One thing we learn from our Prime Minister’s pilgrimage to Riyadh to prostate himself at the feet of the beheaders, is that the Atlantic Alliance countries had failed to do even the slightest amount of planning before their episode of sanctions diarrhoea a fortnight ago. Even an eight-year-old could have worked out that if – at a time when you already have an energy crisis – you sanction a country from which Europe imports 27 percent of its oil, 47 percent of its coal, and 41 percent of its gas, you might need some alternative source if you are to avoid an economic meltdown. But no, it turns out that there was no Plan B. And so, US president Biden desperately tried calling the OPEC states in the Gulf, only to be rebuffed – they refused to take his calls, forcing him to go cap in hand to Iran and Venezuela instead. Meanwhile Johnson was packed off to see if the Saudis might at least give him a hearing.
Pretending that post-Brexit Britain is not affected because we import very little oil and gas (but a lot of coal) from Russia is simply disingenuous, because we still have to buy fossil fuels from a competitive market. If the price goes up for Europe, the price goes up for the UK too. To avoid a prolonged energy crisis, Johnson simply had to persuade the Saudis to turn on the spigots and get another five million or so barrels of oil a day flowing from there old – and likely very depleted – wells. Beside some lavish hospitality and a few photo opportunities though, Johnson has returned empty-handed. As Tory sycophant Laura Kuenssberg at the BBC reports:
“But whatever weird and wonderful events take place, foreign trips often fail to secure the ambition that was publicly touted before anyone left home. In this case, Boris Johnson leaves the Middle East without any guarantees that energy producers are suddenly going to allow more oil and gas to flow West.
“There were discussions, agreement he claimed, on the importance of a stable energy supply. He said that Saudi Arabia had expressed an interest. But concrete public commitments came there none, beyond a general agreement that the two countries will work closely together, and one specific announcement about investment going to green energy in north-east England.”
The energy crisis – which began long before most people learned that Ukraine was a thing – will rumble on, as the energy-hungry states of North America and, especially, Europe are forced to bring their economies into line with a much-depleted energy supply. Most likely through a growing number of sudden business collapses in the discretionary sectors of the economy as consumers are obliged to divert more of their spending to essentials like food and fuel.
Important as it is, the energy shock is far from the only consequence of sanctions which is set to boomerang, particularly upon Britain. While UK media outlets were busy reporting Johnson’s Saudi energy talks, the Saudis slipped out another announcement which threatens to bring utter ruin to the UK economy. According to the Wall Street Journal, Saudi Arabia has accelerated negotiations with China to trade oil in Yuan.
So what? The average BBC viewer or Guardian reader might say. How does China buying oil for Yuan affect workers and households in Birmingham, Sheffield or Milton Keynes? Philip Pilkington at UnHerd is one of very few western journalists to grasp the seriousness of the announcement:
“Today around 80% of oil contracts are transacted in dollars. This has given rise to a phenomenon called ‘petrodollars’, which are dollars bought to engage in oil trade and act as a sort of backstop on the value of the American currency…
“If the Chinese manage to convince the Saudis to sell them oil in renminbi, then, if we also include Russia, countries that produce nearly 30% of global oil contracts will be open to renminbi contracts. If we include Iran and Iraq that number rises to just over 38%. Smaller oil producers will likely follow suit.”
As Pilkington notes, this is not a complete knockout blow to the USA:
“The US dollar does not get all its value from petrodollars — it is also propped up by Chinese purchases of treasury bonds and global purchases of US stocks — but petrodollars are seen as a buyer of last resort.”
Since the American economy still contains a significant manufacturing base, its bonds – though greatly abused in recent decades – still have some material reality behind them. As a result, while Americans may have to get used to a significant cut in living standards, a decline in the value of the dollar will result in their goods being cheaper on world markets, allowing them to at least compete with the Asian states. Britain is, in contrast, far more vulnerable as its modern economy is an elaborate version of every other failed oil state. The once-and-done North Sea oil boom in the 1980s and 1990s drove the pound to levels which rendered UK manufacturing uncompetitive. During the 1980s Britain’s manufacturing base was either closed and demolished or offshored to one or other of the emerging “Asian Tiger” economies. At the same time, the bankers in a newly deregulated City of London were able to embark on the debt-based Ponzi scheme which almost came to grief in 2008, and which has been on central bank life-support ever since.
The trouble is that the North Sea peaked in 1999 – it would have peaked earlier but for the Piper Alpha disaster. And when the UK became a net importer of oil and gas in 2005, our economy lost a crucial source of the dollars required to pay our way in the world. This is a particular problem in an economy – like the UK – where over a quarter of the workforce is employed to sell imports, and where most manufacturing is merely the final assembly of imported components, which somehow have to be paid for… and crucially, payment cannot simply be in a domestic currency which can be infinitely inflated. In the absence of oil, and lacking sufficient manufacturing, the only way that the UK can pay its way in the world is by using trust in its banking and financial services to attract the right kind of foreign currency; until now, that is, US dollars.
In the years since the Second World War, and particularly since the creation of the petrodollar, the main way in which the UK has secured its dollars is via the network of private offshore tax havens through which dirty dollars are laundered (which is why, incidentally, while politicians will talk about curbing tax evasion, they will never actually do anything). Britain famously became the place where dictators, Soviet era officials, Arab oil Sheiks, Chinese bureaucrats and Russian oligarchs came to invest their ill-gotten gains – crucially, keeping them away from the USA where they might be sanctioned and impounded.
This is why the confiscation of everything from yachts to football clubs which your Russophobic social media friend has been whooping with joy about, is about to have some seriously negative consequences for millions of people here in the UK. The problem is not so much that the UK government has confiscated the wealth of billionaires – there is a good moral case for broadening the approach to include western billionaires too. Rather, it is because the City of London Ponzi scheme depends ultimately on trust. And while it is currently Russian billionaires who are suffering, foreign investors from around the world now understand that London is no longer a safe place to park wealth.
This has two immediate effects. First, and very quietly for now, foreign investors with assets in the UK are selling or swapping them. Second – and more worryingly – people who would have otherwise have bought assets in the UK – exchanging dollars for pounds in the process – have been chastened, and may well follow Saudi Arabia, Russia, India and Brazil into a new, gold-backed Yuan system instead.
This sounds technical, but the bottom line is simple enough. With insufficient foreign exchange, the British pound will devalue. That means we will all be paying a lot more for imports – which includes the food we eat and the energy that powers everything. If it arrived here on a train, plane or ship, then it is about to get a lot more expensive. So much so, of course, that we are likely looking at a depression on at least the scale of the Great Depression of the 1930s… except this time around there will be no switch to a higher density energy source (coal to oil) to provide another half-century of exponential economic growth.
One way or another, the rising energy cost of energy was going to crash our way of life anyway. Ever since the 1970s, there has been the possibility that our economic collapse might be carried out in a managed way so that, for example, we avoid mass hunger. But the decisions made by our intellectually bankrupt technocracy, and cheered on by a nation of social media fools, over the past six years – starting with the mismanagement of Brexit, followed by the crushing of the economy via Covid lockdowns and restrictions, and now with a package of sanctions that will hurt us far more than the Russians – have now set off a cascading collapse of western civilisation.
As you made it to the end…
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