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Elements: Putin, Natural Gas and Democracy – The Washington Post


Hi, I’m Liam Denning and this is the first edition of Elements, Bloomberg’s daily energy and commodities newsletter. It will mix commentary from myself and other Bloomberg Opinion writers with the best of our market-leading news coverage. We hope you enjoy it. And if you haven’t yet signed up to receive this email every day, you can do that here.

Today’s take: Putin aims energy weapon at voters

An aficionado of judo, Russian President Vladimir Putin likes to turn his opponents’ strengths against them. In his energy war with the nations backing Ukraine, he can take advantage of a defining strength of the West: democracy. 

Having denied Putin a quick victory, Ukraine is embroiled in a grinding war, relying on Western aid. The US and allies have also begun to slowly implement sanctions on Russia’s vital energy exports. Rather than wait around, Putin has weaponized them already. Reduced gas flows (with warnings they may drop further this week and heavy hints of outright cutoffs) have raised the prospect of idled factories and frozen homes across Europe this winter.  The war has already fueled a spike in energy prices hitting consumers around the world.

Putin’s hope is that the pain will cause Ukraine’s backers to tire of this war. Russia may face its deepest recession since 1994, but Putin is unlikely to pay a political price anytime soon. In contrast, Western governments must balance the need to defeat Russia with the demands, and stamina, of their electorates.

On that front, Putin may be encouraged by events of late. Last week, Mario Draghi’s coalition collapsed in Italy. Over in the UK, Conservatives are busy selecting Prime Minister Boris Johnson’s successor after his resignation. French President Emanuel Macron lost his parliamentary majority last month as far left and right parties made big gains. In the US, governing Democrats can probably expect big losses in November’s midterm elections.

While the specifics of each case are different, the higher fuel prices spawned by Russia’s war — exacerbating existing post-pandemic economic pressures — certainly haven’t helped in any of them. Energy price spikes tend to puncture political careers, be it Macron’s clash with the gilets jaunes or President Joe Biden’s poll numbers, and the green agenda, faltering in the face of high inflation.

A long conflict would demand sacrifices no elected politician really wants to talk about; several European countries have already swatted down proposals for coordinated gas rationing (see below). For Putin, the energy weapon offers a way of pushing the West’s electorates to take down their own leaders.

—Liam Denning, Bloomberg Opinion

At 4.4%, energy’s share of US disposable income is still much less than during the energy crises of the 1970s or when oil prices peaked in 2008. However, the rebound from the depths of the pandemic has been so rapid that Biden and his party may pay a steep political price anyway.

The UK power grid was forced to pay record amounts to avoid a large blackout in London last week. The crisis shows the growing vulnerability of energy transportation networks across much of the industrialized world after years of low investment and not-in-my-backyard opposition, Javier Blas writes in his latest Bloomberg Opinion column. 

Wheat jumped after Russia’s weekend attack on the seaport of Odesa raised concerns about its deal to release millions of tons of Ukrainian grain needed to boost global food supplies. The assault serves as a stark reminder of the risks for shippers and insurers as Russia’s war rages on. 

Germany’s natural gas storage levels are rising again after Uniper SE stopped tapping the fuel from reserves, according to its Federal Network Agency. Even so, European natural gas prices rose for a fourth consecutive session with little clarity on future pace of flows through the vital Nord Stream pipeline.

European Union countries, meanwhile, are considering revisions to a plan for reducing consumption for gas through the winter, after some governments demanded more flexibility.

China’s Covid restrictions continue to roil the economy. Companies  including iPhone maker Foxconn and oil producer CNOOC Ltd., are being forced to operate within a “closed loop” restricted system for seven days as the southern manufacturing hub of Shenzhen.

• Monday: The trial of ex-JPMorgan gold traders continues in Chicago

• Tuesday: EU energy ministers hold an emergency meeting in Brussels

• Wednesday: Mining giant Rio Tinto reports first-half earnings

• Thursday: Shell kicks off what’s certain to be a bumper earnings season for the oil majors

• Friday:  Exxon and Chevron post their results

The New Yorker got its hands on the Buzz, the hotly anticipated electric version of that icon of 1960s counterculture, the VW Bus. It’s a trip.

In a fascinating, and sometimes chilling, Columbia Energy Exchange podcast, gas and Russia experts Anne-Sophie Corbeau and Tatiana Mitrova explain why Europe faces a harsh winter as Putin unleashes the energy weapon.

The Economist’s Charlemagne gently savages Germany’s energy delusions. This week’s edition also carries a special report on fixing ESG.

You’ve heard of the Strategic Petroleum Reserve, but California has set up a strategic electricity reserve. What’s that? UC Berkeley’s Energy Institute at Haas has some answers (and questions).

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Liam Denning is a Bloomberg Opinion columnist covering energy and commodities. A former investment banker, he was editor of the Wall Street Journal’s Heard on the Street column and a reporter for the Financial Times’s Lex column.

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