Winter is Coming

As I sit here baking in the hottest summer in Texas since the 1930s, I want to talk about winter.

Not as a metaphor for my generally gloomy themes, but actual winter - this coming winter.

Last week, I discussed the short term, measured in a few years.

This week, I want to talk about the short term, measured in months.

We are facing one of the most significant geopolitical milestones in our lifetimes.

Europeans, particularly Germans, are setting themselves up to freeze.

This game is complicated.

 

Because the West has not played / cannot play its sanctions cards properly, Russia holds all the cards. Russia is winning the war in Ukraine (for now - see the article, below) and winning the sanctions war with respect to oil and natural gas - at least for now, and there are no signs of any change in the short term. And, don't forget atomic weapons.

 

The progress of the game is critically dependent on how Russia plays its cards.

Europe, particularly Germany, is storing natural gas as fast as it can. Reductions from Russia can be partially mitigated by gas in storage.

We are shipping LNG as fast as we can, but LNG capacity on both ends, ability to ship and ability to receive, falls far short of what is needed.

So, some time this winter, depending on various factors, particularly how Putin plays his cards, Germans will begin to freeze and German industry will begin to shut down for lack of feedstocks.

Germany has been quietly moving away from the West and toward Russia politically for some time. Part of this is a result of its energy policy - deliberately relying on Russia, shutting down its nuclear plants, and increasing its reliance on green energy - and part is due to deteriorating confidence in the US. One of the most surprising outcomes of the Ukraine war was Germany's all-in support for Ukraine and Nato. 

But, withstanding a surge in inflation is different from actual physical discomfort and an economy shutting down.

At some point, probably this winter, Germans may have to decide whether, for their own personal and economic comfort, they will have to detach from the West and at least partially embrace Russia.

The implications of such a move cannot be underestimated. 

"World-changing" would not do it justice.

At the same time, shortages of food and energy, combined with misguided ESG policies, will cause riots in many countries, such as in Holland and Italy.

Germany's move toward Russia, if it comes, will cause other countries to recalibrate, geopolitically.

This winter, those of us in the US will probably experience increased prices and some shortages.

Much of the rest of the non-BRICS world, particularly Europe, and particularly Germany, could be shaken to its core.

Energy is life.

Russia has the energy.

And winter is coming.