Discover more from Learning by Proxy with Vivek Srinivasan
The supply of a lot of things is going to start to dwindle. What will we prioritise?
The global supply chain is a complex engine of interconnected relationships across the world. COVID disrupted that supply chain. This was made worse since different countries went into lockdowns at different points in time. The result was huge shortages across the globe for the most rudimentary things that we take for granted. The truth is that the shortfall of goods was in decimal percentage points or at most a percentage. With Russia, the shortfall is going to run into tens of percentages in certain cases.
With the current set of sanctions in place, there are a lot of things that cannot be bought from Russia. There are two main commodities that Russia exports which is going to cause much consternation are Natural Gas and Nickel.
America very mightily declared the end of Russian oil import. But the EU said it would reduce its oil dependence by two-thirds by the end of 2022.
The European Commission released a plan to reduce EU demand for Russian gas by two-thirds before the end of 2022, and completely phase out dependence on Russian fossil fuels "well before" 2030.
Oil from Russia accounts for roughly 3% of U.S. crude oil imports and about 1% of total crude oil processed by U.S. refineries, according to the American Fuel and Petrochemical Manufacturers (AFPM) trade association.
I wonder how America would respond if the aggressor was Saudi Arabia and they needed to cut off all of the oil flowing in from there?
Do you know the countries with the largest natural gas reserves in the world?
Europe consumers about 40 Billion Cubic feet per day of Natural Gas according to the EIA. So Europe’s next best option to replace Russia is Iran! Somebody, somewhere just said ‘Insha Allah’ out loud.
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Energy transition is a decades-long process. A 1GW solar plant can take up to 5 years to build if not more. Europe is left with a lot of bad options. Grandstanding aside, by the time they figure out the transition, this war will be over. If it is not over, we would be in the midst of another ‘European War’ which they like to brand ‘World War’.
Russia is also, the largest producer of Nickel. It produces about 16% of the world’s Nickel output.
The London Metal Exchange suspended the trading of nickel on Mar. 8 following a doubling in price in just two days to trade above $100,000 per ton. Mar. 8’s price was four times the price a week earlier.
Apparently, the 5 cent coin in the US now has 10 cents worth of Nickel in it.
Nickel is used in many specific and recognizable industrial and consumer products, including stainless steel, alnico magnets, coinage, rechargeable batteries, electric guitar strings, microphone capsules, plating on plumbing fixtures, and special alloys such as permalloy, elinvar, and invar. It is used for plating and as a green tint in glass. Nickel is preeminently an alloy metal, and its chief use is in nickel steels and nickel cast irons, in which it typically increases the tensile strength, toughness, and elastic limit. It is widely used in many other alloys, including nickel brasses and bronzes and alloys with copper, chromium, aluminium, lead, cobalt, silver, and gold (Inconel, Incoloy, Monel, Nimonic).
The stainless steel supply chain is the one that is most likely to feel the crunch.
China's stainless steel futures soared 12% to a record high on Tuesday, powered by sky-rocketing raw material nickel prices on supply concerns due to the Ukraine-Russia crisis.
The most-traded stainless steel contract on the Shanghai Futures Exchange, for April delivery, jumped to 22,125 yuan per tonne in the morning session - the highest level since its launch in 2019. They have soared around 24% so far this month.
Source: Times of India
Russia has stopped exporting Potash for fertilizer, so farmers in Punjab, India are unable to grow Wheat. Ukrainian Wheat may not make it to the market this summer. And Chinese ports are on lockdown for the next week due to the COVID surge (this has nothing to do with the war).
The longer this war continues, the second and third-order effects of this supply chain disruption will become more and more obvious.
Amongst the things that require stainless steel to make are Guns and Surgical Equipment. Do you know which one will be prioritised in the US?
The House on Wednesday passed a sprawling $1.5 trillion federal spending bill that includes a huge infusion of aid for war-torn Ukraine and money to keep the government funded through September, after jettisoning a package to fund President Biden’s new Covid-19 response effort.
Source: New York Times
Say “War” and USA will always find the money. The video below was shot 30 years ago and it was a comedy show. I do not think anyone in the world has provided a more succinct analysis of US foreign policy.
If you want to watch the whole video you can download it here.
But the exclusion of the $15.6 billion pandemic aid package, amid disputes about its cost that threatened to derail the broader legislation, infuriated the White House and frustrated Democratic leaders, leaving the fate of the Biden administration’s coronavirus strategy uncertain.
Instead, the spending measure was fueled in large part by strong bipartisan support for a $13.6 billion aid package to help Ukraine as it endures a brutal invasion by Russia, and by the determination of Democrats to finally see their funding priorities enshrined in law more than a year after Mr. Biden took office.
Source: New York Times
I suppose preserving the world order is more important than healthcare or education or the poor.