Fishing for Trout With Rope and Mashed Potatoes; Mentality of Jackasses; Gas Pains

The EU stepped up its sanctions today after forcing all the ducks in line with the position of president Obama. Russia immediately responded in kind with actions on cars, clothes, and energy.

The Financial Times reports Russia Threatens to Cap Western Car and Clothing Imports.

Russia threatened to escalate a growing trade dispute between the Kremlin and the EU, saying it could cap western car and clothing imports.

The fresh warning came as EU diplomats ended a week-long deadlock on Thursday over a new round of sanctions against the Kremlin, and agreed to trigger measures to block Russia’s largest state-owned oil companies from raising money on European capital markets.

Forcing Ducks In Line

The measures were due to go into effect at the start of the week, but several EU countries balked, arguing they needed more time to assess whether the Kiev-brokered ceasefire would take hold.

Diplomats said the decision by EU ambassadors to press ahead came after Herman Van Rompuy, the European Council president, held a conference call on Thursday with the leaders of the four European countries in the Group of Seven leading industrialised nations – Germany’s Angela Merkel, France’s François Hollande, Britain’s David Cameron and Italy’s Matteo Renzi – to finalise the measures.

Russia's Response

Speaking after the EU announcement, Vladimir Chizhov, Russia’s permanent representative to the EU, told Russian newswires: “Russia has no other choice but to go for certain countermeasures.”

Russia Tightens Gas Supplies to Poland

Also consider Russia Tightens Gas Supplies to Poland.

Poland’s state gas group PGNiG said on Wednesday that Gazprom had delivered 20 per cent less gas on Monday and 24 per cent less gas on Tuesday than it was contracted to supply. Kiev confirmed Poland had been forced to stop re-exports to Ukraine in response to these cuts.

Igor Prokopiv, head of Ukraine’s gas pipeline operator, confirmed the knock-on effect in Ukraine.

“At 2pm Poland stopped reverse gas flows to Ukraine which had been in the range of 4m cubic metres,” he told journalists in Kiev. “Today Poland put in an order for 11 mcm a day, and Russia confirmed orders for 7mcm. Those 4mcm are our reverse flows.” 

Energy supplies are one of Ukraine’s most serious vulnerabilities. It is one of the world’s least efficient energy consumers and its supply crunch is being compounded by falling coal production in the Donbass region, which has been affected by conflict. Ukraine needs to import about half of its consumption of about 50 bcm annually and analysts reckon it would be hard to weather the winter without imports of 5bcm to 10bcm

The volumes of reverse-flows are modest in comparison with Ukraine’s needs. Slovakia is exporting some 21 mcm/d, Hungary can supply 16 mcm and Poland can send 4 mcm.

Priorities vs. Solidarity

Ukraine complained last month that reverse flows were running at far less than potential capacity; Hungary for example is sending only about 3 mcm, because its priority is to fill its own storage facilities in readiness for a stand-off with Russia.

Gas Pains

The above statements sum up the position quite nicely, don't they? In essence it's a big F*You to Ukraine.

Better Ukraine to be totally without gas than for the rest of Europe to suffer from any gas pains.

Sanctions Never Work

As a result of previous sanctions, and counter-sanctions fruit is rotting in the fields, and European GDP is under pressure. Please consider

• March 19: Sanctions are a Negative Sum Game.
• March 20: Buffoon Bluffery; What are Sanctions Really About?
• July 29: Russia Eyes Banning US Chicken, European Fruit
• July 30: Sanction like a two games in one: "Chicken" Coupled with M.A.D
• July 31: Adidas, Volkswagen, Siemens and Royal Dutch warn Sanctions Starting to Bite the Hands That Promoted Them
• August 4: Russia responds to increased US sanctions by blocking fruit imports from Poland: How About Them Apples?
• August 6: US Dependent on Russia for NASA Launches; Well, Guess What? Russia Fires Back With More Sanctions: NASA, Pepsi, McDonald's, Autos in Spotlight
• August 8: Putin’s Trade Blow Throws Finland’s Exporters Into Shock
• August 11: 800 Finnish Dairy Workers Furloughed Due to Russia Sanctions, Others Fired; Brussels to Buy Fruit with Public Money
• August 14: Solidarity Goes Up in Smoke as Slovakia Proclaims "We Can’t Sacrifice Our Interests in the Name of Some Duel"

Small Price Theory

Who cares if history says sanctions don't work? Who cares if a recession ensues? Not to worry, it's a "small price to pay" say sanction supporters.

I encourage everyone to read my previous discussions on the absolute silliness of the "small price" theory.

• "Small Price to Pay"
• Scathing Anti-West Editorial in German Handelsblatt; Reader Emails on "Small Price to Pay"

Air Flight Restrictions

On September 8 I noted Russia threatens to block commercial air traffic over Russian airspace. Costly re-routes on the way. See EU Threatens New Sanctions; Russia Responds with Threats on Natural Gas and Airspace Flight Restrictions.

Mentality of Jackasses

In the above article I commented ...

Why EU and US economic-jackasses think sanctions will accomplish anything positive or change Russia's behavior one bit is at first glance a bit of a mystery.

However, economic-jackasses by definition are going to do stupid things, so we should expect more and more of the same failed tactics.

Reader Terry responded "I’m astounded that you, a libertarian, belittle the EU for economic sanctions. The EU has nothing but economic sanctions to make Russia pay any kind of price for invading its neighbors."

Sanction Irony - Putin's Popularity Hits 87%

I am amused by the silliness of Terry's comment. For starters, no Libertarian would ever be in favor of sanctions. 

Invariably, the average citizen ends of paying the price. And that holds true for both sides.

Time Magazine explains how sanctions really work: Putin’s Popularity Soars to 87% in the Face of Adversity

Expect Putin to cave in on account of sanctions? Think again. The bigger the sanctions, the greater the hardships on those who impose them.

Nonetheless, the EU and President Obama want to "do something". So they do. And to get support, they flash the "patriotism card". Unthinking sheep fall in line every time.

Fishing for Trout With Rope and Mashed Potatoes

In spite of the fact that sanctions are counterproductive, the "EU has nothing but sanctions to try" so that's what they do. Next, mainstream media parrots fall in line. Ultimately,  and under the guise of patriotism, the sheep and ducks fall in line as well.

The sanction approach is similar to fishing for trout with rope and mashed potatoes because that's all you have to fish with.

Actually, sanctions are far worse.

Fishing for trout with mashed potatoes and rope only wastes time and potatoes. Sanctions waste more time, a tremendous amount of money, and the bigger the sanctions, the greater the loss of jobs and economic output.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com