Germany Is Concerned That Nord Stream 1 Might Be Shut Down Entirely Following Maintenance Period

Europe is on edge as the Nord Stream 1 undersea natural gas pipeline running from Russia to Germany has gone offline for a 10-day maintenance period. Although European efforts to wean the continent off Russian fuel and energy continue, a large portion of Central Europe remains reliant upon Nord Stream 1. Austria, Italy and the Czech Republic receive gas by way of Nord Stream 1, and despite the European sanctions now in place against Moscow, Germany continues to obtain 30% of its natural gas from Russia. Until Germany and other European nations can remove the albatross from around their collective neck that is the dependence on Russian energy, Russia can use this to its advantage. In fact, it already is. Last month Gazprom reduced the westward flow of gas by 60%. The move sent energy prices surging and forced Germany to initiate the second stage of its emergency gas plan.

Naturally, German officials are becoming concerned Russia might use this pre-scheduled maintenance period to shut down the pipeline completely. Germany has been moving to fill its gas storage reserves by November to increase supplies for the winter. If Russia halts the gas flow entirely, a recession will become inevitable. This means the gas crisis Germany has been working hard to avoid will become a reality by the end of the year.  Think tanks in Europe have become serious lately, analyzing the data, modeling the situation, and drawing conclusions on the matter. Some conclusions are more realistic than others, at least in my opinion. But a consensus has emerged that for Germany to weather the coming winter with only non-Russian gas supplies, consumption will need to be significantly lower than it has been in recent years.

The German and Russian governments both realize this as well.

Ukraine Update 6 July, 2022

-The city of Sloviansk in the Donetsk region will be the next objective for Russian forces operating in the Donbas region of eastern Ukraine. Russian forces are closing on the city with units from the Western and Eastern Groups of Forces now just 10 miles from there. Ukrainian forces in and around Sloviansk are digging in and preparing for the enemy assault, which is expected to begin within two days. The city’s mayor has ordered an evacuation of all remaining residents. The effort to clear out Sloviansk began rather later than expected, partly owing to the widening gap between events on the ground and how they are being reported by the Ukrainian and Western medias. The articles and reports coming from a number of media groups and journalists are borderline pro-Ukrainian propaganda, based on reports from Ukrainian government officials and the military instead of facts.

-Revised forecasts by economists indicate Russia is heading towards a less severe recession than forecasters had originally expected. Rising oil production in Russia has done much to offset the economic sanctions put in place by the United States and Europe as well as by other nations around the world. It also speaks volumes for the degree of preparedness Russia had gone to in order to make its economy as sanction-hardened as possible.  In the months leading up to war there was a considerable amount of speculation that Russia’s economic security had been fortified to an extent. A fair number of US and European economists and analysts rejected the notion and continued forward with their belief that the weight of global sanctions would do severe damage to the Russian economy and deter Moscow from embarking upon a course of belligerence for very long.

It would appear they were wrong.

16 October, 2021: Brief Update on China and Taiwan

China’s energy crisis went from bad to worse on Friday with coal prices hitting another record high. With winter now on the horizon and high oil and gas prices forecast, China is now in talks with US LNG suppliers to secure long term contracts. Beijing has been moving frantically to turn the tide in China’s favor. Domestic coal output was raised, and supplies to industries that use high levels of coal have been cut. The current energy crisis is having a detrimental effect on the Chinese economy, which is also suffering from crises in sectors aside from energy. Monthly industrial production is weakening and the uncertainty surrounding Evergrande continues on. These factors weigh heavily on investors and the Chinese government.

Meanwhile, on the other side of Taiwan Strait, the Taiwanese government wants to accelerate the delivery of F-16 fighters. 22 aircraft were purchased in 2019 and normally it takes an average of seven years for the delivery to be completed. Given the recent surge in tensions with China, Taiwan has inquired about the possibility of an early delivery.

China’s Evergrande Debt Crisis

The debt crisis now threatening to overwhelm property developer Evergrande arrives at a decidedly inauspicious time for China. With the national economy continuing to slow, the prospect of an economic crisis centered on a Chinese entity is quite real. Global markets sense it and investors are preparing for the ripple effects. Last week, Fitch Ratings agency downgraded its forecast for China’s economic growth, citing the slowdown in the property sector as the prime contributing factor. Evergrande has been in trouble for some time now and its current problems did not arrive out of nowhere. In fact, alarm bells have been sounding for years over the state of the Chinese property market.

All eyes are focusing on Xi Jinping now as it becomes clear the Chinese government will likely have to intervene. To put it simply, Beijing cannot stand on the sidelines and permit a chaotic default where citizens lose large sums of money. Allowing that could cause a ripple effect in other sectors of the national economy, another prospect Beijing cannot allow. As a hedge against a worst-case scenario coming about, the Chinese government has ordered local officials to prepare for a potential Evergrande collapse. Local governments and Chinese-owned enterprises are being directed to intercede only if Evergrande is unable to meet its obligations. Some Chinese officials have described the measures as storm preparation.

How Beijing handles the crisis in coming days will set the tone for market behavior. If investors are encouraged by the way the Chinese government handles the Evergrande situation it will minimize the damage and perhaps instill a burst of positivity to China’s national image, which has absorbed considerable damage over the past 18 months.

Talking Turkey: 3 August, 2020

Turkey’s reach has been exceeding its military, and diplomatic means in recent months. Erdogan’s efforts to deepen its footprint in the Mediterranean, and Middle East is placing his nation in real danger of becoming overextended at some point in the not-too-distant future. The occupation of northern Syria, decisive intervention in Libya’s civil war, and seeking economic advantage in the natural gas-rich waters of the Eastern Mediterranean are the better-known Turkish adventures of late. There are others going on in places like the Horn of Africa, and in the Persian Gulf region too. Erdogan has been assertively going after perceived threats and enemies to Turkey, while simultaneously prowling after economic interests that hold the prospect of a jackpot level payout down the road.

Unfortunately for Erdogan, there are two factors coming into play which threaten to hinder, or perhaps entirely derail Turkey’s ambitions at some point. As mentioned in the above paragraph, Turkey is running a very real danger of overextending itself in the near future. The Turkish armed forces are stretched thin. Since the failed coup in 2016 Turkey’s military has lost thousands of capable officers to show trials, and purges. Operations in Syria and Libya are costing billions of dollars, and Turkish troops are taking losses in both places. In short, the Turks cannot afford a new military commitment now or in the near future.

The second factor working against Turkey’s regional ambitions is the absence of a clear vision. Ankara’s moves certainly haven’t been guided by ideology, or political alliances on the international front. This is where Turkish actions, and ambitions become confounding as it is working with its allies and friends on some fronts, while directly opposed to them on others. Syria and Libya are two prime examples. Turkey’s military incursions into Syria were frowned upon by many of its NATO allies. However, many of those same nation-states fully support Turkey’s intervention in Libya. In recent years Ankara has deepened the relationship between Turkey and Russia at a time when tensions between Moscow and the West has skyrocketed. The Turks committed to buying SA-21 surface-to-air missiles from Russia which forced the United States, to cancel the sale of F-35 Lightnings to Turkey.

Compounding Turkey’s burgeoning issues on the foreign front is the current state of the Turkish economy. Turkey is working to prevent a currency crisis in the face of economic turbulence brought on by the COVID-19 pandemic. That topic will be touched on later in the week as we hopefully have the opportunity to expand the discussion on Turkey.