The two major types of geopolitical upheaval: Perforations in personality politics and swells of social unrest. This week has both, in spades. First, a wave of attacks – some literal some figurative – on lynchpin political figures. On Wednesday, the OPEC secretary-general Mohammad Barkindo died unexpectedly, at a time of volatile energy markets. On Thursday, Boris Johnson resigned after a historic Tory revolt in which nearly 60 members of his government stepped down, leaving the UK with a lame duck government (though Johnson maintains that he will stay on as a caretaker leader while the Conservative Party identifies a successor). And on Friday, former Japanese Prime Minister Shinzo Abe was assassinated. Though Abe retired in 2020, he had remained a critical player in Japan’s domestic, and international, affairs.
Meanwhile, surging energy and commodity prices, as well as interest rates, compounded by and compounding a quarter-trillion-dollar pile of distressed debt, threaten to push the developing world into a cascade of defaults and social upheaval. In Sri Lanka, unrest and political chaos driven by impossible fuel and food prices have already led to default. Now, protests have broken out in Libya over rising prices and chronic power cuts – and El Salvador, Ghana, Egypt, Tunisia, and Pakistan are all teetering on the edge of default. This is the type of economic and social disruption that promises cascade effects. The added twist: Potential restructuring deals for countries in need of debt relief hinge in large part on China.
Crude prices are down just over 3 percent for the week, and 13 percent for the month; US national average gas prices are back well below 4 dollars per gallon. But as with the metals meltdown in recent weeks, the drop in crude seems to be more blip than trend. Fundamentals of the energy market have not changed: The Russia-Ukraine war is dragging on, continuing to wreak havoc; supply growth from the US is slow thanks to years of underinvestment; and Europe may have to rely more on oil as natural gas supplies remain short.
And don’t underestimate the significance of this natural gas squeeze. Thanks to Russia’s invasion of Ukraine – and black swans like the recent fire at a Texas LNG facility – prices of the fuel are up by some 700 percent in Europe since January 2021. In Germany, these surging gas prices are already wreaking acute economic havoc: Chemical giants have cut output, a utility firm may get bailed out, and a recession is looming. Asia isn’t spared, either: Surging gas costs have caused blackouts in Pakistan and energy curbs in Thailand (no small strain on social stability). And this all before Europe enters winter with gas reserves well below the mandated 80 percent minimum.