For the purposes of today’s blog post, I am going to assume that Ukrainian forces will continue fighting valiantly, that the world is going to continue to provide them with what they need to carry on, and that the Russian military will continue to be bogged down. I am going to assume that this will remain an on-going war of attrition for months to come.
If the war continues as it is for another three months, what will happen to the price and availability of fuel, fertilizer, and food? What will happen when all three commodities become scarce and prohibitively expensive?
If the majority of the world continues not to buy Russian oil, this will put immense pressure on the infrastructure that the Russians rely on all the way from their oil fields, through their pipelines, to their ports. If the oil is not taken away from Western facing ports, then the Russians will have to begin to shut down all of the machinery that makes their oil industry flow. Assuming that Putin ends up having to shut much of Russia’s oil industry down, we can estimate that the world will lose at least three million barrels of oil production per day, and that it will take years of concerted international effort to re-establish Russian production. Consequently, if this war is still going on in three months, the world’s energy landscape will have already changed significantly.
Fuel has already become more expensive across the world. The northern hemisphere is entering spring, so demand for fuel for heating will go down, but demand for fuel for energy production and transport will remain high. Wealthy countries will be able to survive these price increases more readily than poorer countries, but the flow-on costs will be felt throughout global production and transport systems. Consequently, fuel will consume a higher proportion of everyone’s budget, reducing discretionary spending on everything else.
If fuel prices rise too far, the President of the United States can decide to stop fuel exports and cap prices. This would be good for reducing inflation at home and for rebuilding the U.S. economy, but it would create turmoil in global markets. Thanks to shale oil and natural gas, the United States can be energy independent and a net energy exporter. If the United States decides to go down this path, the entire world will get the signal that we are now in an era of every nation for itself, which Ian Bremmer outlined more than a decade ago. Any sense of shared humanity will be completely destroyed if the haves take naked advantage of what they have at the expense of the have-nots.
In the case of fertilizer, prices have already doubled in Australia and more than doubled in Africa. Without affordable fertilizer, farmers won’t plant as much ground, and planted ground won’t yield good returns. There will be less food in the world and millions of people will starve. In Africa, farmers will keep seed to eat, rather than risking an unsuccessful unfertilized crop. In Australia, farmers will plant only as much ground as they can afford to fertilize, which will reduce the future harvest at the time when the world needs more available food.
Ironically, Australia has the natural gas necessary to be fertilizer self-sufficient, or even a net exporter, but our leaders didn’t see the long-term benefits of Sovereign Capability in time.
If Australia had increased its Sovereign Capability years ago, we could now be increasing fertilizer production and sending it to poor farmers at a reasonable price, as well as making sure that we continue to be the successful food-bowl that the world needs. If we were selling fertilizer on the global market, we might have the extra money necessary to buy the more expensive oil we will need to run our farms.
Likewise, the United States could have used its abundance of natural gas to increase its fertilizer production and exports, instead of limiting fertilizer exports to the world that desperately needs them.
Countries are already beginning to report that they have less than ninety days of food left, and that they will not be able to afford the amount of food they need at higher prices. Between increased fuel, fertilizer, and food costs, poor countries and people will not be able to afford to buy what they need, and certainly won’t have money left to spend on discretionary items like health care and education.
Don’t forget that last time food was scarce and expensive, it directly contributed to the protests and riots that marked the beginning of the Arab Spring and the Syrian Civil War.
It is not just Ukraine that is unlikely to successfully plant and harvest crops this year. Many other countries and people will go hungry because of Putin’s war.
It is estimated that ten million Ukrainians have already fled their homes to escape the Russian invasion. The number crossing the border into the European Union increases every day. Now imagine what the refugee situation will be like in Europe in three months’ time, when the flow of hungry people from Africa and the Middle East increases in proportion with rising fuel, fertilizer, and food prices. What will the scenes on the Mexican-U.S. border be like when caravans of desperate Latin Americans discover that the United States doesn’t want to share its energy and food security?
Frighteningly, the two most populist countries on Earth are both at risk of famine and economic collapse if fuel, fertilizer, and food become scarce and more expensive. India struggles to feed its population in a good year, and cannot afford more expensive energy. The West wants India to step away from Russia, but the West can’t provide the food and fuel that India’s population need. India’s government is in the impossible position of having to juggle getting what their people need and getting along with the global order at the same time.
The Chinese Communist Party has spent decades believing that it can modernise and become a super-power on the back of low cost food and energy. In just one month the CCP has discovered that its plans for global dominance are based on an illusion of readily available and affordable resources. China can’t afford to buy expensive food and energy, and China’s customers soon won’t have sufficient discretionary funds to buy Chinese exports.
In short, the CCP’s model for growth and influence depended on Western globalisation, which has hit a wall and is in the process of falling to bits. The CCP might be able to buy and ship enough food from Russia to stop tens of millions of Chinese from starving to death, but it won’t be able to keep the cost of Chinese exports low enough to stop its economy from crumbling. One Russian oil pipeline runs to China, but they need at least one more to get enough oil to keep the Chinese economy turning over.
In three months’ time the cost of fuel, fertilizer, and food will be higher than they are today, which is higher than they were before Putin invaded Ukraine. In three months’ time governments and people across the world will be looking to buy cheap commodities, and to avoid social breakdown and political violence. Putin has the fuel, fertilizer, and food that the world needs, and access to these resources might provide his only way back from the brink.