Gordon Campbell on the bad outlook for fuel and transport costs

77d2d49060536d4a0406Ok, there’s good news and bad news in this week’s inflation figures, but bad > good. Our inflation rate held steady but hey, at a level below the inflation rate in Australia. The main reason for the so/so result here? A fall in petrol prices of 7.2% offset the really terrible price rises in say, fruit and vegetables. The cost of international travel also rose sharply in the last quarter of 2022, by a whopping 19%.

OK. Now for the bad news. Over the next two months, any good news at the petrol pump is going to be buried by a triple whammy of transport-related costs flowing from (a) the ending of the government’s Covid support package for the transport industry, which will have ripple effects throughout the economy (b) the ending of the 25 cents a litre fuel tax cut and (c) the ending of half price public transport. Next time around, let’s hope that something can emerge to offset the cost of living increases still rampant at the supermarket.

Might the cost of petrol come down anyway, thanks to trends in the global economy? Surely, that much ballyhooed global recession will bring a slackening in demand that should cut the price of fuel, right? Uh no, probably not. That’s partly because the recession – when and if it ever arrives – is not only predicted to be short and shallow, but will be followed by an uptick in activity across the developed world. In addition, the demand by China for fuel will massively increase now that Beijing has scrapped its Zero Covid policy, got its factories working again, put its trucks back on the road, and let its own citizens get back into their cars.

And that’s the interesting part because right now the US has sanctions in place against two of the world’s major oil producers: Russia, because of Ukraine, and Iran. Iran is being sanctioned because of Donald Trump’s perverse trashing of the anti-nuclear treaty with Iran, and those sanctions have been kept in place in solidarity with the recent wave of street protests in Iran.

Yet as the US academic and Middle East expert Juan Cole has pointed out, the US almost certainly won’t be able to sustain its current oil sanctions against both Russia and Iran. Not unless it wants oil prices at home and elsewhere in the developed world to go through the roof.

Iran or Russia?

In the past, Saudi Arabia would always come to the rescue of the US. It’s a far more unreliable ally these days. Already, the US has had to drop most of its sanctions against socialist Venezuela, in order to get Venezuela’s oil onto the market and stem the rise in global fuel prices.

Earlier this month, projections contained in the oil market report by the International Energy Agency outlined the problem that’s coming down the pike:

Global oil demand is set to rise by 1.9 mb/d in 2023, to a record 101.7 mb/d, with nearly half the gain from China following the lifting of its Covid restrictions.

Furthermore, as Juan Cole says:

The analysts at the IEA are convinced that the excess demand of 1.9 mn. b/d can be met in the first and second quarters, but say that it may prove difficult to do so in the second half of 2023. They only expect production to rise by 1 mn. barrels a day this year, leaving an almost 1 mn. b/d shortfall. Some of that shortfall will come from the OPEC+ decision last summer to reduce output by 2 million barrels a day. Some will come from Russia not being able to put as much oil on the market as it would like, because of harsh U.S. sanctions.

Unfortunately, that gap between demand and production would lead to this conclusion:

Guess what happens if demand goes up by 1.9 mn. barrels per day, and supply only goes up by 1 million barrels a day? Yes. Prices go up.

Note the timeframe the IEA is predicting. The second half of the year when it is indicating prices will rise is when the much-predicted recession is supposed to finally arrive in New Zealand, and when our election campaign will be kicking off in earnest. Obviously, that wouldn’t be a good time for any incumbent government to be facing cost increases at the petrol pump. Yet that’s the IEA scenario… Unless Saudi Arabia does an about face, or unless the Biden administration decides that the price blowback from its oil sanctions against Russia and Iran is unsustainable.

Something would have to give: Russia or Iran? Because so much political capital has been invested in the White House’s hard-line policy on Ukraine, and because America’s European allies have endured so much in support of Kyiv, the sanctions against Russia will probably stay in place.

However, the US may well let Iran off the hook. Much of Iran’s oil – because of the current package of punitive US/EU sanctions – is already going to China, anyway. From mid-2023 onwards, Cole feels it likely that the US will turn a blind eye to more and more Iranian oil coming onto the global market, to make up for that predicted shortfall of almost a million barrels a day.

After all the stirring public statements of solidarity with the brave demonstrators in Iran, such a U-turn might seem like a betrayal. And it would be, to some extent. (It would suggest that our moral stands have a price-per-litre tipping point.) In the longer run though, there might be a glimmering of good news if the situation prompted a re-calibration of the US/EU sanctions that have barely touched the mullahs, but that have had a devastating impact on the living standards of ordinary Iranians.

As Cole concludes:

Many social scientists believe that… harsh sanctions on a country devastate the middle class and make it weaker vis-a-vis the government, and so actually harm civil society activism. Iran’s protest movement would do better with fewer, not more, U.S. sanctions — especially [fewer of] the broad ones targeting civil institutions such as the Central Bank.

Wisdom, from the right

In case you missed this timely and excellent article by Chris Finlayson in E-Tangata , here’s the gist of it.

“People who are frightened by co-governance think they’ll be locked out of access… When what it really means is that involving iwi in a myriad of decisions can actually result in a better country.” – Finlayson

Basically, Finlayson has written a better argued, more eloquent case for co-governance – ie joint stewardship – than anything the current government has managed to put together so far.

Interestingly, Finlayson sees his embrace of co-governance as the logical outcome of his own conservative values. He argues that co-governance provides a valid alternative to the “central government knows best” approach to how power should be exercised in a social democracy.

“The idea that power can be shared scares some people,” Finlayson says. “Whereas, my attitude is, if central government has failed in so many areas, which it has, and if there are different ways of looking at issues that involve bringing iwi into decision-making, or handing over decision-making, then let’s give it a go.”

The article is essential reading and a useful antidote to the current political scaremongering around co-governance.

Reflections on Ratana

Interesting piece by Luke Malpass about this week’s political events at Ratana. The column was headlined “Ratana mission complete for Christopher Luxon, but outshone by Chris Hipkins.” That headline made it all the more surprising that the column then kicked off with an embedded video of Luxon’s 12 minute speech in its entirety. Yet for some reason, the column contains not only no video of the Hipkins speech, but not so much as a link to its printed version. Hipkins may have shone, but readers were left largely in the dark.

Also, there was this observation:

….It appears that, on early reading, Hipkins main aim is to put the co-governance genie, released by the politically disastrous Three Waters process, back in its box.

This is victim blaming. For the record, the co-governance genie was actually “released” by the wilful misreading of the Three Waters policy by the centre- right parties, in line with their fear mongering and race-baiting strategies for this year’s election.

Silly season stories

Finally, as we bid farewell to the summer season media stories, let’s spare one last thought about the much-covered capture earlier this month of the Mafia boss who had reportedly been on the run for the past 30 years. There was television footage of Matteo Messina Denaro being picked up by high-fiving Sicilian police in front of cheering bystanders, at a medical clinic where he’d been getting chemotherapy for his colon cancer.

Right. What went unmentioned was… This wasn’t the first similar policing “triumph” for Sicily’s visually challenged police. In 2006, Mafia chieftain Bernardo Provenzano aka Bernie The Tractor (because he mowed people down) was caught living in a small cottage in his hometown of Corleone, after 43 years on the run. A year later his successor as Mafia boss, Salvatore Lo Piccolo, was caught on the outskirts of Palermo after 25 years on the run.

Hmm. In its entirety, Sicily is only 9.927 square metres in area, which makes it roughly the size of the Waikato. How can the police in Sicily so regularly need decades to find the most-wanted Mafioso criminals, even when they’re “hiding” right where they grew up? There’s an obvious answer, but it wasn’t one that the silly season stories chose to address.

Fever Ray Wants You

Sweden’s Karin Dreijer has just released another single from Radical Romantics, her first new Fever Ray album in five years. “Caron Dioxide” brings to bear the same intense, spookily distanced qualities she’s shown ever since The Knife was the main musical vehicle for her and her brother, Olof. Olof Dreijer has also been involved in the making of Radical Romantics, as have Trent Reznor and Atticus Ross, among others.

On this dancefloor banger, Dreijer treats attraction and desire in her usual fashion: As a performative mix of poses and masks on one hand, and in-your-face bluntness on the other.