To free ourselves from Russia’s blackmail, we risk another (historic) mistake

The West was closely linked to Russian gas and oil. Now it is turning (again) to the Middle East to increase crude oil production (and “cool” inflation) and to China for solar panels and infrastructure for alternative energy. But is this a good idea?

To free ourselves from the blackmail of the Russian bear, are we going back to building a dangerous dependence on others? Are the Middle East and China reliable in the long run?

These questions are topical in light of some news today.

Joe Biden he arrives in Saudi Arabia to mend a relationship that had broken down. Better to say, the relationship in crisis was that between Prince Mohammed bin Salman and the US democrats, who were very critical of abuses against human rights (especially after the assassination of the opponent Khashoggi in 2018). Donald Trump he got along well with Saudi leader MbS and their agreement had accelerated the thaw between Israel and the Sunni rulers of the Gulf.

Thanks to Putin, this is another case in which Biden recovers and re-evaluates a piece of Trump’s foreign policy.

Arabia is the most influential country in OPEC, the cartel of oil producers. In my latest newsletter Global (available every Saturday morning for subscribers) I explained that an alliance has been operating between OPEC and Russia for years. Biden must manage to get Riyadh away from Moscow to get more substantial production increases for oil and gas, in order to offset the (partial) embargo on Russian energy and thus bring prices down. America with 12% of the world’s oil is the top producer, but not big enough to set prices: hence the inflationary shock which also affects US consumers and businesses.

Furthermore Biden knows cooling expensive energy is the best way to bolster a troubled anti-Putin Western coalition.

Seen from a historical point of view, this trip to Arabia is a counter-move that brings us back to 1973. Almost half a century ago the West was the target of economic sanctions decided by the Arab world to punish us for our support for Israel during the Yom Kippur war. It was the first energy shock which was followed by a second when the Islamic revolution overthrew the Shah of Persia. Adding to other effects of Arab nationalism such as Gaddafi’s actions in Libya against Western oil multinationals, Europe drew a lesson from those events: the Middle East was unstable and unreliable as an energy supplier. This resulted in a push to build stronger ties with the then Soviet Union. It was an important geo-economic and geopolitical rotation, which saw the leading role of Germany.

Are we going back to the starting square now?

MbS’s bet on the modernization of Saudi Arabia partly reassures the United States that it sees real progress even on the civil rights front (see the status of Saudi women), on the model of what happened in Dubai. The new dynamic of relations with Israel helps. But since we don’t have the crystal ball it is impossible to know if one day we will not regret even this counter-turn geo-economic in favor of North Africa and the Middle East.

Another danger looming on the horizon is that of passing from dependence on Russian gas to dependence on China for renewables.

Solar, wind, electric cars: in all these sectors the West has little autonomy, made in China dominates. When the United States tried to react to the unfair competition of the Chinese photovoltaic panels which had caused many of their producers to fail, the result was not so much the rebirth of an American industry as the diversion of Chinese exports via Southeast Asia. So that now we import solar panels made in China but with the label made in Vietnam. So much so that Biden himself is forced to invoke special “war powers” to launch an industrial policy that contributes to the rebirth of local producers. Message to the European Union: the Old Continent suffers from the same problem, but its rules against subsidies and state aid are a formidable obstacle to the elaboration of an industrial policy that lays the foundations for energy independence.

The Summit of the Americas: this too becomes a test of the challenge between East and West. Mexico has announced that it will boycott this summit: and behind the threat also from other countries is the ancient diatribe over the exclusion of Cuba and Venezuela. It appears in a different light if we look at the sanctions map. Almost all Latin American countries refuse to participate in the embargo against Russia. Starting with the two largest economies, Brazil and Mexico, whose governments have an increasingly independent foreign policy from Washington. To understand the justification, one must look towards Beijing. For Brazil, the first economic partner is China, not the United States. The race that counts between America and China in 2022 is the one who does best in a soft-landing or soft landing.

The signs of slowing growth are multiplying in both superpowers. Most of America’s chief executives are very pessimistic. In Beijing, pessimism is forbidden in official speeches, but it transpires in decisions: Xi Jinping abandons caution, renounces plans to reduce debt and deflate speculative bubbles, relaunch public spending on infrastructure.

We are back to the challenge between models and systems: America for political reasons has taken its foot off the accelerator of public spending just as the crisis arrives, while China is once again practicing the directive recipe.

PS Welcome to this new appointment, on a frequent basis. I will propose my analyzes along the «East West» route from Monday to Friday, in written form or in short videos. Here, however, the link to subscribe to my newsletter, Global.


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