Sometimes the most important economic news goes unnoticed because it is far off in terms of geography or time, or both. This week we heard that Russia shut down its Nord Stream 1 natural gas pipeline which runs under the Baltic Sea to Germany, carrying up to 59.2B cubic meters of gas per year. According to the Kremlin, Europe’s primary natural gas pipeline will remain closed until sanctions against Russia are removed (not likely). The Kremlin also warned that Russia would retaliate over a G7 proposal to impose a price cap on Russian oil. That would be on top of a decision by OPEC & allies including Russia to cut oil production by 100,000 barrels a day next month. At first blush, it seems that this news is not a big deal for the US – especially as oil prices were down -4.5% this week somehow. But after a little thought, it is wise to consider that these European countries are our NATO allies, and this may suggest that we may have some obligations to provide Europe with even more liquified natural gas (LNG) and perhaps crude oil to compensate for this shortage. In other words, the US may have to share in Europe’s pending ruin. As 37% of electric power in the US is fueled by natural gas, sharing our resources may require some stark decisions about domestic energy consumption. Current economic conditions, including weakness in the housing market and auto industry (all of which is aggravated by punitive Fed rate hikes and California’s knee-jerk decision to raise the minimum wages for fast food workers to $22) pale in comparison to this possibility.
Publications
Understanding the Fed Fund Rate
The Ugliest House on the Block
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