Inflation has Become a Geopolitical Issue

According to La Tribune, Saudi Arabia and Russia are determined to push the price of a barrel of oil towards $100. That's not going to help Europe and the United States in their fight against inflation at a time when, according to the International Energy Agency (IEA), global oil demand is heading for its "highest ever annual level" in 2023.

But wait, what if that's what we're aiming for? The world's second- and third-largest oil producers (the United States being the largest) each have their own reasons for going down this road. Mohammed bin Salmane's Saudi Arabia ("MBS") is moving away from the American protectorate for multiple pretexts (condemnation of the murder of journalist Jamal Khashoggi in 2018 in particular) and is drawing closer to China, and then even to Iran, the sworn enemy (end of the war in Yemen, where the two countries clashed). MBS is one of the main participants in the global de-dollarization movement, agreeing to receive yuan in exchange for its oil delivered to Beijing, which represents a real slap in the face. Pushing up inflation in Uncle Sam's country via higher oil prices is a further means of exerting pressure.

For its part, the Kremlin is seeking to weaken those who are arming Ukraine: Russia is de facto at war with NATO, i.e. the United States and Europe, which are sending billions of dollars and euros in military equipment.

These supplies are widening budget deficits on both sides of the Atlantic, which runs counter to their objective of reducing inflation, since they are financed by the money printing press, which is intrinsically inflationary. The rise in oil prices adds a second layer, so to speak.That's a lot, and in fact, price rises remain strong and persistent in the US and the EU.The old continent is the hardest hit, as it is largely deprived of oil and gas.

Here's Putin's counter-attack: my raw materials, of which there are plenty, against 1) your money printing press and 2) your dependence on oil, which can only end in disaster, especially for Europe.

At the start of the war, governments were happy to blame inflation on Putin, but this was a lie to absolve them of their responsibilities (gigantic money printing during Covid). Now, this is likely to become partially true, which is very bad news indeed. Europe has the most to lose: poorly endowed with raw materials, refusing to exploit its shale gas, rising energy costs are driving down its competitiveness and accelerating its de-industrialization (part of German industry is considering leaving the country, according to Euractiv).

Aligning budget deficits, loans and grants to Ukraine, all financed by money printing against a backdrop of recession and de-industrialization, is a direct route to high inflation and ruin. A little geopolitical savvy wouldn't go amiss.

From being a purely economic variable, inflation will also become a geopolitical issue through the Russia/NATO war, de-dollarization and an increasingly multipolar world. It's vital to be aware of this and to act globally, otherwise things are going to end very badly, especially for Europeans.