Ukraine Update: Ukraine-fatigue Is Setting In Around The World, Says British PM

British Prime Minister Boris Johnson on Saturday stressed that the public needs to keep up its support of Ukraine after nearly four months of war.

Media reports said:

“The worry that we have is that a bit of Ukraine-fatigue is starting to set in around the world,” Johnson told reporters on the back of a trip to Kyiv. “It is very important to show that we are with them for the long haul and we are giving them that strategic resilience that they need.”

Johnson on Friday made his second surprise trip to the Ukrainian capital. The British government, in a show of support, offered Ukraine a military training program that could train up to 10,000 soldiers every 120 days. Johnson’s office said it would “fundamentally change the equation of the war.”

War In Ukraine Could Last Years, Says NATO’s S-G

War in Ukraine could take years, NATO Secretary General Jens Stoltenberg told a German weekly newspaper, adding that the supply of state-of-the-art weaponry to Ukrainian troops would increase the chance of liberating the Donbas region from Russian control.

“We must prepare for the fact that it could take years. We must not let up in supporting Ukraine,” Stoltenberg told Bild am Sonntag. “Even if the costs are high, not only for military support, also because of rising energy and food prices.”

Card In Putin’s Hand

A Time report — Putin Still Holds The Cards When It Comes to Global Energy — said on June 18, 2022:

The much lauded Transatlantic unity against Russia’s war in Ukraine has failed either to save Ukraine or hobble Russia.

It said:

Energy is the most potent weapon in Putin’s reach. He is using it.

Before Russia invaded Ukraine on Feb. 24, common wisdom held that the energy superpower and the rest of Europe were in a mutually codependent relationship. The logic was that Russia could not afford to lose the European energy markets for its exports any more than the E.U. could afford to lose Russian oil and gas imports. Russia is dependent on Europe buying its oil and gas and coal for 60% of its revenues, 45% of its budget, and 14% of GDP; $430 billion/year. The E.U. is reciprocally dependent on Russia for 40% of its natural gas, 27% of its oil, and 45% of its coal. Win-win, or rather, lose-lose.

This balance had functioned essentially as a suicide pact — mutually assured economic destruction if either side tried to break free. Things have changed. Having belatedly realized the strategic and very real vulnerability born of energy dependency on Russia, Europe is now trying to win the ensuing standoff. More accurately, most of Europe is trying to break free of Russia’s energy dominance, but it got to the duel late and its pistol has jammed. Russia has gotten off the first shot.

The Time report said:

An E.U.-wide embargo agreement proved impossible. The U.S. even agreed to maintain a sanctions carve-out through December 5, 2022 that will allow European companies to continue processing payments for Russian oil. Nonetheless, European Commission President Ursula von der Leyen assured the world that despite the narrow scope of the compromise ban it would be “an important step forward.” She promised 90% of Russian oil imports into the E.U. would be cut by 2024. In part, this is because approximately 67% of crude oil imports are seaborne. Getting to 90%, however, requires counting Poland and Germany’s non-binding pledges to voluntarily stop buying Russian pipeline oil by the end of 2022. This is probably a fantasy.

It said:

Europe has paid Russia approximately $63 billion for energy imports just since its invasion of Ukraine. And it is natural gas, not oil, where the Kremlin has the most clout and thus the most to lose from a European embargo, but despite ongoing negotiations Europe seems incapable of taking the hard steps toward severing its gas dependency on Russia.

It said:

While Europe has struggled to get its sanctions footing, Putin has taken retaliatory initiative.

It added:

Putin’s logic may be that although severing energy supplies to Europe will hurt Russia, it will likely hurt Europe more if he can land the first blow. European gas storages are below average for this time of year at 52% full. With Nord Stream 1 running at its current 45% capacity, analysts calculate that European storages will not exceed 69% by November 1, 2022. This will put the continent in a dangerous position in early 2023 if the winter is cold, and alternative fuel sources are scarce.

More immediately, a heat wave in Europe has increased power consumption, which has combined with post-invasion market volatility to send natural gas prices soaring. Prices in Europe further spiked on June 16 from the shock of Gazprom’s export reduction announcement. Italy is considering declaring a state of “alert” that would allow it to ration natural gas distribution. Other countries will have to follow suit.

A series of mishaps, maintenance issues, and crises around the world have exacerbated the situation, further restricting supply while increasing consumption. For just a sampling: A Texas LNG terminal explosion has reduced capacity at a facility that was shipping 20% of U.S. exports. The Schwechat refinery in Austria suffered damage on June 3. The U.K.’s Fawley refinery had a fire on June 6, amid labor strikes. A May 28 fire at France’s Donges refinery has kept it offline. A Romanian diesel facility only recently came back online after a long repair, and the Dutch Pernis refinery is slowly coming back to life after its own repairs. Maintenance is planned for refineries all over Europe in 2022 and 2023.

The result is profound energy insecurity that keeps Europe from taking a firm stand against Russia, and that gives Russia the chance to draw and shoot first. Putin may also be enjoying watching the European energy crisis he is orchestrating affect the U.S., where inflation has coupled with refining blacklogs to push gas prices above $5/gallon. Even though petrol prices in Asia and Europe are over $11/gallon, economic woes may suffocate the Biden Administration, a clear win for Putin.

He’s Killing America’s Too

A Fortune.com analysis — Putin’s stagflation revenge: Everyone said his war would destroy Russia’s economy but he’s killing America’s too — said on June 18, 2022:

Between a tanking stock market, soaring inflation, and mounting recession fears, Americans are turning on the economy.

And somewhere, Vladimir Putin is probably smiling about it.

Amid all the chaos, inflation has become the biggest financial concern of nearly every American as prices rise for everything from gas to groceries.

There are several reasons that inflation reached a 40-year-high of 8.6% last month, including rising rents and labor costs. But economists say a major driver is Russia’s invasion of Ukraine, and the subsequent disruption to commodities that it has caused.

It said:

The invasion in February immediately scrambled the global economy and sent international markets spiraling into uncertainty. Some commodities have been especially volatile, including oil and food, due to constrained supply from Ukraine and Russia.

The analysis said:

But even as Russia’s economy feels the pain, President Vladimir Putin continues to dictate global prices for energy and food. Western sanctions are starting to hurt the U.S. and the rest of the world too due to recent surges in energy prices that have caused factory shutdowns and slower growth across the U.S. and Europe, proving that Russia has more leverage than Western leaders thought.

If the war continues to drag on, global financial institutions including the World Bank say that it could have even more serious consequences for the U.S. economy. And experts have started to sound the alarm about another financial threat not seen in decades: stagflation, a toxic combination of high inflation and slow growth.

“Amid the war in Ukraine, surging inflation, and rising interest rates, global economic growth is expected to slump in 2022,” World Bank President David Malpass recently wrote in the institution’s latest economic forecast.

The war will likely lead to “several years of above-average inflation and below-average growth,” Malpass added. “It’s a phenomenon — stagflation — that the world has not seen since the 1970s.”

It said:

Stagflation happens when growth slows significantly, but high inflation and prices continue to plague the economy.

The U.S. has not really seen stagflation since the 1970s, when that decade’s high oil prices led to simultaneous slower growth, high unemployment, and persistent high prices. Today’s circumstances are different from the 1970s, but a prolonged war in Europe would lead to very similar risks.

The war has created significant supply shortfalls for energy, food, and critical commodities including metals, exacerbated by existing supply chain problems related to the COVID-19 pandemic and subsequent lockdowns in large Chinese manufacturing hubs.

Supply shortages and soaring energy prices caused by the war have already begun forcing European factories to shut down. The manufacturing and industrial output in the U.S. is also starting to show signs of slower growth.

Lower industrial output could signal that a recession is nearing, as many economists are predicting. But with high fuel prices continuing to be a driving force behind high prices, it’s the perfect combo for stagflation.

It added:

Constrained global supply also means that oil prices will likely stay high, which will be a boon for Russian oil companies.

“In terms of rejecting our energy resources —this is unlikely over the next few years,” Putin said in a meeting with young entrepreneurs this week. And the Russian president may be right, as a recent analysis by Bloomberg forecasted that Russian oil and gas revenues will be as high as $285 billion in 2022, 20% more than last year’s windfall.

With Russia more financially stable than many in the West had hoped, Putin has been unafraid of shutting the gas valve to Europe. Only this week, Russia tightened gas flows and sent European prices surging 24%, an act some experts said was “politically motivated.”

For as long as Putin has this much control over energy prices, the West will be fearful of constrained energy supply. And with fuel prices being one of the main drivers of inflation in the U.S., Putin’s actions could lead to a prolonged period of high prices.

In the World Bank’s report, Malpass cautioned that the key to averting stagflation is to increase fuel production to reduce prices and help manage inflation. But with Putin seemingly ready to curtail gas flows and send costs soaring, keeping prices in check may be easier said than done.

The analysis said:

Putin may still be reassured that the war is causing severe economic distress in the West.

U.S. Willing To Risk Economic Pain And Global Hunger To Win In Ukraine, Says Washington Post

The U.S. is ready to back Ukraine in the conflict with Russia for the long term, the Washington Post reported, citing administration officials who say the plans have been in the works for some time.

A senior State Department staffer told the Post on Friday that President Joe Biden would like to see an “eventual negotiated conclusion [to the fighting],” voicing hopes that waves of Western arms shipments to Kiev and the harsh sanctions campaign against Moscow would weaken the European power’s ability to fight.

“While it’s certainly challenging – we’re not certainly sugarcoating that – in terms of how to navigate these stormy waters, our guiding light is that the outcome of Russia being able to achieve its maximalist demands is really bad for the United States, really bad for our partners and allies, and really bad for the global community,” the unnamed official said.

They added that the Biden team had “discussed the possibility of a protracted conflict with global spillover effects” even before February, during a time when American officials repeatedly predicted an imminent attack by Russia.

Though support for the Ukrainian government has been costly for Washington – which has devoted more than $50 billion in various forms of aid since March – the Post noted that Biden is willing to risk “a global recession and mounting hunger” in order to prevent Russia from achieving its objectives.

Speaking during a recent meeting in Brussels, where officials from dozens of nations met to discuss ways to further bolster Kiev, U.S. Defense Secretary Lloyd Austin said “we’re here to dig in our spurs,” adding “by working together, we can help Ukraine defend itself from Russia’s cruel assault and we can strengthen Ukraine’s security for the long haul.”

General Mark Milley, the chairman of the U.S. Joint Chiefs of Staff, has similarly stated that the hostilities could be “very protracted,” and may endure for “years.”

“This is a very extended conflict that Russia has initiated, and I think that NATO, the United States, Ukraine, and all of the allies and partners that are supporting Ukraine are going to be involved in this for quite some time,” the general said, though noted that it was unlikely Moscow could be deterred from its aims short of a U.S. military deployment – a decision he said he “would not advise.”

Gas Rationing Is Coming In Europe

A Bloomberg report said:

Throughout the entire Cold War and in the decades since, Russia was a stable supplier of gas to Europe. That changed this week.

Russia slashed gas supplies in apparent retaliation over Europe’s support for Kyiv. After its biggest moves yet to use energy as a weapon, gas rationing in the region is now a very real prospect.

The squeeze caused prices to surge, added pressure to the region’s economy and could strain European solidarity — all victories for the Kremlin that came as European leaders underlined support for Ukraine during a high-profile trip to the country.

With European utilities forced to tap reserves intended to cover needs for the winter, government controls of gas distribution could start within months. If Russia completely shuts its main link, the region could run out of supplies by January, according consultant Wood Mackenzie Ltd.

“It is a serious situation, a tense situation,” Germany Economy Minister Robert Habeck said in an interview with ARD television on Thursday. “It is a trial of strength between Western allies and Russia.”

The heightened alarm was triggered after the Kremlin cut flows by about 60% through the Nord Stream pipeline, which pumps gas straight to Germany. The diminished deliveries had a knock-on effect for France, Austria and the Czech Republic.

Germany’s Uniper SE, the biggest buyer of Russian gas in Europe, is receiving 60% less gas than ordered. Italy’s Eni SpA received just half of its requested volumes from state-owned Gazprom PJSC on Friday, and France’s Engie SA and Austria’s OMV AG have been hit as well.

Propelled by the tensions, European natural gas prices surged about 50% to the biggest weekly gain since the early stages of Russia’s war in Ukraine. The region has little alternative to Russia’s pipelines, especially for the critical winter months. There’s little spare capacity from Norway and the Netherlands, and liquefied natural gas cargoes are expected to become tighter.

China, the world’s top importer of LNG in 2021, has cut back spot purchases this year after Covid-19 restrictions sapped demand. But usage is likely to bounce back this winter, pitting China against Europe for a dwindling amount of spare LNG. Repairs to a key Texas export terminal will further hamper supply.

The report said:

Italy may trigger an emergency gas plan as soon as next week if Russia continues to curb supplies, a move that may involve a bigger reliance on dirtier fuels.

Germany, which is at the first level of its own three-stage crisis plan, is considering a range of options to reduce demand such as allowing landlords to reduce heating in the winter and implementing an auction platform for companies to sell their consumption rights. Europe’s largest economy, which is reliant on Russia for more than a third of its supplies, has called for solidarity and urged people to save energy to thwart Putin.

The report added:

In Germany, the network regulator, known as BNetzA, would implement rationing if the government declares a national gas emergency. The Bonn-based agency has said leisure venues would likely see reductions, while consumers and critical public services such as hospitals would be protected. Companies could face disruption.

“The current reductions of Russian gas deliveries can put all of us — consumers as well as industry — in a very serious situation,” Klaus Mueller, BNetzA’s chief, said on Twitter. “As long as we can, we must avoid this through gas savings and storage.”

The squeeze will unnerve economic policy makers as they try to contain record inflation. An additional increase in energy costs risks undermining efforts by the European Central Bank to rein in price increases by starting to raise interest rates next month.

Concern about economic growth is also picking up. Consumers are being squeezed by the rising cost of living, and the prospect of energy rationing and steeper gas bills could further dent confidence. For Germany’s outsized manufacturing sector, the issue exacerbates input shortages that have put it on the back foot.

Australia Joins Regional Leaders in NATO Visit

Another Bloomberg report said:

Australia’s Prime Minister Anthony Albanese will head to Europe for a NATO meeting in late June.

Japanese Prime Minister Fumio Kishida and South Korean President Yoon Suk Yeol also plan on attending. Their attendance at the meeting in Madrid would be precedent-setting visits from the leaders of the two U.S. allies who neighbor Russia.

Ukraine, Romania Seek To Double Danube Grain Shipments

Media reports said:

Transit of Ukrainian grain via Danube ports increased fourfold in the past month and the goal now is to further boost transit and to double it., Romanian President Klaus Iohannis said at a joint press conference in Kyiv.

Ukraine has started a pilot project with Poland on joint custom areas and has proposed the same thing to its Romanian partners, Zelenskiy added.

Sanctions ‘Having Smaller Impact Than Feared’

Top officials told the Kremlin’s annual economic showcase that Russia is bearing up better under sanctions than initially feared, touting a new model focused on domestic production as the country faces unprecedented international isolation.

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