World heading for 1973-type energy shock: French minister
PARIS / WASHINGTON
The current energy crisis was “comparable in intensity, in brutality, to the oil shock of 1973,” Le Maire told a conference in Paris.
“In 1973, as you know, the response caused an inflationary shock, leading central banks to massively increase their rates, which killed off growth,” Le Maire added.
“This has a name: stagflation, and it’s precisely what we want to avoid in 2022.”
The first oil shock in the early 1970s was caused by the Yom Kippur war when Egyptian and Syrian forces launched an offensive against Israel.
Six Arab members of the OPEC oil cartel declared an embargo on exports to countries supporting Israel, notably the United States.
They quadrupled the oil price to $11.65 a barrel, provoking recessions in Western countries and steep inflation.
European wholesale gas and crude oil have rocketed to record, or near-record prices this week due to supply fears linked to Russia’s invasion of Ukraine.
The United States and Britain announced on March 8 they were cutting off Russian energy imports in response to the war, triggering another surge in prices.
The price of Brent crude, the international benchmark, was up at $130.40 per barrel yesterday. It advanced $4.77 the previous session to $127.98.
Benchmark U.S. crude rose $1.86 to $125.56 per barrel in electronic trading on the New York Mercantile Exchange. The contract jumped $4.30 on March 8 to $123.70.
Oil prices rallied big time last year, surging to $70 per barrel after briefly sinking into negative territory in 2020.
U.S. President Joe Biden announced the United States would block imports of Russian crude to punish Putin for attacking Ukraine. Biden said he acted in consultation with European allies but acknowledged they are more dependent on Russian oil and gas and might not be able to make similar moves immediately.
Biden said he hopes to limit the pain for Americans but acknowledged the ban will push up gasoline prices. “Defending freedom is going to cost us as well,” he said.
Commodities markets have been roiled because Russia is the second-biggest oil exporter and the third-biggest supplier of nickel, which is used in electric car batteries, stainless steel and other products. Russia and Ukraine also are among the biggest global sellers of wheat.
Nickel prices doubled on March 8 to more than $100,000 per metric ton, prompting the London Metal Exchange to suspend trading. The exchange said it did not expect to resume trading before March 11 and was considering imposing limits on price fluctuations when it does.
A major Chinese producer of nickel and stainless steel, Tsingshan Group, faces potential losses of billions of dollars on futures contracts, The Asian Wall Street Journal and Bloomberg News reported.
Major brands have continued to pull out of Russia, with fast food giant McDonald’s, beverage corporations Coca-Cola and PepsiCo, coffee chain Starbucks, energy behemoth General Electric, Universal Music Group and brewer Heineken among the latest to join the international chorus of outrage.
Adidas has said it would temporarily shutter its stores in Russia as well as closing its e-commerce business, following rivals like Nike and Puma. The sportswear maker had already announced it was suspending its contract with the Russian Football Union.
Meanwhile, the Central Bank of the Russian Federation sharply tightened currency restrictions in ways not seen since Soviet times. It ordered the country’s commercial banks to cap the amount clients can withdraw from their hard currency deposits at $10,000 in U.S. dollars. Any withdrawals above that amount would be converted to rubles at the current exchange rates.