The recent drone attack took out HALF of Saudi oil capacity, which means around 8% of worldwide flows. I believe this event is going to generate THE turning point from an economic and geopolitical viewpoint at the end of this decade (2020).
1) Even if the US calms down markets in the short run by resorting and coordinating a joint usage of strategic reservoirs, the vulnerability of oil supply unveiled by the attack is going to unchain strong effects: China will probably try to revise and diversify energy policy, Europe is going to look at alternatives (higher dependence on Russia? Nuclear (France)?...North of Africa should not be the prefered option because of instability, renewables??? ...).
2) The military reaction is to come, not inmediately, but wait and see, and it will have an effect (perhaps a reduced effect) on energy prices. If Saudi Arabia cannot restore almost full-provision by one month from now, we may suffer from the supply side.
3) Is this negative supply-side shock capable of speeding up the next global recession? Current Low inflation and recent info on expansionary monetary policy by the FED seems to be a good defense against it. Even if monetary policy were to be used against this type of shock, there is plenty of room for it...but which is going to be the mid-run echo of the shock? How are raw materials and energy prices going to evolve from now? Energy trade balances? Real exchange rates? In turn, Central banks in the mid-run?
4) Are Nations/States going to be more taugh and realistic in their naive technological-sharing (over optimistic) policies? Technological vulnerability must be THE strategic issue. What do you think? I believe this attack is going to be a turning point in most of these issues. By the way, the worse thing we could do now is spur the role of the big-Techs (Apple, facebook, Amazon..) in the financial arena through digital proper currencies. Please, let us be carefull with this, systemic risk would increase exponentially.
Yes, a definite turning point.
Asymmetric warfare can hit into tech-know-logical vulnerability very deeply.
Conference Paper The 'Babylonian' Accounts of Society
In our Schumpeterian model "An evolutionary growth model with banking activity II" by Almudi et al. (Available here in Research Gate) even a slight increase in the adjustment parameter of equation (5) can unchain a strong growth slowdown (via decreasing profits and investment) if the levels of firm debt are high enough and the banking system reacts. Still monetary policy would have margin to counterattack but we should check through simulations alternative scenarios.
Sure, possible to check short to mid and long run effects from slight increase in eq.(5) parameter. We'll see
Yes, a definite turning point.
Asymmetric warfare can hit into tech-know-logical vulnerability very deeply.
Conference Paper The 'Babylonian' Accounts of Society
Such an attack is evidence of the general instability of the world. Apparently, the era of open ways of moving energy and goods is ending. In principle, this can lead to the minimization of such transfer. The costs of such a move should increase significantly and countries that can exist without external sources will benefit. What will be the world when oil pipelines, gas pipelines, power lines, merchant ship routes and railways need to be guarded along their entire length? The analogy with medieval Europe, in which there were many internal borders, immediately comes to the mind.
Every discussion about SA should start from their regime.
Western countries like to highlight democracy as main goal and liberty as main western achievement. According to them, all countries without ''democracy'' are barbarians and should be attack eventually (Iraq, Afghanistan, Libya, Serbia, China, Korea, Vietnam, Lebanon, Cuba, Grenada, Panama, etc.) None of those countries could compare to SA where there is no religion freedom, free speech... However, SA is highly supported by Wester countries and their (pseudo)elites. At the same time SA army attack freedom fighter in Yemen who were legally elected.
Certainly, this is not about SA. SA is unimportant part of desert. It is about oil and most important about ''the chosen'', but good example of duplicity of modern world.
Still: the importance and technological accuracy of the attack to THE best protected facilities in the zone has been so huge, that the perception of risk is for sure going to increase oil prices significantly in the mid run. Despite of SA humiliation, probably no retaliation will occur because of the US 2020 elections. But scattered incidents will keep going in the zone and I see a clear andn sustained increase in oil prices in the near future. This supply side shock is the definite unchaining cause underlying the upcoming recession.
Moreover, since sanctions on Iran are going to be even higher, the probability of further "incidents" around Ormutz oil transport and infrstructure increases. I agree with Francisco in that a constant risk premium on oil prices (still to come) is going to close the period of cheap oil. Dangerous for those economies dependent on middle east provision and with a debt situation which has not been fixed yet. And in a near future panorama of growth slowdown.
A recent attack (September 2019) using a drone at an oil refinery in Saudi Arabia could be the beginning of a new era of subversive activity. Did anyone want to trigger a resource and economic crisis with this attack? Oil prices after this attack quickly rose on commodity exchanges. If one drone can produce such an effect on commodity exchanges and / or stock exchanges, then an interesting topic arises for reflection in the field of political fiction conspiracy theories. If this drone was not detected by any security systems, then something probably failed in terms of risk management. It is necessary to significantly increase the level of security standards of strategic enterprises and industries. Therefore, in the short term, the correlation of security issues of strategic branches of the economy and the situation on financial markets increases the extent of the unpredictability of the situation and the relationship between the stock market situation and the macroeconomic situation of the entire economy.
Best wishes
Dariusz Prokopowicz
What seems even more intriguing is that there is silence about it in the mass media...people talking about impeachment, climate change, ...global silence regarding the attack and what it reveals....interestin.
Aren't the current condition diagnostic of a world-wide Dutch disease?
Misallocation of resources has been so chronic and extreme that most theory and analytics ignore massive impending losses from stranded resources, absent investment in infrastructure needed to replace inefficient power [transmission] technologies, and even shortfalls in educational/training for the transition Breyer, et al, have described for years.
It's reported that Lord Keynes visited Harvard's Society of Fellows in the 1930's -- a group that included Samuelson and several other future Nobelists. A reporter asked him [with typical Boston pride], "What did you learn at Harvard?" Keynes responded, "I've learned I'm not a Keynesian".
This circumstance requires reforming the ORIGINAL Keynesian policy view [largely echoed by Ms. Mazzucato] while addressing the demand Leontief made for a DYNAMIC I-O analysis to grasp structural infermities [vide R. Hausmann].
Like the possibilities Keynes saw [opaquely] for his grandchildren, we must employ tools as old as the Encyclopedists' and policies which might well satisfy the biblical Joseph.
The unstated alarms of energy and environment are no more daunting than those Keynes encountered and Lord Skidelsky explains: entrenched interests dominate both policy discourse and practice now as in the 1920's.
Dr. Fatas-Villafranca points us to the right questions and [I'm persuaded] policy frameworks.
Our task is to show the same persistence and to embody the same fearlessness that Cantabridgeans employed a century ago to lead us to a world far healthier and richer than the one they inhabited.
[End of sermon].
Great point regarding the worldwide Dutch disease! Perhaps in our times of massively fuzzy and fast inter-connections, and in the middle of a simultaneus global-market competition war & and a (subtle and "hidden") global cultural war , "central banks" are trapped in a situation in which they do not know how to rise interest rates without unchaining a massive global recession (huge resources have been allocated to weak investments which Do Not generate substantially revitalizing activities -e.g. I would even conjecture that green new deals & digitalization are, to be polite, mythical promises). The problem with the patholical global co-evolutionary socio-economic and political process driving our "current dutch disease" is that there Is such a fragile institutional frame at worldwide level, that truly new (TRULY NEW) innovative paths do not arise (even with almost zero interest rates)...
In this frame, I would expect: 1) a not so strong recession in 1 year or so from now (thus, very low growth rates and very low interest in the short run). 2) Still I do not bet for secular stagnation. Instead, I expect rising prices ( from the supply side in the medium run -in the next decade) combined with the emergence of a new technological age driven by national-driven defense R&D investments (filtering to civil sectors) in an increasingly "new political normality" characterized by a three-contenders new Cold War (US, China, perhaps...Russia). This setting might be more politically stable than it may seem, and economically more productive than the onirical and capitalistic-democratic perpetual-peace (American pax 1990s-2008) in the already OLD world order. Of course, alternative much darker scenarios can evolve....but I would say that the triangular "productive" cold war will prevail.
Furthermore: 3) in the triangular cold-war, new episodes ( hopefully highly local and mostly quirurgical operations ..oil, specific raw materials, instigated political protests with no key effects) are to be expected all over the world. 4) Rising prices and growth rates in the mid run, by the mid 2020s. 5) A restoration of the traditional role of central banks with higher rates. 6) A restored role of nation states and (perhaps unfortunately) weakening international institutions. 7) A new tech-vector wich is not gonna be neither green sectors, nor digital techs (although both may have a collateral secondary role). I would suggest that some (unpredictable for me) core new device (coming from defense projects) involving new materials, new management of energies and new transportation methods will lead this new era in 9 or 10 years from now. Again, computational technologies will play a supporting role, but no a leading role. The future of Europe is specially uncertian. One possibility is a UK-US close link (after brexit), a German-France axis with Spain (Italy?) supporting this structure (with the Euro), a very strong Spain-Latin American link through which the economic coupling with the US economy will persist. Most European nations may keep adhering to the German leadership. The German-Russian interaction will be "cordiale" , Germany depends a lot on Russian energy provision and Russia may benefit economically fromaa strong Germany (once China consolidates the leadership in East-Asia, the "imperium of the center" might consist of Germany/France and Russia getting along somehow well. This may work if the EU turns towards much more realistic geopolitical attitude...
Large zones of Africa can even benefit from trading opportunities with both China and US.
On the complex dynamics of public opinion. Riots in Hong-Kong, Barcelona, Ecuador and in other places all over the world should make as think about the evolving complex nature of citizenship. A crucial geopolitical and strategic matter. Two papers on this attached.
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