Weak links in finance and supply chains are easily weaponized

40 points4
fny1 hour ago

This has already happened. It is not a coincidence that we went from $-40 oil to $130 oil in the span of two years.

I posit the Saudis and Russians deliberately maintained elevated production levels into the COVID shutdowns in an attempt to handicap US energy production. Bankruptcies in the US ensued. Wells were shut. Supply went offline. Now we're begging them to turn the wells back on, and they're not interested.

Evidence to ponder for the unbelievers.

[0]: In March 2020, Saudis and Russians can't come to an agreement about cutting output into a global shutdown (this was clearly a show)

[1]: Trump pushes Saudis to cut production into negative oil, US bankruptcies ensue

[2]: Biden tells Saudis to boost production amid $100 oil

[3]: At all time high prices, OPEC is still behind its production targets.

The beauty of this strategy is that is creates the continued fear that at some point the Saudis will turn on the tap and oil can go sub $60 again (see futures prices at the long end of the curve), so the US is still wary of investing in oil and gas to deal with the shortage.

Everyone seems to forget the Saudis created an oil crisis in the 70s for political gain once. How we are not talking about this today more actively is beyond me.

greenglass19 minutes ago

“Another week, another example of the Biden Administration’s energy incoherence. On Tuesday the President blamed record gasoline prices on Vladimir Putin. The next day the Interior Department announced the cancellation of three offshore oil and gas lease sales, setting up the possibility that there won’t be any during his Presidency.

It’s been nearly a year since a federal judge blocked President Biden’s oil and gas leasing ban on federal lands. Yet the Administration has interpreted the injunction as merely hortatory. After dragging its feet, Interior last November held an offshore sale in the Gulf of Mexico under a five-year leasing plan finalized by the Obama Administration.

A liberal federal judge vacated those sales in January, on the legal stretch that the government didn’t consider the greenhouse-gas emissions of the oil that would be produced by the leases and consumed abroad. The Administration chose not to appeal, and it now blames the judge for its decision to cancel three auctions that were scheduled this year under the Obama five-year plan.”

Yes, damn Putin and the Saudis. The big man has always been pro-oil.

roenxi2 hours ago

This play of locking all Russia's valuable commodities in, with the only out being in the direction of China, seems risky. It relies on Russia making a series of catastrophic economic mistakes (although, parenthetically, that is an outcome backed by history). The obvious way this plays out is that Russia's economy snaps back really quickly and a Russia-China trade corridor starts firming up because there are no other options. Then they both benefit from it.

It isn't yet so clear that the weak links in finance can be so easily weaponised against a state by foreign powers. Economic warfare always seems to me to be a series of self inflicted wounds. It would be interesting (and terrifying) to see whether these attacks would work against a liberal economy.

Etheryte49 minutes ago

This might make sense if we were talking about the same resources being distributed in different ways, however this is not the case in many fields. Gas is a good example, Russia sells to Europe and China from completely different wells. It is not the case that when Europe stops buying, they can just sell the same gas to China. It's not economically feasible to transfer all the way across Siberia, they simply end up selling less.

zmgsabst1 hour ago

Two thoughts:

1. I believe Russia also has India as a trading partner, so a resource rich country has access to over half the world’s population — they’ll figure it out.

2. I believe that China has already weaponized finance against the US, from funding organizations at universities to coercing policies at major companies, eg Disney and WarnerMedia, to demanding IP transfers from anyone who wants to do business there. My understanding is that the US was woefully unprepared for a one-way open market and the disruptions that would bring to their economy.

usernomdeguerre1 hour ago

Part of the weakness is that 'warfare' is probably not the best way to conceptualize it.

In actual warfare I end someone's life and they do not wake up the next day to fight me, or I wound them to a similar outcome. In 'economic' warfare I still wake up the next day when you freeze all my assets, or stop sending me my goods, or stop servicing my departments.

It's just a fundamentally different dynamic. And I agree, it's not clear.

That said, I do think these actions were necessary, geopolitically. My tangential opinion is that there have been two implementations of Capitalism in conflict the past decades, Western and Chinese. It's what I think has spurned the capital booms in each and acted as the foundational fabric for lots of cultural and political skirmishes.

But in this environment China could not necessarily be seen in direct competition and vice versa. Here, Russia acted as a sort of European conduit for China's geopolitical aims and cultural propaganda.

These western economic actions now help to more clearly split the two implementations in order to, I speculate, give the Western system time to breathe and consolidate. Lick its wounds. Whether it meets its goals, i'm skeptical, but I do believe it's rational even if it causes Russia to re-orient rather than collapse.

It may also be beneficial as a warning to smaller nations looking to try and keep a foot in both, if Russia can't do it...

ironSkillet2 hours ago

No surprise. Uncovering this dependency graph at a granular level is a holy grail of industry analysts because it drives the dynamics of the sector. Definitely a non-trivial task as many companies view their supply chain as a major competitive advantage and would heavily lobby to avoid having to make meaningful disclosures.

nr2x2 hours ago

Meanwhile, the earth burns in the background. Bad to worse for next few decades.