Follow The War Money

Perhaps the most famous phrase from Watergate is, “Follow the money.” Despite the reality that it was never uttered in connection with that scandal it is good advice when trying to analysis political goings-on. I want to do a bit of that today.

I’m still not prepared to definitely predict how the war in Ukraine will end. The possibility, although I feel it is unlikely, that Putin will go nuclear does exist and that would be the ultimate game changer. It is much more likely we are headed for a protracted (and likely expanding) confrontation. If you follow the money that seems to be indicated.

I had been looking at the current US appropriations and spending about the time I took a hiatus. At $800 million a week, it wasn’t going to last too long. The US is the arsenal of democracy and that includes it being the largest funder. We have the greatest capacity; it is that simple. Recently President Biden asked Congress to come up with an additional $33 billion in aid which would probably extend our support for about an additional five months. (It could be less if the pace needs to be picked up which is possible. The war shows no signs of slowing down anytime soon.)

In addition to weapons, sanctions have been the other prong of attack on Putin. Sanctions are basically economic warfare. (That may be stretching it a bit but really not that much. Look back in history at the effect of oil sanctions against Japan pre-Pearl Harbor.) Their complete effect takes some time to set in but we already have evidence that, at minimum, they have gotten Putin’s attention. Again, this all centers around petroleum products.

Europe is largely dependent on Russian natural gas. A few years ago, the late John McCain described Russia as a, “Gas station with nukes.” That was a bit snarky, but not that far off the mark. Russia’s economy is almost exclusively dependent on the sale of petroleum products.
Recently Gazprom, which is Putin controlled and Russia’s largest petroleum firm cut off shipments of natural gas to Poland and Bulgaria (both EU and NATO member states). Natural gas is a global commodity but ease and cost of delivery vary. Also, all customers are not equal. In sales there is the 80/20 rule. It basically holds that a business or individual salesperson derives 80% of their income from 20% of their customers. Russia (in reality think of Gazprom and Russia as one) can afford to loose Poland and Bulgaria as customers. They are part of the 20%. I feel this was a warning shot designed for larger European customers, mainly Germany.

Now we must look at the cost of goods sold. Russia needs to sell natural gas in order to survive economically. If they loose Germany they will need to replace them and quickly. There are countries (think perspective customers) like China and India but selling to them would be much more expensive and they (especially India) will most likely not be willing to pay a premium price. There are pipelines to Europe and the gas can be shipped in gaseous form rather inexpensively and in massive bulk. No such pipelines from Russia to China or India exist. Therefore, the natural gas has to be liquefied and shipped via tankers in much smaller volumes. That is much more expensive than simply turning on a valve.

The economic game may well be one of who can last the longest. I don’t like Russia’s position in this one.

I urge Congress to quickly approve the $33 billion and be prepared for more requests like this in the future. Democracy is at stake and it’s not free.

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