There’s been news of Russia planning to cut gas output to Europe starting in August. And Europe is scrambling to get its hands on gas and energy from anywhere. Amidst all of this, the only loser in the Russia-Ukraine war has been EU + Ukraine. The country that has always pushed for NATO expansion to Ukraine, The United States of America, is sitting pretty far away not caring about consequences and watching the USD get stronger against every currency in the world.
There are many aspects of this war that have played out that I think Europe has not thought about.
For one, currency valuation. Euro dropped below 1.000 compared to the USD for the first time in 20 years. That’s a signal of things to come and a signal of investors' confidence in the EU currency.
The Euro is at an all-time low (or so it seems) and that is partly because of the economic sanctions imposed by a third country on another country. It’s astonishing to see how much of an impact the United States of America can have on the EU economy.
With Russia threatening to cut gas, it won’t really cut off EU from gas altogether, but the threat is worth more for Russia. This makes it significantly costlier for Europe to procure gas and energy for itself at a time when it is clearly dealing with record heatwave. Without the adequate infrastructure to deal with such a heatwave, the people will obviously rely on Air Conditioning and other cooling methods - they require energy, electricity. And this comes at a time when the electricity is in high demand and short supply for Europe.
So is it all gloom? Not really? The world order is balanced on a line between the United States and China. If that line falters or moves a lot, then we have a situation on our hands. Russia is the younger brother of China and it is a prelude of things to come.
The energy war that is currently ongoing reveals just how difficult it is to hold a war in today’s age. It is no longer as easy as putting one country against other and using that to push your advantage. You have to understand that a war leads to financial losses, and that is mostly because we are so dependent on the USD. So a war, would essentially only be possible if we are to move to a non-USD reserve currency. And that’s easier said than done.
Will Russia cut gas?
This situation today is a classic case of two bullies looking at each other, daring the other country to try to make the first move. Well Russia has already made the move in a manner of speaking, but America knows its main rival is no longer Russia. The Dragon, the sleeping giant, is the main rival. Any deterioration in the US-China relations would have global repurcussions and it won’t be any good.
For American consumers, it would mean massive inflation and high costs. For China, it would mean a sharp drop in the Forex reserves, a sharp economic hit. Once again, the solution to this would be the creation of a different reserve currency, whether that comes in the form of the Russia Ruble, or more likely, the Chinese Yuan is still up for grabs. We are already seeing India spreading its economic wings, exporting UPI and presenting the Rupee as a potential bilateral economic powerhouse.
It’s not a bad bet considering the growth that India has shown and has potential to show in the upcoming years. The United States is staring at recession and no matter whether the Feds can actually contain it or not is irrelevant. The mood is set, it’s either going to be a recession or they will barely break above 0. Neither scenario speaks volumes of the confidence investors can have in the United States.
The world order is changing, which country will emerge at the top is still up for grabs. Changes in World economy orders are very rarely peaceful as it will most likely lead to a war, a real physical war that will determine the next century of development and world affairs.
Comments