From Brussels to Beijing, a wave of economic collapse may be about to strike

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The twin crises of war and disease are magnifying American unipolarity but at the cost of global stability. 

Europe’s parliament agreed in principle last week to a phased embargo of Russian oil imports by the end of the year. Despite the opposition expressed by Hungary and Slovakia, whose dependence on Russian oil is particularly acute, the chain-reaction of global realignment set in motion by the war in Ukraine makes an embargo likely a matter of when, not if. 

While some major states such as India have leaped to take advantage of the premiums at which Russian oil is now exported, the sanctions campaign against Moscow is of such intensity that it may soon have to shut down production for fear of its infrastructure collapsing. 

Due to slumping demand, Russian pipelines have begun backing up, raising the possibility of facilities being shut down more or less permanently. This would, at a stroke, remove four to five million barrels per day from the market, perhaps the largest and most rapid energy shock in history.

Where the price of oil will go as a result is anyone’s guess, but what is certain is that all energy importing countries will suffer from unprecedented economic stress. Many economies may cease functioning entirely and effectively exit the modern world system. 

As well as the Global South, this shock will profoundly affect the European Union, itself overwhelmingly dependent on imported energy. Bafflingly, Brussels seems only half satisfied with ending its oil imports from Russia, roughly 25% of its total needs. Of far greater significance is the nearly 40% of European energy imports from Russia in the form of natural gas, that Brussels, with enthusiastic encouragement from Washington, has declared its intent to phase out. 

With the Russo-Ukrainian conflict devolving into a protracted war of attrition, the EU leadership is more aggressively pushing for an immediate end to gas imports as well, cutting off Moscow’s single largest income stream.  

Among the few opposing voices has been Irish MEP Clare Daly, who noted that further sanctions would not only cause huge privation to ordinary Russians but would fuel already rampant inflation and a historic decline in living standards within Europe.

Whether the EU embargoes Russian gas, whether Moscow pre-empts this with its own embargo against Europe, or whether Ukrainian forces begin targeting pipelines from Russia that transit their territory, Daly’s warning may prove to have been overly conservative. 

For Germany alone to completely lose access to Russian energy would be a crisis on par with the hyperinflation of the 1920s. Contingency plans have been activated to prepare for fuel rationing, signaling the choice Berlin will soon have to make between heating and electrifying the homes of its citizens and keeping its industries alive. If the vast petrochemical facilities of western Germany, which have been the economic nerve center of the continent for over 150 years, are forced to scale down or even end production, the Eurozone’s days as a pole of the global economy are likely finished for good. Even if the conditions causing the collapse are only temporary, Europe’s aging demographics are already well past the point at which it will be able to rebound to its previous economic prominence. A wave of sovereign bankruptcies and exits from the Eurozone and the end of the European project itself seem to be an on-rushing reality. 

End of the Chinese Century?

Beijing, while it has attempted to steer clear of involvement in the Ukraine war, is far from unaffected by it, especially as it continues to struggle with the burden of the coronavirus pandemic. While China was a model of public-health safety in 2020 and 2021 as millions of Americans and Europeans died, Beijing’s ‘zero covid’ strategy has ironically now left most of its citizens without exposure to the Omicron variant and its terrifying transmissibility that will inevitably escape even the CCP’s grasp. Added to the fact that the Chinese vaccines have shown markedly diminished efficacy against later mutations of covid and the only course of action available to prevent millions of deaths is to continue shutting down the economy as tightly as possible. 

For a country as dependent on international trade as China, this is a spectacularly risky choice to make, but it is likely the best one available to the CCP. The return of hard lockdowns to the world’s busiest ports has once again thrown global supply chains into chaos. The United States, having endured the worst response in the developed world to the pandemic, is dragging itself into the endemic stage of the disease. While it does, Washington is overseeing a historic reshoring of advanced manufacturing, a profound break from the last 40 years of globalization. As it does so, the US is uprooting the foundations of the Chinese political economy going back to the days of Deng Xiaoping. If president Xi Jinping does secure a third term in office, then it will be defined by the search for a new economic formula and model of development upon which to justify CCP-rule. 

As it navigates that geopolitical maze, Beijing will simultaneously have to find a way to satisfy its energy requirements which reached crisis levels late last year, consigning a third of its provinces to rolling blackouts. With the likely disappearance of Russian exports in the near future and an oil price above $100 per barrel for the foreseeable future, the continued rule of the Chinese Communist Party is not to be taken for granted. 

A new American century?

What should surprise no one is the unprecedented geopolitical capital the United States is reaping from these relentless crises. The anti-Russian sanctions regime has demonstrated the enduring power of the dollar’s hegemony. If the Eurozone and China are the next pillars of the world order to fall, then the US currency will become even more so the haven of last resort for any and all asset-holders within the world economy. 

With American agricultural, petrochemical, energy, and arms corporations now filling the market void left by Russia, Ukraine, and potentially soon the rest of Europe, there will inevitably be triumphant howls from the White House akin to those which followed the fall of the USSR in 1991. 

While US hegemony is looking perhaps more unassailable than ever, it is only because it will soon be the last world pillar left standing. To strain the metaphor just slightly further, no structure held up by a single pillar can be expected to remain standing for long.