stony path includes what, exactly? Habeck again:

The prices are already high, and we need to be prepared for further increases. This will affect industrial production and become a big burden for many producers.

What else?

Habeck, who is a Green Party politician in the center-left ruling coalition, announced a return to “coal-fired power plants for a transitional period” in order to reduce gas consumption for electricity production.
“We are setting up a gas substitute reserve on call. “That’s bitter, but it’s almost necessary in this situation to reduce gas consumption,” Habeck said.

What not else?

Nuclear power. After then-Chancellor Angela Merkel’s panicky shutdown of Germany’s nuclear power production facilities—all of them—in the aftermath of Japan’s Fukushima nuclear power facility accident (in which there were all of 16 injuries, from hydrogen explosions, and 2 more from radiation exposure related to the accident itself, and a single subsequent fatality due to radiation-induced cancer), the German government remains steadfastly opposed to a source of energy that is utterly free of pollution, doesn’t release evil CO2 into the atmosphere, and that is intrinsically safe: modern nuclear reactors.

To the extent Germany has an energy crisis, it’s one of Germany’s own making as that nation volksmarched determinedly down two paths: its conscious decision to subordinate itself to Russian energy delivery and so to Russian energy extortion, and its equally conscious decision to eschew an utterly reliable energy source that doesn’t depend on the vagaries of wind or of sun, the latter especially in cloudy Germany.

Unsingen, in west central Germany, illustrates that latter.

The Fed and Equity

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And, no, I’m not writing about house ownership type equity. This concerns the Fed’s potentially increasing role in “social equity.”

The Wall Street Journal Editorial Board expressed concern about Progressive-Democrats trying to legislate into the Federal Reserve’s mandates the matter of “racial equity.” They’re correct as far as they went, but they based their concern on the Fed’s existing workload and on the question of how to assess “racial equity” in the Fed’s pronouncements and enforce the concept in its controls.

The Editors, though, missed the most important distinction and problem.

Whether or not “racial equity” is a matter to be taken seriously, it’s a political matter only, and so belongs only to the political branches of our Federal government—Congress and the White House.

The matter has no place in any Central Bank, including ours. The Federal Reserve’s function, in particular, is to protect our currency by protecting our economy—by working, under its existing statutory instructions, to maintain stable pricing, maximum employment, and moderate long-term interest rates (which means working to maintain stable pricing, since employment and interest rates fall out of that).

The Fed has no business or place in the political environment.

Airbus Thinks It’s Special

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Or at least, more important than the existence of a nation.

Airbus is pushing against sanctions on Russian titanium sales, amid a flurry of restrictions on the export of other Russian goods ranging from vodka to steel.

After all,

About 65% of Airbus’s titanium supply comes from Russia, according to consulting firm AlixPartners.

Of course, Russia should be let off the hook regarding its naked and barbaric invasion of Ukraine, and Ukraine should be made to pay with its existence for Airbus’ consciously developed business decisions. Airbus Chief Executive Guillaume Faury:

We think sanctioning titanium from Russia would be sanctioning ourselves[.]

And

Russian titanium sales are “one of the few areas of business where it is in the interest of no party to disrupt the current situation,” he told reporters at an aviation gathering in Doha, Qatar.

Because Ukraine and Ukrainians are just bits of trivia and flotsam, not worth the notice. This is in stark contrast with Boeing:

…before the war purchased about one third of its titanium from Russia, said at the onset of the invasion of Ukraine that it would suspend its titanium joint venture in Russia and halt purchases of the metal from there.

It’s true enough that Russia is the second largest producer of titanium in the world (behind the People’s Republic of China). On the other hand, Ukraine is—or was before the barbarian’s invasion—the fifth largest producer of titanium.

However, Russia doesn’t even make the list of the top fourteen nations with titanium reserves.