Our Addiction to Oil Is Starting World War III

umair haque
Mar 8


Why It’s Going to Take More Than Banning Russian Oil To Stop Putin’s War Machine


Today, the world hit a turning point — towards what you might call economic world war. America banned Russian oil. Britain followed suit and announced plans to ban Russian oil imports by the end of this year.


This is a major turning point for the global economy. It’s a brave step to take. One of the lessons which should already be clear from seeing war break out in Europe again — large scale war, civilian-deaths-in-Syria kind of war — is that our economies should have weaned themselves off dirty fossil fuels long ago.


Yet let’s be clear. America gets just 1% of its oil from Russia. Britain, about 4%. The situation for Europe is more difficult: the EU gets about 40% of its gas and 25% of its oil from Russia. And even all this gives a skewed picture.


I’m going to try to teach you the economics of World War III in this post. And to do it, we’re going to start with a broom. Yes, a broom. Not a gun, a missile, or a bomb. Because as we’ll see, a humble broom will explain to you why the world is heading into war better than any weapon.


In the West, how do people order household items, like brooms? Think of the broom in your closet or pantry or wherever. Now think of the one you used to have when you were a kid. Not the same, right?
When I was a kid, a broom was something that you’d buy at the local hardware store. You’d walk down the street, or drive a short distance, and buy one from a bucket, usually, full of them.


The brooms were all the same. They were made of wood, and usually, the brush was straw. There was a tin ring holding the brush in place.


I know, I know, right about now you’re thinking: “Umair, what does this have to do with world war?” Hold on, it’s about to get interesting — and explanatory.


Those brooms — made of wood, straw, and tin — were probably made in local factories. There was probably one in each region, a broom factory. It had to buy five things to make brooms: wood, straw, tin, labour to assemble them, and electricity to keep the lights on. That’s it.


In other words, brooms were made domestically, of local inputs — and largely renewable ones.
Those are the economics of most of our household goods until the 1990s or so. That’s when we signed “trade deals” with China. And what happened after that? Then everything changed.


Today, a broom isn’t a broom. I’m not trying to get Derrida or Magritte on you. I’m just trying to point out a fact.


Today, a “broom” is very, very different. What’s it made of? Plastic. All of it. The handle and shaft — plastic. The brush — nylon fibres of some kind. What holds it all together? Some kind of artificial — aka plastic — adhesive.


What is plastic made of?


Oil.


Where do you get your broom today? Most of us will order it from Amazon or buy it at some hyper store like Walmart or Carrefour or what have you. Where is that broom made? Not in some local factory, but in China.


Do you see — or are you beginning to — how different this simple household object is now? Yesterday, it was made locally, of renewable inputs.


Today, it’s made in China, of oil.


Where does China get its oil? That’s right, Russia.

Now think of the broom in your closet again. It’s most likely a chunk of Russian oil. Every time you pick it up, you are holding a molded piece of Russian oil.


Startled? Now. I’ve gone to this absurd length to try and make the problem really clear to you.
It’s not just a broom.


Think of everything else — and I mean everything else — in your house right about now. Plastic garden furniture? Made in China…of Russian oil. Electronics? Made in China…of Russian oil. Wood-look blinds and flooring? Yup. Tools? Sure. Gadgets? More or less all of them are made in China of Russian oil.


But the problem goes even deeper than that.


Think of what’s on everybody’s feet. Shoes. Sneakers, probably. What are sneakers made of? Plastic, mostly, and maybe nylon and Velcro and so forth. They’re made in China…of Russian oil. We’ve all got a pair of sneakers. Everybody in the West is wearing Russian oil on their feet, if not to the office, then to the gym, to walk the dog, to stroll the neighborhood.


But let’s go even further than that.


When I was a kid, what did people wear? Clothes made locally, of natural fibres. Go to the mall today — any mall in the West. What do you see? Huge chains — Gap, Anthropologie, Zara, whatever. Doesn’t matter. Most of their clothes are sourced in China. And today, our clothes are increasingly made of artificial fibres, viscose, rayon, nylon, etcetera. Our clothes are literally made in China…of Russian oil.

That’s not just true for “athletic wear,” which obviously is — but even of things like sweaters or jeans made of artificial fibres.


What we literally wear everyday is made of Russian oil. We are strolling around clothed in Russian oil.
This rabbit hole is the deepest one of all. Think of the sheets you sleep on. The average Westerner? Made in China, at least 50% synthetic. You are sleeping on Russian oil.


It’s kind of absurd and funny when I put it like that.


But it should also show you the depth and scale of the problem. It’s an immense one.


In case you think I’m exaggerating about all the above, let’s look at some basic trade statistics together.


Electronics. Toys. Games. Furniture. Lighting. Apparel. Footwear. Gadgets. These are all made in China, at least partly of Russian oil — just go ahead and look at the statistics yourself.


When we imagine, then, that by banning Russian oil, we’ve solved our problem of dependence on it, we are seriously understating the issue. We are far, far more dependent on Russian oil than most of us can possibly imagine. Our lives in the West are made of Russian hydrocarbons, in China, from our footwear, to our sheets, to our clothes, to our electronics.


Let me now put all that to you formally. The global economy is based on what’s known in economics as a “triangular trade.” We in the West buy goods from China — so much so that our entire lives are made of them to the point that it’s almost impossible to distinguish one that’s not made in China, from brooms to clothes to sheets. We just take it for granted, and never really stop to think much about it, that everything, more or less, in our personal and professional lives is made in China.


So we buy goods from China. And China buys Russian oil to make them. And Russian gas. Electricity, Coal. Nickel. Iron. Steel. This is the triangular trade the global economy is increasingly based on.


And even all this understates it. So far, we’ve just discussed how most of the goods we buy from China are made of Russian hydrocarbons and other commodities. It is true that China’s “largest importer” of oil is Saudi Arabia —by just .4%. And Saudi Arabia is not exactly well-behaved global citizen, either. But do you know who China’s largest supplier of electricity is? That’s right, Russia. Most of the inputs that go into the goods we buy — the goods that make up every last facet of our lives — are made of Russian resources.
Think about all that for a second, and I mean really think about it. Make a mental inventory of the stuff of your life. Your clothes, shoes, sheets, electronics. All of that is basically just Russian oil and electricity, molded into shapes and forms you can use. You likely don Russian oil when you wake up and get dressed, walk to the office wearing it on your feet, stare at a screen made of it all day, change for the gym into another outfit made of it, change back, come home, stare at another screen made of it, clean up with objects made of it, and then fall asleep on a bed of it.


That is how big this problem really is. Your entire life is literally largely made of Russian oil, and you don’t know it — that’s true for all of us, more or less, in the West.


Crazy, right? How do we not know this, most of us? Because most of us, I imagine, have no real idea how the artificial materials our lives are now made are themselves made, or how much of our lives they compose, from our clothes to footwear to gadgets. Our lives are hydrocarbons. And unfortunately for us in the West, we’ve built a global economy where China is basically a way station that’s one small level above slave labour, and it’s only real role is to transform Russian hydrocarbons into forms and shapes that are the fundamental goods we rely on — all of them.


Now let’s put all that in perspective. Russian oil — the direct kind — makes up just 3% of American crude oil imports, and 4% of British ones.


But this triangular trade I’ve discussed with you? Goods made in China of Russian oil, electricity, coal, gas, steel, iron, nickel? That’s something way, way, way higher. Nobody really knows how much it is, because we don’t count imports this way in economics — tracing them back to their inputs and origins. But obviously, China is America’s largest trading partner.


Let’s try to uncover the truth another way. “According to its Finance Ministry, Russian oil and gas revenues exceeded initial plans by 51.3% in 2021, totalling 9.1 trillion roubles ($119 billion).” So Russia earned about $120 billion from selling oil and gas worldwide in 2021.


Now compare that to just what America imports from China alone, the mere tip of the iceberg. “The top import categories (2-digit HS) in 2020 were: electrical machinery ($111 billion), machinery ($97 billion), toys and sports equipment ($26 billion), furniture and bedding ($23 billion), and miscellaneous textile articles ($21 billion).”


That’s about $240 billion — twice what Russia earned from selling oil and gas worldwide — already, and we’ve barely started down the list of what just America imports from China.


The EU and Britain probably together are probably at similar numbers. Now we’re at half a trillion dollars. And remember, we’re only counting the first five categories of imports or so. Add it all up, and the actual value of the triangular trade — we buy stuff from China, China buys Russian oil, gas, electricity, coal, nickel, iron, steel to make it with — is probably closer to a trillion dollars.


That doesn’t mean that Russia gets a trillion dollars a year — it’s just the total size of all this trade overall. Russia’s total exports are about $400 billion or so. The problem is, an increasing share of Russia’s economy is based on this triangular trade. China used to buy most of its oil from other nations — today, Russia is neck and neck with Saudi Arabia. That is what Putin is betting on, in a sense — even if we stop buying oil and gas directly, it’s sold right back to us in the form of stuff made with Russian energy, anyways.


Today, officially, Russia officially exports $50 billion to China, which is mostly energy. That number is likely to grow, and that is the problem here. That figure’s doubled over the last decade. Putin’s war chest grows just this way — and the truth is that figure’s probably grossly understated unless you…trust Russian accounting. That figure’s also going to rise dramatically as prices spike for all the resources — gas, oil, steel, iron, electricity, nickel, coal — China buys from Russia to make stuff for us in the West
Let me put that another way. Today, banning Russian oil costs Putin a few billion here and there — because America doesn’t import a huge amount. The amount of Russian oil America essentially imports in the form of Chinese-made clothes and gadgets and sheets and shoes and everything else you can imagine utterly dwarfs, at hundreds of billions of dollars a year, the amount of oil America imports from Russia, which is only about $5 billion.


Meanwhile, the EU can’t ban Russian oil and gas overnight — it’s too dependent on them. Without them, no heating, lights, stoves. Officially, Russia exports about $80 billion to China. Meanwhile, it exports about $100 billion of energy to the EU. So it’s true in a simple sense that “China can’t make up for losing the EU.” But that’s not quite accurate, in my view. It will take a decade or more for the EU to really wean itself off from Russian energy. During that period, Chinese energy imports from Russia — which are already close to equivalent — are likely to rise significantly. Unless we in the West cut our voracious appetites for everyday stuff made of Russian oil.


This triangular trade generates a huge, huge pot of money. That is what Putin’s war machine really has to work with. It’s not just that he gets direct income from his sales of oil and gas to us. The problem here cuts much, much deeper than that. It’s that our lives are made of Russian oil, in the deepest ways — we sleep on it, wear it on our bodies and feet, stare at screens made of it, and so forth. We pay China for all those goods, and China turns right around and sends the majority of that money right back to Russia, to pay for the Russian oil, gas, electricity, coal, nickel, steel, iron, and so forth, that our Western lifestyles are literally made of.


Am I saying banning Russian oil is pointless? Of course not. I am saying something very, very different.
These are the economics of World War III. Our lifestyles in the West depend on Russian resources — transformed by Chinese labour — in ways we scarcely comprehend. So what do we do? Imagine that tomorrow we tried to…ban…all the stuff in our lives that’s actually made of Russian hydrocarbons, by way of China. Sorry — no more shoes, clothes, gadgets, electronics. Good luck with that. It’s a political impossibility.


We are going to need to transform our global economy. It can no longer be based on the triangular trade of the West buying everything it depends from China made of Russian resources, particularly hydrocarbons, which end up in the form of artificial fibres and textiles and plastics and so forth, which have come to make up the entire Western consumption-based lifestyle. Because all that just funds Putin’s war machine.


If we really want to wean ourselves off of Russian oil, our economies need to transform in far more radical ways than just banning it, or even clean energy here in the West — we are going to need to make things again, of our own resources, the things we need and depend on most, whether clothes or shoes or electronics. Our economies will have to be far, far more local, labour intensive, and use fewer resource intensive inputs. That’s a good thing for the West. It means higher wages, in the long run, which fuel political stability, and more expansive social contracts made of larger public purses.


But in the short term? There will be major, major costs of adjustment. The fact that wheat and oil and gas and nickel are skyrocketing was eminently predictable. The West now faces a dramatic and sharp fall in living standards. The way to combat it is to invest now, in going beyond the triangular trade of “We buy stuff from China, China makes it out of Russian resources, and all that funds Putin’s war machine forever.” If we invest now — in factories, skills, labour, talent, that makes all the stuff we need to live on and with — then we combat that fall in living standards, and undo the triangular trade wrecking our world, too.


But if we don’t, the triangular trade keeps going on. And Putin’s war machine has money forever — because as I’ve described to you, what we spend on Chinese imports made of Russian resources, whose money flows right back to Russia, dwarfs what we spend on Russian oil.


And so the longer we let this triangular trade goes on, the more dangerous the world gets. Putin already has ambitions that go far beyond Ukraine. He’s already destabilised America and Britain. We fund a malicious global actor like that. And then China will have to get involved, too, at some point. Right about now, it is doing a delicate balancing act, if you haven’t noticed. That’s because it’s in the middle of this triangular trade.


But sooner or later, it will have to choose a side, if war spreads. And that side probably won’t be ours. Because while it sells us stuff, it’s Russia who keeps its lights on. Its people fed. Its factories humming. If you were Xi, you’d also have to choose Russia. Because keeping the lights on and people fed is even more fundamental and basic and necessary than selling the West gadgets and shoes.


America is China’s largest trading partner — but China is Russia’s largest trading partner. This bizarre love triangle, as one of my favourite bands might have called it, is wrecking our world, because the money from this triangular trade ends up going right back to Russia. Our Western lives are literally increasingly made of Russian oil — and its other resources — in ways we have yet to understand at all, from our clothes to shoes to sheets to screens and beyond.


We need to unravel it and rebuild the global economy before it’s too late.

Not after the World War, this time — but hopefully, before it spreads.


Umair
March 2022

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