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Gas Prices: The Western Front

Gas Prices
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Miles Bennington

Operations Director, Chamber UK

When reading the history of wars, the outcomes can seem inevitable. Sensible historical narratives spring up to explain what has happened. The Allies of the Second World War held massive material advantage, the Viet Cong possessed political will to endure that the Americans and their South Vietnamese allies lacked, and Saddam’s tank heavy army had no answer for American air power.

Sadly, these narratives hold almost no predictive power. As the 20th century taught us time after painful time, the underdog can, and often does, win. The industrial might that defeated Germany was worthless against North Vietnam; airpower, so impotent in Vietnam was dominant in Iraq.

As Ukraine is showing us once again, the only way to conclusively decide who would win a war is to fight one. We should expect to be surprised.

Surprise

In this respect, the current conflict has not disappointed. Analysts have been left footed, first by the force and organisation of Western response. A divided West and compromised Europe united to bring some of the most comprehensive economic sanctions in history down on Vladimir Putin’s Russia shortly after his invasion. Following that, the tenacity and effectiveness of Ukrainian resistance to Russia’s rush for Kyiv clearly shocked the Russians but as Zelensky’s famous line “I need ammunition, not a ride” shows, it also defied his allies’ expectations.

We are now coming to terms with a third surprise of the conflict. Western sanctions appear to be less effective than anticipated. An embargo that it was hoped would provide an economic knockout, has instead resulted in an estimated painful, but not disastrous 6% reduction in Russian economic output according to the IMF. Worse yet, the reduction in energy supply from Russia, especially in gas which cannot be replaced on the European market, is causing massive economic blowback in the West.

Why we fight

In approaching this problem, it is important to recognise some hard truths. First, we are in a war. Obviously, Western and British forces are not fighting the Russians, and indeed should not be due to the risk of nuclear escalation, but this in no way diminishes the fact that we are co-belligerents with Ukraine.

The second is that this war is worth fighting. The taboo against using force to alter borders that has existed since the Second World War is a precious one to uphold. Much of the peace and prosperity we have enjoyed during our lives has flowed from the understanding that it is no longer acceptable for large countries to grow by attacking smaller ones.

The third and perhaps most painful aspect of this conflict that we must recognise is that it is political as much as it is military. The adding of Ukraine to Vladimir Putin’s empire will help his project little, the shattering of NATO and Western Unity is his strategic objective, and it is frighteningly possible.

The Western Front

The great threat to the unity of Ukraine’s Western allies is a shift in underlying politics. European leaders have for a long time vacillated on strategic confrontation with Russia. Energy dependence, the corruption influence of Russian money and a suspicion of American forthrightness on Russia are all threads that run through the European polity.

Now that the conflict is inflicting levels of inflation unheard of in forty years on relatively cosy economies and with fringe parties waiting in the wings all over Europe the incentives for either politicians to soften their stance on Russia in hopes of relief or voters to elect leaders who will, are massive.

The next test will in Italy on September 25th. Current opinion polls indicate that widely respected reforming Prime Minister and beacon of stability Mario Draghi could be replaced by Giorgia Meloni, leader of the “Brothers for Italy”, a party that can directly trace it’s lineage to Mussolini’s fascist party.

It is absolutely essential that Governments and leaders hold fast, manage the dangers of rising gas prices and see off rivals that could upset the political system.

Final thought

So what can leaders do to ensure a unified western front is upheld and tyranny is repelled at home as well as abroad?

Firstly, they need to communicate the threat that we face. Rising energy prices need to be linked to the war as Boris Johnson did this week. People must understand that their difficulties this winter are part of a larger struggle and one that is worth the cost.

Second, leaders in Government and opposition must be realistic about what can be done. Demand for gas is inelastic. People and organisations need power and heating. The European (including the UK’s) gas market is highly linked so price rises will spread and before the war Russia supplied as much as 40% of that gas. This is an enormous economic challenge.

Where possible demand for gas should be lowered, rather than more money sent to chase it. This will not be a simple process, some industry should be shut down over winter, energy use must be reduced wherever possible and alternatives (even environmentally damaging ones) must be brought online. 

Britain has for years applied the lessons of the blitz and Second World War austerity to all sorts of problems for which the analogy fails utterly, from public spending cuts to Brexit. In this case however the analogy holds and sadly, it is time we brace ourselves to our duty. 

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