It is interesting to note the relationship between energy prices, overall inflation and Mr. Putin’s aggression. Unless there is an outside force, the three seem to be positively related which means there could be one solution that would reduce all three. It turns out there is.
In 2008, the price of oil reached a record of nearly $150 per barrel. Inflation was held in check by the recession, but Putin invaded and captured Georgia.
The price of oil eventually fell to the $50 range but in 2014 the price reached $100. Inflation was held in check by the slowly recovering economy. Putin invaded and captured Crimea.
The price of oil eventually fell to under $40 per barrel but in 2022 it reached the mid-$90 range. Inflation shot up to 7 ½% as the shockingly irresponsible monetary policy made inflation worse. Putin invaded Ukraine.
Today the price of oil is over $115 per barrel and climbing, inflation is about to jump to double digits, the Federal Reserve’s shockingly irresponsible monetary policy continues to fuel more inflation and Putin is taking complete control of Ukraine. As the price of oil increases, Putin becomes stronger. And high energy prices mean more inflation.
As energy prices rise, inflation increases and Putin gains more revenue to become aggressive.
NATO and the US are in a very difficult position militarily. Since Ukraine is not a member of NATO, there is no obligation to intervene. But as the atrocities committed by Putin worsen, NATO and the US may change their view.
While most countries believe that none of their soldiers should be used to fight a war between Russia and Ukraine, the overwhelming view is that arms should be supplied so that the Ukrainians can defend themselves. It is a bit late, though still needed, at this point.
The US has sent just over $1 billion worth of arms to Ukraine. Considering that the US sent $85 billion of arms to Afghanistan to fight the ragtag Taliban army, the amount sent to Ukraine seems woefully inadequate. That’s especially true since the Russian army is one of the most powerful in the world.
Since sanctions have been put in place, the Russian economy is suffering but stays afloat due to oil revenue. There is currently some debate about sanctioning Putin’s oil. The problem is Russia supplies about 8% of the world’s oil, so a sharp reduction in market supply would cause gas prices to rise further.
There is a question as to how high the price would go. That’s difficult to determine, since there may be ways for Russia to sell oil through China. Also, the recent run-up in prices may be due to the market anticipating Russian sanctions.
It seems that a logical solution to all three problems would be for the US to dramatically increase oil production. That can be done relatively quickly if the Biden Administration just revokes the executive orders that were signed early in 2021.
By removing the counter-productive regulations, allowing drilling on federal lands and allowing drilling in Anwar off the coast of Alaska, new drilling could begin quickly. In the longer term, allow the Keystone XL pipeline to be built. Also providing some extra incentives to businesses to start drilling immediately would help.
Recall when the Trump Administration removed regulations and provided incentives to businesses, three vaccines to control a deadly virus were brought to market in less than 10 months, instead of the typical 3 to 5 years this process normally takes. These energy policy moves would have an immediate response on futures markets, which eventually translate to lower prices.
Admittedly, in the long term, the US increase in production would not make up for the loss of Russian oil on the market, but it would significantly reduce future revenue to Putin.
It would also signal that the US is committed to becoming energy independent and in fact, is willing to supply liquified natural gas to countries in Europe to lessen their dependence on Russian energy.
The environmentalists would have a problem because they want to lessen the use of fossil fuels. The response is that the industry will continue its work on producing oil as cleanly as possible. It should also be noted that the US produces cleaner oil than the countries that would make up the supply if the US maintained a lower production level.
Right now, national security is a higher priority than climate change. It’s that simple.
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