Heather Cox Richardson, in her Letter from an AMerican on Substack, which I recommend subscribing to, said over night:
According to the American Automobile Association, diesel hit its highest recorded average price today at just above $6.44 per gallon. Diesel moves most of the consumer goods in the United States. Iran's news agency reported today that a political advisor to Iran's Supreme Leader said Iran would not reopen the Strait of Hormuz until President Donald Trump and Israeli prime minister Benjamin Netanyahu are removed from power.
As the conflict drags on with no coherent U.S. strategy, J.P. Morgan wrote yesterday, “We simply don't know how to model the endgame.”
She added:
Today Bloomberg reported that Saudi Arabia has told European refiners that they will not be receiving crude oil next month because of the shutdown of the East-West pipeline.
This is what failure looks like.
As Heather Cox Richardson also noted, Trump responded to the willingness of US media to discuss these issues, and their consequences, by announcing he is banning CNN, MS NOW, and Politico from the White House.
Trump's claim is, of course, that the media is lying about what is happening and everything is going fabulously. This is straightforwardly contradicted by data, evidence on the ground in the USA, and polling information, which shows just how likely it is that he will lose the midterm elections. What will happen then is, however, still unknown. Speculation that there might be an outright refusal to register the result is widespread.
Let me, however, return to the economics of this. The USA is an economy that has been driven by road fuel for a century, and compared to the rest of the world, that fuel is cheap there, largely because taxes on it are low. Now, people there, as elsewhere, are facing prices they once considered unimaginable. The immediate consequences are financial stress, but what is just as important are the long-term consequences that will arise if, as Iran is threatening, there is no solution to the crisis in the Strait of Hormuz, and the new crisis created by Houthis in Yemen has, as many expect, a major impact on oil flows in and through Saudi Arabia.
Events are unfolding largely as I expected, but most of the world failed to hear the warnings a few of us promoted, that this crisis was coming and would be much larger than any of our politicians were willing to anticipate.
In the USA, the impact of this crisis will be seen in poll results in the midterm elections in November. Shortly before that, though, here in the UK, we will have a chance to see how our government is responding to this issue, because John Healey will, in his role as Chancellor of the Exchequer, present his Budget at the end of that month, and with it the associated forecast from the Office for Budget Responsibility.
Those forecasts must now be in preparation. The OBR should by now have formed its view on where the conflict in the Gulf is heading, when it will be resolved, and what the impact on oil and other prices will be, because those three variables will inevitably shape many aspects of the rest of its forecasts.
My suggestion is that the disruption will now last for years, that we have by no means seen the limit to oil price increases as yet, and that a major inflationary impact is inevitable as a consequence which, as I keep on saying, the Bank of England could make very much worse if it were to increase interest rates at the same time. I think it would be very hard, given current evidence, for the OBR to reach any other plausible conclusion.
That reduced oil consumption might be good for the world is a fact. That its arrival in a completely disorganised fashion, as appears likely as a consequence of Trump's stupidity, is something altogether different, and could create economic chaos on a scale that we have not seen in anyone's lifetime.
So how will the OBR manage this risk? Will it, as it did in the March 2020 Budget forecast on Covid, largely pretend this event is not happening? Of all the options available, that is, I think, the most likely, but if it is what happens, we can guarantee that John Healey will have to be back at the Despatch Box delivering an emergency Budget in early 2027 at the latest, and that will leave his position, and that of Andy Burnham, as irrecoverable because all the warning signs will have been present in October.
The alternative is that they acknowledge the risk and say what they will do about it. That seems much more likely than a ‘heads in the sand' approach. Imagining change on the scale required might be beyond the OBR's capacity, because it, like the Treasury, assumes everything returns to what it considers 'normal' within two years at most in all its forecasts. Those forecasts are literally programmed to do that, but that is not going to happen this time, so what will?
I think I had better think through the answer to that question in greater detail than I have before. I am now persuaded that things are very much worse than I previously thought. The economy is going to get really bad, and we need a plan. Wish me luck. We are all going to need a lot of that.
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The world does need to use less oil. Chaos is certainly bad. But, things seem to change quickly in chaos and crisis (consider how was has changed in the past few years in Ukraine). So perhaps, just perhaps, this oil chaos will eventually be seen as a blessing if it forces the world to adopt renewables much more quickly. This wouldn’t have been possible even a few years ago. Now it is.
“Never let a good crisis go to waste”.
Already reports that there are shortages of diesel fuel at filling stations in some states.
This is likely to get worse when the orders for heating oil, pretty much the same product as the higher level states enter the winter.
Aviation,services by aircraft being reduced being reduced.
Our turn will come soon.
I understand there have been diesel shortages here. I am not a diesel driver.
Prepare for lots of diversionary trivia. (Harry & Meghan are back.)
We are in Fawlty Towers territory for at least another month – DON’T MENTION THE WAR!!!
And remember, the official advice from HMG is to get out there and panic-buy. I expect that soon, I will receive another emergency alert on my phone, screaming at me to “BUY! BUY! BUY! (except for disposable BBQs)”
Remember, its our individual responsibility to deal with this crisis, with our own resources, making difficult choices – its our patriotic duty to look after ourselves as best we can. The government does not have a plan, or at any rate, not one that is at all relevant to us.
(Sarcasm alert)
Agreed
The UK has had since the start of the Trump/Israel war on Iran been warned there is an economic storm coming.
Any evidence of advance planning/thinking by No steer and Tinkerman? It appears not.
Gas reserves are 18 days for the UK, 168 for France. Oh and the UK government recently decided not to keep the biggest gas reserve centre working.
The advice? Stock up on toilet rolls and tins of baked beans!
There is a serious risk that the UK economy will implode.
What is Tinkerman pursuing? Changing the law to allow him to elect the Archbishop of Canterbury, utterly timid devolution, a pointless tourist tax that will be used to cover for funding cuts, not stopping the proposed cuts to benefits and backing ” we can’t afford it and we must follow the daft self imposed fiscal rules”!!
Tinkerman and LINO are dead in the water.
UK economic policies have been used to crush the majority. The UK government response will be even worse austerity and the further rise of the extreme hard right to justify more repression.
Much to agree with
Thank you, John.
Spot on.
The wargaming coordinated by the Cabinet Office in February and March included shortages and civil unrest over / by the autumn. How do I know that? An officer I have known for the past two decades helped draft the paper.
Over lunch at the time, a few days after hostilities broke out, he said how bad things were, but there was a media black out, including how Israel was burning, Iran had been planning for this existential threat for decades and already had the upper hand, America had no plan and an American invasion of Iran was ‘suicidal’, not used in the briefing, but voiced over.
It sounds like his warning was right.
I see no evidence that the warning has succeeded in changing policy.
Thank you to Richard.
The warnings were from career professionals, including from my godson’s best friend. The spads and secondees from MIC funded think tanks were more optimistic, hawkish and, whisper it softly, Zionist. You can guess the rest.
I can….
I would sum up what is about to happen as economic cannibalism.
And we know who will be doing most of the eating.
I’d like to pay homage to the following politicians:
Liam Byrne (Labour) – thank you for the post it note you left about there being no money so that lesser human beings could waft it around in parliament in justifying their austerity policies.
David Cameron (Tory) – you arrogant, stupid rich kid with a sugar Daddy. It is impossible for you to see life other than on your own narrow terms.
George Osbourne – (Tory) ditto above, but why smile so much when you know what pain you have caused by what you have been doing?
Theresa May (Tory) – thank you for introducing the politics of division (and Windrush) into our society and fermenting the fascism around us now. You father should disown you, given his background. You are most un-Christian, Madam.
Liz Truss – (Tory) Errrr…………………..an aberration created out of nothing, because the Tories are essentially a bottomless pit of nothing.
Boris Johnson (Tory) – ditto above with Cameron but also you got what you wanted at the cost to everyone else, so why do you not just go away forever? The responsibility of state exposed you for the lightweight you are.
Rishi Sunak (Tory) – I’d forgotten about you already, but I will not forget how you craftily added interest to the CBRA to make it look as though the government was being lent money it had created (implying it was in debt). You play dirty, like your mates in the City.
Keir Starmer (Labour) – the accidental PM who forgot what his job was, yawned, and sat down and put his feet up.
Neo cannibalism is already a term in the literature. We really are surplus to requirements. Those who I could expect to form some of opposition never did because it was never their interest. Tom Watson has joined Palatinir just as Nick Clegg joined Meta. They seemed quite happy to let it happen and press their own self destruct button. How creative of them.
Anybody going to stockpile Compo or whatever they call Army Field Rations these days?
🙂
Already have. Some water drums to fill, and need pasta in bulk, otherwise ok for a oiled of months. Main problem is feeding the dogs, and unprepared/ dismissive family.
I was in Sainsburys this morning at about 9am and there were certainly some empty shelves.
OK so………
Refine a barrel of oil and depending on what sort it is you get a certain amount of petrol/Diesel/Kerosine etc
There are lots of uses for the heavier fractions as heating oil, Jet fuel, road, rail agricultural and marine use etc and these are the economically really crucial ones but very few uses for petrol other than in cars.
So petrol cars will probably hang in there for now but there really needs to be some sort of Government plan to deal with a potential oil shortage this winter and/or the impact of higher oil prices
Agreed
John,
Petrol will only be available for your motor car if you can find a petrol powered tanker to deliver it to your local filling station.
Perhaps the diesel shortage will affect supplies of the sand in which our politicians seem to be burying their heads! Not sure it would help if they could see or acknowledge the problems, though.
Diesel at some filling stations £2 a litre and bound to rise. Obviously no strategic reserves as with the gas crisis when the Ukrainian war started.
This from a few months ago, still relevant https://mmtuk.org/research/energy-price-policy/
Let think positives, because otherwise I will despair. Iran have demanded the removal of Trump and Netanyahu; that would be a great demand to give in on. And perhaps this will be the shock America needs. Perhaps they will rapidly transition away from oil, implement a green new deal, save the world, and reintroduce Unicorns back into the wild.
Some optimism is needed. If both houses in USA become Democrats there will surely be an attempt to impeach the weird one and with a majority in both houses the impeachment would be successful. I presume the weird one would get his marching orders.
Netanyahu has an election coming up, surely? So Israelis please don’t vote for him. You may not realise it and USA does not want to realise it but Netanyahu has done enormous damage to Israel’s reputation that is now regarded as a paria state, a genocidal state across much of the world. So maybe both will have fone soon.
The big problem before than is getting the election results in the USA recorded. The Speaker might just refuse to do that. Apparently he has the legal right not to do so.
I just want to return to the BoE quote I shared yesterday and highlight a different section:
“While energy prices have shot up,the jobs market remains weak, helping to contain the risks of the “second-round effects” that allow inflation to become embedded.”
This is utter nonsense. Prices have not returned to the level they were at prior to the Ukraine crisis so inflation has very much become embedded!
No, you’re confusing short- and long-term price changes.
There might have been a long-term price change. That does not mean this is current inflation.
Your lived experience should prove that.
With all due respect Richard my lived experience is things, food especially, are much more expensive than four years ago
And 100 years ago too.
Inflation is generally of concern when a current phenomenon for which adjustment is not made. That is the point I am making.
Oiled=couple
Minor note: When comparing US and UK prices a US gallon is approx 3.8 litres, an Imperial gallon is approx 4.6 litres
[…] began a discussion yesterday about what this year's Budget should […]
If Burnham is afraid to make any moves that look out of step with the status quo, as I expect he is, perhaps this is because the view that is being projected is:
“We’ve just hit a few bumps on the road folks but don’t worry everything is under control and normal service shall resume shortly”.
To free the UK from this frozen state perhaps he needs to come at it by firstly stating:
“Everything is not fine everyone. We are in a very significant and serious period of history and we cannot continue operating as we have done. We now have to find new and radical solutions that will meet these challenges.
By being candid in this manner he would automatically give strong justification for casting aside the old and bringing in the new including the dismantlement of neoliberalism.
Agreed
But I can’t see that happening.