Oil is a weapon that kills governments

The economic storm caused by the invasion of Ukraine does not abate. In a way, it has just begun. All war-related news has a negative impact. Governments like the Spanish are losing control of events in the face of the progressive increase in the price of raw materials and energy sources. In the measures that they can take to punish Russia for the invasion, it turns out that they too will have to pay a considerable part of the economic bill. Now more than ever it is important to get the answer right, but politically it is no less important to assign blame.

Finally, European governments agreed this week to end most of Russian oil imports, except for that which arrives via pipeline to countries such as Hungary and Slovakia. The adoption of the veto has been stopped for now for the opposition of the Hungarian Viktor Orbán to include the patriarch of the Russian Orthodox Church in the sanctioned list. The sixth round of sanctions aims to annul the main source of financing for the Russian state and therefore for its military machinery. Some 45% of Russian budget revenues come from oil and gas exports. What everyone knows is that the EU's decision will probably contribute to increasing the price of crude oil on international markets.

A recent Bank of America report states that Russian crude production has been reduced by one million barrels per day in 2022 because of the war. Many countries are reducing their purchase. It calculates that from a total of 11.4 million daily in the first quarter of this year, it will go to an average of ten million in 2023. That would be the limit from which a global recession would occur. "We believe that a sharp contraction in Russian oil exports would trigger an oil crisis similar to that of the 1980s and that Brent crude would exceed $150 a barrel," the report said.

In recent days, Brent oil has moved around 118 dollars per barrel. That has already caused a record increase in fuels in the US and Europe, which is one of the factors, along with electricity, that have caused the increase in prices. Inflation is a real threat on a global scale. The fact that Spain is not the most affected country – it is the eleventh country with the highest inflation in the eurozone – is not a consolation for the purchasing power of households.

The average price of gasoline in the US has exceeded the $4.6 per gallon (one gallon equals 3.7 liters). From four dollars, it usually becomes a serious problem for the White House. In California, it's over six dollars. Joe Biden's plan B was to ask Saudi Arabia for an increase in production. Until now, Riyadh has responded with denials or not taking the hint. Biden's personal relations with Prince Mohamed bin Salmán are not good at all. When he came to power, the US president refused to accept calls from the kingdom's de facto ruler over his probable involvement in the murder of journalist Jamal Khashoggi. To get Putin to stop, he needs the help of a somewhat unsavory partner in the heir to the Saudi throne.

Biden plans to hold in June a visit to Saudi Arabia and he will probably insist to Bin Salman on the importance of exporting more oil to reduce the price of a barrel somewhat, which in turn will also hurt Russia. He is going to have to bow his head without being sure that the Saudi prince accepts his demands, which he had already rejected at the end of 2021 when inflation began to be a real problem. The OPEC countries have formed OPEC Plus with Moscow and other countries that are not members of the organization to control the entire market and thus prevent a collapse in prices like the one that occurred in 2014. It is an alliance that they are interested in maintaining.

Spain receives from Russia 4% of the oil it imports. It has plenty of alternatives to fill that gap. Pedro Sánchez met on Wednesday in Moncloa with Muhammadu Buhari, president of Nigeria, Spain's leading supplier with 19% of total crude oil imports and also a major gas exporter. Two weeks ago, he received the emir of Qatar, one of the world's largest gas exporters. It is time to knock on all the doors to ensure the energy supply.

The problem that does affect Spain is the price of these raw materials regardless of their origin. Nobody is free there. Sánchez has announced the extension of the aid plan in response to the crisis that ended on June 30, which includes the bonus of twenty cents for each liter of fuel or the reduction in taxes on electricity. He practically had no other choice. The Government has not yet given a clear answer to suspicions that service stations have been raising prices in such a way that the value of that help has been diluted.

The speech that Sánchez gave on Wednesday to the deputies and senators of the PSOE was clearly triumphant about the balance of his four years as president since the motion of censure. He insisted on the idea that it is necessary to offer an optimistic message in a period of maximum uncertainty that will last for a long time. Few governments have survived throughout history by selling pessimism. The question that remains is how long public opinion will endure a permanent state of war with damaging economic consequences. It is the same question that Macron, Scholz and Draghi are asking themselves right now.

In its propaganda, the Russian government is counting on the time when European governments will not be able to sustain their massive military aid to Ukraine and will ask Moscow for a negotiated solution that takes into account their interests. Throughout this crisis, Vladimir Putin has failed in almost all of his predictions, firstly regarding the resistance capacity of the Ukrainians and then regarding the union of Europe and the US in the response. This week's Russian oil embargo is another defeat of his expectations. But in this war of attrition no one is going to come out unscathed.

"If we looked the other way, the cost would be higher," Sánchez said in Brussels to justify the EU's decision. Now you really need a "resistance manual" to overcome the worst situation that Europe has suffered in many decades.

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