Russia’s attack on Ukraine, now in its seventh month, is unlikely to end soon. The US-led NATO countries imposed sanctions on Russia and supported Ukraine militarily and materially to weaken Russia’s military advantage over Ukraine. The US perhaps also hoped that along with stoking Russian domestic opposition to the war, if Russia’s “Ukraine folly” is defeated, it would lead to Putin’s Russia collapsing into a condition from which it would not be able to recover economically or militarily to challenge the West.
Putin’s expectation of Ukraine collapsing within days in the face of the Russian war machine was belied by unanticipated fight-back by Ukrainian forces. Indeed, as on today, a Ukrainian counterattack has significantly pushed back Russian forces in Ukraine’s Kharkiv region.
Likewise, NATO’s expectation of its sanctions weakening Russia economically and financially have been belied, as the Ruble has actually gained during the war. NATO – especially the US – failed to appreciate the inter-connectedness of the global economy and took measures that were not fully thought-through, or else calculated that Russia would get hurt more than NATO due to the measures taken – a cynical calculation that has resulted in European Union countries bearing the brunt of economic mayhem.
The main outcome of sanctions against Russia has been an energy crisis for EU countries, which depend hugely on Russia for energy supplies for day-to-day industrial and civic life. The industries which were heavily dependent on Russian energy are also beginning to feel the body blow due to the indefinite shutdown of the Nordstream-1 pipeline two weeks ago, with energy costs shooting upward. This is critical for people, because the winter cold will really impact Europe beginning mid-October. If energy for home-heating becomes unaffordable, it will seriously affect Europe’s aging population.
The proposed supply of gas to Europe from the US and Qatar by sea routes may not be able to meet the demand as winter sets in.
The economies of the EU countries are intricately interlinked internally, and also individually and collectively with the international economy. If industries are to receive energy supplies as energy costs rise, clearly those industries will need more money to purchase energy – money that they don’t have, because production is falling. The interruption or disruption of international supply chains, particularly for process industries, have struck serious blows to industrial production and workers’ jobs.
Neglecting for the moment the falling assurance of off-take (sale) of industrial products which can provide income and continuation of jobs, the solution appears to be to infuse money into the system so that industries can buy more expensive energy. Failing that, industries will wind down, and workers will not get paid or will lose their jobs. People will suffer if winter home-heating fails due to the combination of energy industries winding down, and unaffordable energy for heating – causing social unrest and adverse political fallout.
Germany has recently succeeded in hammering out its third relief package of €65-billion for households and companies. Following that, Chancellor Olaf Scholz said that Germany has a good chance of getting through the coming winter “by the skin of its teeth” – a touch-and-go scenario. Chancellor Scholz deserves acclaim for his courageous political realism.
The seriousness of the situation across EU is also indicated by talk (in Belgium) of “social upheaval”, and Polish politician Jaroslaw Kaczynski telling voters to “burn almost everything [because the country] needs to stay warm”.
Public protests against high energy prices in some EU countries, and governments bridge-funding industries to keep them running are reported.
The EU’s dilemma is “no money without energy, and no energy without money” – calling it a difficult situation would be a gross understatement. However, if more currency is supplied to people and industries, so as to enable energy purchases, it may be possible to last out the winter, or until alternative means of generating energy come on-stream. The UK’s as-yet-unproven Rolls-Royce small modular nuclear reactors (SMRs) can be brought into operation for electric power. However, since the UK exited the EU, trade in the immediate term is fraught with difficulties. Notwithstanding, the nuclear fuel supply chain is also complex, to the extent that even during the Ukraine war, the US and EU (barring France) source uranium from Russia or Kazakhstan.
In a situation of severe shortages at the start of winter, energy reaching the shores of the EU may intensify discord within the bloc because the industrial and civic energy demands and needs, and the financial strengths of different EU countries, are different.
The energy-money crisis in the EU is reality. Fears that the EU’s developing crisis may lead to a breakdown of European unity cannot be dismissed. The EU and the Euro are a vital part of the international political economy. The effects of the EU’s deteriorating situation following the Ukraine war are already apparent around the world.
All economies are irrevocably predicated on the availability of energy-dependent transportation, both domestic and international, for manufacture/production, distribution, exchange, and last-mile delivery for people, industries, goods and services. Every product from food to home-heating to phones to fighter aircraft represent and also demand energy at every stage from resource acquisition, production, movement, use/consumption to disposal. All this is enabled only by money. The link between energy and money is universal. This energy-money link in the EU is under severe strain.
The EU’s energy-money crisis has already reflected elsewhere in the world, within and between countries, triggering changes in political, economic and currency equations and arrangements. These unexpected and unpredictable changes are affecting economies and domestic energy-money links, as national central banks struggle to maintain economic stability.
The de facto dynamics of energy-money links that drive economies make it likely that people in their billions across the globe will suffer for want of energy (including food) and money, and economic polarisation will intensify on-going social conflicts.
If India is to get through this decade “by the skin of its teeth”, national and state governments need to wake up and re-invent people-oriented policies, as the energy-money crises sharpen and climate change disasters intensify.