What Comes Next?

What is the next thing that will hit us? Brace for it, because it will be HUGE

Ugo Bardi

Do you remember how many things changed during the past 2-3 years, and changed so unbelievably fast? There was a pattern in these changes: one element was that we were told they were just temporary, another that they were done for our sake. We were told that we needed “Two weeks to flatten the curve,” and that “the sanctions will cause the Russian economy to collapse in two weeks,” and many more things. Then, the world would return to normal. Instead, the result was a “new normal,” not at all like the old one.

Now, the obvious question is “what next?” More exactly, “what are they going to hit us with, next time?”

Let me suggest one possible new way to hit us. You may have heard of it but, so far, it was supposed to be something marginal, not designed to create another “new normal.” But it may. It is huge, it is gigantic, it is arriving. It is the price cap on Russian oil. The idea is that a cartel of countries, mainly Western ones, will agree on prohibiting the import of Russian oil unless it is priced at less than $60 per barrel. It will also make it more difficult for Russia to export oil abroad, even to countries that do not subscribe to the agreement.

This idea is, as usual, promoted as a way to help us. Not only it will harm the evil Putin, but it will reduce oil prices, so everyone in the West should be happy. But will it actually work? Unlikely, to say the least, and it is probable that the promoters know that very well.

Think about that: it never happened during the past hundred years that a cartel of countries had intervened to force a certain oil price worldwide. Even during the “Oil Crisis” of the 1970s, the Organization of Petroleum Exporting Countries (OPEC) never did what it is often accused of having done, fixing a high oil price. OPEC can only set production quotas or sanction certain countries, but it has no power, and never had power, on prices, which are set by the international market.

Today, intervening to set a price for Russian oil is equivalent to throwing a wrench into the gears of a huge machine. Nobody knows exactly how the global oil market is going to react. The only sure thing is that the Russians are refusing to sell their oil to countries subscribing to the agreement. The overall result of having removed a major producer from the market can only be one: increasing oil prices. Exactly the opposite of what the price cap is supposed to do. But this is the very minimum that can happen: the effects of the cap are unpredictable on a market that’s already unstable and subject to wild price oscillations. Europe might lose access to oil completely, and go dark. Famines have been a staple event in European history, they could come again. Things like that — not small changes, huge changes.

Why did the Western countries engage in this apparently counterproductive idea? Well, there may be some method in this madness. I can think of a few possible explanations:

1. Western Governments are in the hands of idiots who don’t know what they are doing and act according to the principle known as “I ran naked into a cactus. Why? Because it looked like a good idea.” They put into practice ideas that look good (“harming Putin”), without worrying about the consequences (destroying the European economy).

2. The price cap has the specific purpose of raising oil prices. It will force consumer countries to switch from the relatively cheap Russian oil to the more expensive American oil, which will become even more expensive in a near-monopoly regime. This will bring huge profits to American producers. Don’t forget that the American elites are convinced that the US oil resources are infinite, or nearly so.

3. The price cap is thought of as a way to save the US tight oil industry. So far, tight oil has been almost a miracle, bringing back the US to a position of dominance among oil producers. But it is now facing difficulties with oil prices declining in the world market. With higher oil prices, Europe will finance a new round of tight oil extraction in the US, while the profits will remain in the US. It sounds diabolical, and maybe it is.

4. There may exist a “hidden force,” somewhere, that’s acting with a plan at the global level. The plan involves a forced reduction of fossil fuel production and consumption to mitigate the damage generated by global warming or, perhaps more likely, to leave energy for the elites while taking it away from commoners. The recent events, the Covid crisis, and the Russian crisis, both have the effect of impoverishing some of the major consumers of fossil fuels, Western middle-class citizens, and so reducing overall consumption. The price cap on Russian oil may be just the first step of a new plan that will force Westerners to abandon for good their addiction to fossil fuels, whether they like it or not. 

It may be that all four of these factors are at work. In any case, it is a powerful convergence of interests that is materializing, likely to be successful in pushing the cap on Russian oil to worldwide acceptance. 

Considering how easily European citizens have been led to believe the most absurd things during the past two years, it is unlikely that they will understand what’s being done to them (and let me not use the appropriate words for the concept). Not that the American citizens will fare much better: the huge transfer of wealth from Europe to the US will go all into the pockets of the American oligarchs.