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new world orders?


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The era of cheap energy is not around the corner. The implications of a price cap on Russian Oil are for higher energy prices rather than lower. Putin already has to sell at a discount to attract buyers. Gas prices in Europe can only remain elevated as supplies from Russia are limited, both by sanctions and the incapacity of Nord Stream 1 and 2. A lack of adequate infrastructure and capacity of adequate CNG terminals also squeezes supply. US gas is still more than half the price of spot EU. 

Putin was poorly advised indeed and massively miscalculated regards his fool's errand in Ukraine. New world orders will not cover old world profits, not for many, many moons (if ever). However, energy prices will likely remain elevated beyond the cessation of hostilities in Ukraine. Economic warfare will continue to cost. Putin will not be able to escape the bill for the wholesale destruction of Ukraine, not to mention the destruction of trust with his erstwhile European customers. He can probably kiss goodbye to all of those foreign capital reserves, which in all likelihood will become Ukraine's. This naturally benefits US gas suppliers, Qatar, Norway and any other exporter of non-Russian energy.

Oil is still likely in a bullish cycle, bad news for inflation, which is likely to remain persistently high. The target of 2% is most likely years away, mid 2024 at the earliest, despite the Fed and BoE's preference for a mild recession. This inflation is different, as it is not demand based but rather supply based. Central banks have less room to manoeuvre with supply-side inflation, unless they go gung-ho-Alan-Greenspan style into a 1980's type of recession, which is politically a bad move in the short term and particularly painful for those with considerable household debt (most of the population).  More likely this recent bout of inflation may well prove obstinate and sticky at 5% as the economic costs are settled from Covid and Ukraine. The plus side being savers actually are paid reasonable interest for depositing their savings in a bank. Conversely, all those individuals and businesses that are servicing debt will find their costs rise. Many with excessive leverage will go bust. Banks should do well in 2023. 

Irony being, despite a surfeit of Gas and Oil, prices are likely to rise into '23 as this cycle plays out, as the supply chain is squeezed through insatiable demand. New World Orders are unlikely to materialise for Lootin Putin and his cronies and China will extract ever larger discounts for their tacit support. Gas flows will have nowhere to go.  When trying to establish a new order, autocrats around the world (Putin and Xi) would be best advised to have all of their ducks in a row before declaring economic and real war on a "decadent" west and their allies. As plans rarely go to plan. Meantime, we all suffer the consequences of folly, famine and pestilence induced not by the omnipotent one, just ones who are convince they are. 




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