How Can Doomberg Get It So Wrong?
Status Distribution Always Wins In The End
Recently I watched John Mersheimer and Daniel Davis’s discussion, “Zelensky & the West Detached from Reality” They make a very strong argument that Russia is too big, Ukraine too small, and the West too incompetent and short on ammunition to prevent Russia from keeping the Donbas, Crimea and ultimately achieving a demilitarized Ukraine — soon.
With Russia’s latest advances in the Donbas (April, 2024) these experts are chomping at the bit to say “I told you so” when Russia is victorious by 2025.
I also read one of Andrew Tanner’s pieces on Substack where he argued, in part, that Russia didn’t have the resources to overcome Ukraine’s geographic strengths and would ultimately run out of steam.
Finally, I read the energy blog Doomberg (highly recommended, despite the following) which argues that the way to beat Russia is for the West to glut the market with fossil fuels, thereby suffocating Russia of the money it needs to keep funding the war.
Let’s test how long the Russian economy can withstand $10 a barrel crude and $1 a million BTU LNG prices. Let’s test how disciplined OPEC would be in the face of collapsing prices. Let’s test whether the Saudis would continue to spurn senior US diplomats in the way they do now. This is how to regain the upper hand with Putin.
Doomberg’s argument really surprised me. When, in history, have the resource suppliers come out on top? Won a war? Even before industrialization, it was those who controlled salt, spices and distribution who ran the global economy. It wasn’t the countries fishing cod or farming.
Similarly I can’t see how Russian oil and resources will ultimately win-out. It will be the manufacturing and distribution centers — both the West and Asian manufacturers. This is a point I made a couple of years ago and am refreshing here.
I need to stress, this won’t be settled anytime soon. Probably not in my lifetime.
For some historical perspective, in the early 1940s, Germany came to an inch within total control of Europe because they were a manufacturing powerhouse. Their economy (then as today) was based on what they made, not barrels of oil and lumps of coal.
The flaw in Doomberg’s argument is that the price of oil, or any other resource, is not set by how much it costs to mine. The value is always set by the value of its end product.
There’s a limit to how much Russia (resources) and Asia (manufacturing) can do business with each other because the elites of both countries ultimately want to vacation and send their kids to school in the West (distribution of status).
Yes, all of the above has broken down. However, I don’t see Russia or Asia becoming Status destinations any time soon.
If we could drive oil down to $10 a barrel it would necessitate, as Doomberg points out, tremendous investments in mining equipment and infrastructure. Why not do that all the time? I believe because…
We only want more stuff to the point it that it gives 20% of us status. The rest care less for material possessions. In other words, we manufacture to the Pareto curve.
This isn’t a mechanism. It’s a phenomenon. I don’t know how it works. But I see no change in human nature to suggest the phenomenon will go away.
Humans love the game of status. And no single human views it the same way. I derive my status from writing on Medium. I don’t own a home. My car has almost completely rusted out. I find new machines (cars) wasteful and love to keep old things running even if I have the money to buy new (and I’m hardly alone).
Of course, I have friends who derive their status by owning multiple homes and multiple cars.
Sure, advertising pressures all of us to buy things. I’m not immune. Yet the fortunate reality is I don’t begrudge my friends their material possessions and they admire my ability to live a simple life.
If we meet a billionaire we don’t spit in their face. And if we are a guest in their house they will often treat us better the less we have. For the most part, humans have a wonderful capacity to get along, no matter what their race, religion, or interests.
And then the dark side…
When we feel slighted, isolated, we can get violent and form a hatred we can carry for the rest of our lives.
Such is the feelings of many Russians and Israelis — slighted and isolated.
Like the 1930s, there isn’t enough energy to go around. Like the 1930s, the elites underestimate the corrosive effects of wealth inequality.
Doomberg should find parallels between World War II and the German’s reliance on synthetic oil (from coal, sound familiar?) and somewhat similar trust in renewables by the West today. Both, in my mind, are the miscalculations that have started war in Ukraine and will continue for decades.
Fossil fuels are needed more than ever, to fight the destructive effects of climate change. Everyone is pulling up their drawbridge. Be it tech oligarchs in the U.S. building self-sufficient islands or Russia consolidating around Moscow and St Petersburg.
Remember, not that long ago, when people debated the reality of climate change? Who argues against it now? The same is coming for renewables. They are energy independence for the wealthy. They make matters worse for the poor.
I don’t have any ready data, but I believe one of the problems for Israel is it became harder for them to financially support Gaza. I’ve said it many times. Hamas didn’t push through the wall, Israel had left it more or less abandoned. Israelis understand, in some mass psychotic way, that they are going to be divided and conquered by all around them. The more that happens, the more they lash out.
The West is similarly divided and I believe it day will come to the realization that it also needs more natural resources. It will then do something. It won’t try to drive the price of oil down to $10/bl.
Instead, it will take its oil and built up a war machine that makes our current 1$ trillion spending look a pittance. You haven’t seen anything yet.
Ultimately the resource-rich nations will lose. That isn’t to say I’d call hundred of millions dead a win for the any side.
