Photo by Martin Adams on Unsplash

There are an increasing number of reports that Russia’s attempt to use gas exports as a geopolitical weapon have backfired.  Here’s Bloomberg:

Worse, Russia also tried to scare Ukraine’s friends out of the fight by wielding its brass energy knuckles, causing oil and gas prices to soar. But the West is now prying that weapon out of Russia’s hands, Clara Ferreira Marques writes, and will soon start bodying Russia with it. We’ve found workarounds for Russian energy; Europe is now swimming in so much gas it costs less than zero. Plus we’ve hurried up our embrace of renewables that will make Russia’s fossil fuels obsolete. And being deprived of foreign dollars and expertise will mean more of those fuels stay in the ground.

Another Bloomberg article discusses the long run implications for Russia:

Russia will never go back to fossil fuel exports at levels seen in 2021. Its share of internationally traded gas is seen shrinking from 30% last year to half of that by 2030. The country exported over 7 million barrels per day of oil last year, but the IEA estimates that falls by a quarter by 2030, even in the least-demanding scenario. By the mid-2020s, North America is exporting more oil than Russia.

I see two important lessons from this fiasco:

1. Most pundits (including some economists) underestimate the ability of markets to do a “work around” when the supply of a key good is restricted.  We often read that it is technologically impossible to do without X, and that it will take many years to ramp up the production of alternatives.  Recall that during Covid we were assured that it would take a long time to produce various quantities of vaccines, masks, Paxlovid, etc., and then production easily blew right by the pessimistic forecasts.  I am not suggesting that supply constraints are never a problem (Europe still faces some problems this winter), rather that we should be skeptical about claims of how hard it will take to circumvent those restrictions.

2.  Related to the first point, attempts to use trade restraints as a geopolitical weapon often backfire.  I’m certainly not an expert on high tech products, but we need to be careful that attempts to embargo China don’t result in China doing a Sputnik-type project to develop its own production of cutting edge technologies.  In a future crisis, what gives the US more leverage, a situation where the Chinese economy depends on sophisticated computer chips from Taiwan and the US, or a situation where China has developed its own industries (even if a bit less “first generation”) and has become mostly self-sufficient?

More By This Author:

The Real Problem In Britain
In One Way, All Recessions Are Alike
Persistent Inflation Is Always And Everywhere A Monetary Phenomenon