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Pump jacks drill for oil in the Monterey Shale, California
Energy: The revolution continues
Many experts have forecast the shale revolution will soon produce diminishing returns and overall production will begin to fall. Not so fast. The US Energy Information Administration reported on Tuesday that US oil, which set a record in 2023, will break that record in 2024 and again in 2025. That’s also true for dry natural gas production.
If we’d told you five years ago that in 2024, Europe would refuse to buy Russian energy exports in response to an invasion of Ukraine and that the Middle East would face a serious risk of regional war, you’d probably have predicted oil prices shooting to $150 per barrel. Yet, oil has recently settled into a tight trading range between $75 and $80.
What’s keeping the price lower? You know about the surprisingly weak oil demand that results from China’s tepid economic recovery. But it’s also a product of the extended life of the US energy production revolution.
This is not good news for those hoping a surge in oil prices would drive investment in green energy in coming years, but it’s heartening for those who fear the impact of higher energy prices on consumers and governments in both wealthy and developing countries.
Graphic Truth: Global fossil fuel subsidies on the rise
In 2022, the International Monetary Fund crunched the numbers and found that governments were spending a whopping $7 trillion on fossil fuel subsidies. The colossal sum spent on these grants and tax incentives was largely driven by the war in Ukraine and its ripple effect on energy prices. But it wasn’t an outlier; the trend had already been on an upward trajectory as economies surged in the Global South, which suggests it is likely to continue unless there is a global transition to green energy.
To put these numbers into perspective, government backing for fossil fuels represents over 7% of the world's GDP, dwarfing other crucial budget items like education spending, which amounts to a mere 4.3% of the global GDP.
According to the IMF, curbing these subsidies could not only realign humanity with climate goals but also save 1.6 million lives annually and boost government coffers by $4.4 trillion.
Russian reservists recruited during a partial mobilization of troops attend a ceremony before departing to the Russia-Ukraine conflict zone, in the Rostov region, Russia October 31, 2022.
What We're Watching: Russian draft goes online, abortion pill ruling, US inflation slows, Taiwan gets new presidential candidate, Biden bets big on EVs
Russia’s digital draft
If you’re a young male citizen of Russia, it just got harder for you to hide from the war in Ukraine. The State Duma, Russia’s parliament, approved legislation on Tuesday that allows the government to send a military summons online instead of serving the papers in person. The upper house swiftly passed it into law on Wednesday.
“The summons is considered received from the moment it is placed in the personal account of a person liable for military service,” explains the chairman of the Duma’s defense committee, though the Kremlin insists no large-scale draft is imminent. If the person summoned fails to report for service within 20 days of the date listed on the summons, the state can suspend his driver’s license, deny him the right to travel abroad, and make it impossible for him to get a loan.
The database that provides names of potential draftees is assembled from medical, educational, and residential records, as well as insurance and tax data. Thousands of young Russians have already fled their country. Many more may soon try to join them.
Abortion pill stays on the market, but access rolled back
As the battle over abortion medication continues in the US, a federal appeals court has ruled that mifepristone – a drug approved by the Food and Drug Administration in 2000 – can remain on the market until the full case can be heard, likely by the Supreme Court.
Still, the court – made up of three appellate judges all appointed by Republican presidents – ruled that mifepristone cannot be sent by mail and rolled back a 2016 rule allowing it to be used up to 10-weeks gestation, dropping it back to seven weeks. It also rolled back other measures enforced by the Biden administration to enhance access after the gutting of Roe v. Wade.
This decision comes after a Trump-appointed, pro-life judge in Texas recently ordered a temporary stay on approval of mifepristone. Less than an hour later, another federal judge in Spokane, Washington, ruled that the drug must remain available in 17 Democratic-run states plus Washington, DC.
Importantly, the appeals court appeared to back the government's view that taking an approved drug off the market that accounts for more than half of all abortions nationwide would have “significant public consequences.”
As expected, abortion rights are shaping up to be one of the biggest political issues in the country. In Florida, Republicans are trying to fight a recently passed law banning abortion at six weeks, pushing for an outright ban.
US inflation cools — smartphones FTW
Good news for American households as US inflation fell to its lowest level in nearly two years in March. Prices grew at an annual clip of 5%, according to the latest figures released Wednesday. That’s down from 6% in February, marking the ninth consecutive month of falling inflation.
The highlights? Well, if you want to do some shopping in the US, now’s the time to cop a new smartphone, which will cost you 24% less than a year ago. And that summer road trip is on – gas prices are down more than 17%. At the same time, we remain “yolked,” as it were, to the Great Egg Crisis of 2023 — prices are up more than 30% despite easing a bit since February.
More broadly, that headline figure of 5% is still more than twice the pre-pandemic norm, and core inflation — which excludes volatile prices for fuel and food — is running at a toasty 5.6%.
That’ll keep the US Fed in the hot seat as it meets again in early May. Will they raise interest rates once more in a bid to finish off inflation? Or will they stand pat, worried about tipping the economy into a recession?
Will this man become Taiwan's next president?
Taiwan's ruling Democratic Progressive Party on Wednesday nominated VP William Lai as its candidate in the January 2024 presidential election.
Lai is widely viewed as a stand-in for term-limited President Tsai Ing-wen, reelected by a landslide in 2020. That means a tough line on China, which has made Tsai a darling in the West and reviled by Beijing. Lai used to support Taiwanese independence openly but has since moderated his position to align with the DPP's: We don’t need to formally break with the mainland because we’re already de-facto independent.
It's unclear who Lai will face, since the opposition Kuomintang Party — which, officially, is not pro-China but favors closer ties with China than the DPP — has yet to pick its candidate. (Terry Gou, the billionaire founder of Foxconn, the Taiwanese company that makes iPhones in China for Apple, is mulling another run.)
The vote will be Taiwan's most closely watched presidential election since 1996, when the self-ruled island ended decades of authoritarian rule. China responded to the democratic vibes by flexing its then-weak military muscles … until the US made it back off. This time, though, expect major Chinese fireworks if Beijing's candidate doesn't come out on top.
Biden’s ambitious new EV proposal
The Biden administration has proposed a new measure that would sharply accelerate the American auto industry’s transition to electric vehicles, and not everyone is happy about it.
The draft marks a big shift from Washington’s current carrots-based approach to boosting EV production to one that relies more on sticks. It would require carmakers to derive 60% of their sales revenue from electric vehicles by 2030, or face penalties. Currently, under a 2021 plan, the target is closer to 50% and manufacturers are allowed to opt in only if they want to. Under that plan, a range of subsidies and tax breaks aimed to incentivize consumers and manufacturers to ditch dirty fuel guzzlers.
Carmakers are already pushing back, saying that changes to assembly lines and supply chains will be expensive and take years to implement. But the Biden administration says the necessary funds were included in the Inflation Reduction Act, which earmarked $31 billion in subsidies for EV’s and tax credits for EV manufacturers.
Expect this to become a heated political issue in the coming months. Texas, despite being a leading investor in EV networks, has sued the federal government over the current EV standards, arguing that they are an overreach that violates states’ rights.
Russian President Vladimir Putin
Russia’s economy (finally) feels the burn of sanctions
It took a little while, but Russia’s economy is finally starting to unravel thanks to hard-hitting Western sanctions, according to a new Wall Street Journal report.
For much of the past year, there has been a seeming disconnect between the state of Russia’s economy and the scope of punitive measures imposed on Moscow by the US and its allies. But the slow burn of sanctions – many of which only came into force over the past few months after lengthy negotiations among allies – is now finally being felt by the Russian economy.
High global energy prices during the first half of 2022 kept Russia’s economy afloat, and its gross domestic product dropped by a lower-than-expected 1.1% when many analysts had initially anticipated a sanctions-linked contraction of up to 15%.
What’s more, it took a while for Europe to kick its Russian natural gas habit. For the first six months of 2022, major European economies continued to pump money into Russia’s war machine.
Similarly, the G7 and EU price cap on Russian gas – a bloc-wide ceiling on the price of Russian gas bought by EU energy companies – only came into effect in Dec. 2022 along with the EU ban on seaborne Russian crude oil.
The US has now surpassed Moscow as the main supplier of crude oil to the EU. Consider that before the war, Russia accounted for around one third of the bloc’s imports, while the US trailed at 13%.
Consequently, the Kremlin’s energy revenue dropped by nearly half in the first two months of this year compared to the same period in 2022. The country’s budget deficit is also ballooning as the Kremlin continues to pump money into its military-industrial complex – and into that of its ally, Iran.
Meanwhile, brain drain as a result of talented Russian professionals gradually fleeing the Kremlin’s autocracy is also hurting economic output.
Even Russia’s political elite now say things are looking bleak, with oligarch Oleg Deripaska warning that the country could run out of cash by next year unless friendly countries step in to help.
China and India, meanwhile, continue to buy large quantities of Russian oil, though at a significant discount.
Podcast: European unity vs Putin, energy shortages, & economic pain
Listen: Europe is bracing for a tough winter ahead. An escalating Russia/Ukraine war has mobilized much of Europe to Kyiv’s cause, but it’s also rocked the region, bringing a plethora of economic, political, and social challenges that will last long after the war is over. How will the continent make it out of what looks to be a particularly bleak winter? On the GZERO World podcast, Ian Bremmer discusses all that and more with German diplomat Christoph Heusgen, who served as his country’s Ambassador to the United Nations and is now the Chairman of the Munich Security Conference.
Subscribe to the GZERO World Podcast on Apple Podcasts, Spotify, Stitcher, or your preferred podcast platform, to receive new episodes as soon as they're published.- Following Ukraine’s Crimea bridge attack, expect Putin to escalate "until he collapses" ›
- German Chancellor Scholz's controversial China trip ›
- Does the EU really have a foreign policy? ›
- The EU’s natural gas troubles won’t end after ditching Russia ›
- Europe’s Russian gas dilemma ›
- The Graphic Truth: Thirsty for Russian energy ›
Biden's gas prices woes
The Graphic Truth: Biden's gas price woes
Polls show US voters rank the economy as their No. 1 issue ahead of the Nov. 8 midterms. Many blame Democrats for today’s inflationary pressures despite a bid by the White House to dub increased prices at the pump as “Putin’s price hike.” But even before the Russian invasion of Ukraine sent global supply chains into a tizzy, Biden’s disapproval rating was way higher than he would’ve liked. We track the correlation between it and US gas prices since the beginning of the year.
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Venezuelan President Nicolás Maduro.
Why Washington is chatting up Nicolás Maduro again
You can isolate some of the oil-rich strongmen all of the time, or all of the oil-rich strongmen some of the time, but that’s about it these days, as Joe Biden is quickly learning.
Last week, it emerged that the White House is exploring ways to relax certain sanctions against the Venezuelan regime of Nicolás Maduro. Under a proposed deal, Washington would allow US oil major Chevron to resume exporting oil from the country while Maduro, for his part, would agree to restart talks with the opposition about free and fair elections.
As a reminder, a 2018 crisis brought on by Maduro’s repression and economic mismanagement drove millions of Venezuelans abroad. It also landed the country under “maximum pressure” financial and energy sanctions from the US, which were designed to squeeze Maduro — the heir to “21st Century Socialist” Hugo Chávez — from power.
Spoiler: it failed. Maduro and his cronies stuck it out, aided by a fractious opposition that squandered the confidence of its foreign backers. Now things are looking up for Maduro.
The Ukraine war is, of course, exacerbating a global energy crunch. And with the West seeking to isolate one oil superpower – Russia – Washington has had to look elsewhere for help bringing down prices.
Last week’s OPEC+ decision to cut production by 2 million barrels per day was a slap in the face to Biden. Washington had urged its eternal frenemies the Saudis to boost output to ease global price pressures and punch a hole in Vladimir Putin’s war chest. All of that has suddenly cast Venezuela, owner of the world’s largest oil reserves, in an even softer light as a longer-term option for getting more barrels back onto the market. The country once pumped as much as 3.5 million barrels daily before mismanagement and sanctions wrecked the industry. Today’s output is barely even 700,000 barrels.
And it’s not just the global context that’s changed, according to Risa Grais-Targow, a Latin America specialist at Eurasia Group. “The entire region is basically leftist now,” she says, “or it really will be when Lula wins in Brazil, so there's just no coalition there behind the US policy stance on Venezuela anymore.”
As if to underscore the point, Colombia, the US’ closest ally in the region, recently elected its first left-wing president, Gustavo Petro. One of his first steps was to reestablish ties with neighboring Venezuela, which his center-right predecessor had cut. (You can see GZERO’s full interview with Petro here.)
Would sanctions relief really change things in Venezuela? It would give the regime a fresh revenue stream, as Chevron has joint ventures with the state oil company, PDVSA. And signaling a thaw in US-Venezuela ties would help Caracas sell its oil to China and other Asian buyers at something closer to full price – for years, PDVSA has had to sell to them at knockdown rates over fears that the US might impose financial sanctions on any countries that buy from Venezuela.
What’s more, a deal could also lead to the US unfreezing some of the Maduro government’s funds pending a pact with the opposition to spend the money on humanitarian relief. Although the IMF sees Venezuela’s GDP growing 6% this year, it has fallen more than 80% over the past decade. More than a quarter of Venezuelans remain undernourished, according to the UN, and migrants continue to flee the country in large numbers.
Will Maduro actually make real concessions? A return to talks with the opposition probably isn’t hard for Maduro to agree to, says Grais-Targow. The bigger question is whether he’d really accept a free and fair election in 2024. Until now, the government has used all kinds of legal tricks to tilt the field in its favor, and the opposition boycotted the vote entirely in 2018.
Maduro is powerful but not necessarily popular. In regional elections earlier this year, opposition candidates did surprisingly well, even in some Maduro strongholds. In a truly free and fair vote – which the government hasn’t allowed in years – the opposition might stand a chance if it were able to unify behind a single candidate.
To underscore the point, earlier this week, after Venezuela’s opposition announced it would do just that in 2024, the president immediately announced that he might move the general election up to 2022, just to throw his opponents off balance.
All of that puts the question back in the White House’s court. How much is it willing to concede to a Venezuelan strongman who is suddenly approaching Tío Sam and the opposition from a position of relative strength? With the global energy crunch set to last for the foreseeable future, who really has whom over a barrel?
This article comes to you from the Signal newsletter team of GZERO Media. Sign up today.
Gasoline pump out of gas following the strike of the employees of the oil refineries in France.
What We’re Watching: French fuel fury, China’s next premier, Putin's offer
France’s striking oil workers
Two weeks into strikes by French oil refinery workers over a pay dispute, the government has ordered some striking employees back to work to get petrol flowing. Workers are demanding wage increases to offset rising inflation, and the strikes have taken more than 60% of the country’s oil capacity offline. While ExxonMobil workers reportedly struck a deal for a 6.5% wage increase plus bonuses, unions representing Total Energies employees are demanding a 10% wage increase. On Wednesday, the unions voted to continue striking, defying the summons. The right to strike is protected in France, but a minimum number of workers needed to maintain a public service can be ordered to return to work … or risk a whopping 10,000 euro fine ($9,700) and time behind bars. Although Macron is keen to avoid further disruptions to the energy sector, he must tread carefully. The price of gas is a sensitive issue in France – fuel costs and economic inequality sparked the Yellow Vest movement that brought the country to a standstill in 2018. The last thing he wants to do is fuel more demonstrations, and there are already protests planned for Sunday in Paris over inflation and proposed pension reforms. Given the global energy crisis, heads of state worldwide will be watching carefully to see how Macron navigates the situation.
China’s next premier?
China’s 20th Party Congress, which kicks off on Sunday, will make history with a definitive break from the model of collective leadership of the past four decades toward a political system in which one man, President Xi Jinping, dominates decision-making. But beneath the banner headline, there will be decisions made during the event that tell the world what signal Xi wants to send about his future plans for the country’s direction. One of the most talked about will be the choice of premier. The current occupant of that seat, Li Keqiang, is expected to retire next March. There appear to be two lead candidates to replace him. The first is Vice Premier Hu Chunhua, a capable party boss trusted more as a political loyalist than as a knowledgeable and talented economic technocrat. Another possibility is Wang Yang, a senior official who observers consider an economic “liberal,” an advocate of free-market reform. Xi will decide China’s policy direction, but the choice of premier might tell us whether he feels more comfortable with a party boss or with a candidate who has his own reputation outside China and who has favored a more open approach to economic policy.
What We’re Ignoring: Putin’s latest offer
President Vladimir Putin announced on Wednesday that Russia is willing to supply gas supplies to Europe via the Nord Stream 2 pipeline. That means opening a pipeline Europe has vowed not to use. This offer is the definition of a “non-starter.” From the point of view of Germany and other European importers of Russian energy, Putin has made crystal clear that Russia is not a reliable commercial partner. In addition, European fears of a brutal winter with acute energy shortages have eased as access to non-Russian supplies have already allowed inventories to reach 90% of winter storage capacity. The only outstanding question raised by Putin’s offer is whether he’s simply trolling Europe with an offer he knows they’ll refuse or if he genuinely believes European leaders might suddenly decide that he’s trustworthy.This comes to you from the Signal newsletter team of GZERO Media. Sign up today.