We try to avoid regurgitating the news in Fortune & Freedom. Unless it’s to dish out ridicule or point out contradictions. But lately, the news is just so extraordinary… And, no doubt it all sounds a little familiar to the… wiser* amongst us. The phrase “Winter of Discontent” is back with a vengeance.

Of course, all this has implications for financial markets. But first, here is a quick review of just how wild it’s getting out there…

City AM:

First gas stations close as BP and Esso ration fuel

The first UK gas stations are closing as a chronic [NB “acute” would be a more accurate description] shortfall of qualified drivers causes petrol and diesel deliveries to dry up.

BP and Esso owner ExxonMobil have announced that deliveries of petrol and diesel to forecourts across the UK will be reduced to ensure supplies do not run out…

Earlier today BP also said they would be rationing fuel.

The Telegraph made the allusion we’re all thinking of:

Alarm as petrol stations begin rationing fuel

Spectre of panic buying looms, while ‘winter of discontent’ feared as energy firms go bust, supermarket shelves empty and inflation rises…

BP said it was cutting deliveries at 90 per cent of its petrol stations in an attempt to ration the fuel it has in reserve. ExxonMobil, the oil firm behind Esso, said that forecourts it operates at some Tesco supermarkets had also been affected.

The Petrol Retailers Association (PRA) warned that drivers should keep a quarter of a tank of fuel in their car in case their usual station ran out.

The Financial Times reports that things are so bad the suppliers want a “bad bank” to shoulder the burden:

The UK’s largest energy suppliers are requesting a multibillion-pound emergency support package from the government to help them survive the crisis sparked by high gas prices, including the creation of a “bad bank” to absorb potentially unprofitable customers from failing rivals.

And those are the large suppliers. The smaller ones have fallen like dominoes already, reports the Guardian:

1.9m UK homes lose supplier after two more gas firms go bust

The collapse of Avro Energy and Green means nine suppliers have been lost this year

The turmoil is having plenty of knock-on effects too. It turns out that it takes energy to do just about anything in our modern economy – who would’ve thought that?

And so, if energy prices spike, a lot of things become uneconomical…

The Guardian: “Gas crisis forces two UK fertiliser plants to halt work.”

Which in turn led to this Reuters report on a “CO2 shortage caused by closure of fertiliser plants”:

Britain’s meat processors will start running out of carbon dioxide (CO2) within five days, forcing them to halt production and impacting supplies to retailers, the industry’s lobby group warned on Monday.

CNN sums up what comes next as a result: “Gas prices in the UK could trigger food shortages within weeks”.

And the Associated Press covered the predicable result:

The British government agreed Tuesday to support an American-owned firm that produces much of the U.K.’s carbon dioxide, a deal designed to avert shortages of meat, poultry and packaged foods amid a crisis triggered by soaring energy costs.

Business Secretary Kwasi Kwarteng said the government would provide “limited financial support” for three weeks to CF Fertilisers, which halted operations at its UK plants last week due to high natural gas prices.

Now I know what you’re thinking: how did Brexit manage to muck up the global gas market this badly?

Well, Bloomberg’s guide to the topic helpfully explains that, “The UK has one of the most deregulated energy markets in the world,” and “The UK regulator, Ofgem, sets a cap for energy prices for consumers on default tariffs and reviews it twice a year.”


A deregulated energy market with price caps…?

Here’s how Nigel Farage explained it to me on Friday.

But, of course, the gas market is global and we’re seeing similar disruptions everywhere. Vox has the summary:

In Spain and Portugal, average wholesale electricity prices are triple the level of half a year ago at $206 per megawatt-hour. Spain’s government plans to cut taxes on utility bills.

Norway this week offered some relief by announcing that its state-owned energy company will boost the production of natural gas from two North Sea fields.

In Italy, ministers have warned of electricity prices jumping by 40% in the final quarter of 2021 and – like their southern European neighbors – are drafting emergency plans to soften the price blow for consumers.

Not everyone is struggling, of course. In the midst of Germany’s transition to green energy  (known as the Energiewende), the energy behemoth RWE, which is based in my birthplace of Essen, is busy making big bucks from, you guessed it, coal.

I’ll have to translate the relevant bit of Handelsblatt content for you:

Billion-business Coal: Why RWE even makes money from rising CO2 prices

Coal may well be going out of production, nevertheless, RWE will continue to earn smashingly from it – because Germany’s biggest electricity company gambled well…

“You’re not allowed to say it out loud, but RWE will earn really good money with coal,” said an RWE insider. “What we’re seeing at the moment is that the demand for brown coal persists despite the higher CO2 price because the capacity in the electricity market is tight,” said a spokesperson of the company when asked.

Conveniently, because RWE committed itself to coal, it hedged itself against the rising price of CO2 emissions. And so it can burn cheap unfashionable coal with reckless abandon without having to pay for the rising emissions credits. Meanwhile, other energy companies are stuck with higher gas prices and higher emissions prices.

This is a good reminder that, thanks to financial markets, who wins and who loses from any given shift is entirely up for grabs.

A bank which faces ruin from a housing bust could twist its position into a winning one using various derivatives. A gold miner could hedge too much of their production and miss out on a gold bull market. And a coal burner can profit from rising carbon credit prices.

As ever in Europe, when there’s a crisis, it’s time to blame the Russians. The International Energy Agency is busily tilting at windmills according to the Telegraph:

The world’s leading energy authority has issued a rare public rebuke to Russia over a crunch in gas supplies as fears grow that Moscow is stoking a winter energy crisis across Europe…

It came as Spanish officials warned the European Union that rocketing fuel bills risk turning the public against green power, and Boris Johnson was forced to deny there could be blackouts this Christmas.

The IEA, which was set up to respond to disruption in oil supplies in the wake of the 1973 oil crisis, said that the European gas market “could well face further stress tests from unplanned outages and sharp cold spells” after gas prices surged to as much as five times their level a year ago.

This quote from the IEA made me laugh out loud: “This is also an opportunity for Russia to underscore its credentials as a reliable supplier to the European market.”

Erm, no, that’s not how the Russians will see it…

Of course, the price of gas isn’t the only thing going parabolic. A whole selection of commodities have been on the move. In both directions.

Timber, copper, iron ore, coffee, uranium and plenty more have either surged, plunged, or both in recent months. Gas and electricity are only the latest examples.

But I suspect that the financial and economic risks are much higher this time, as the Telegraph explains:

The chill winds that signal a second Winter of Discontent is coming

Life about to get ugly as Britain faces perfect storm of rising fuel bills, food shortages and tax increases.

If the veneer of civilisation is thin, we’re really pushing our luck…

Of course, stock markets have plunged amidst all this chaos…

… although they haven’t.

But how can you have such carnage in the economy without any in stocks?

More on that tomorrow. For now, though, consider this:

Winter hasn’t even started yet!

Nick Hubble
Editor, Fortune & Freedom

*Readers who are both wise and young are reminded that the “Winter of Discontent” was a wave of industrial disputes and strikes – involving lorry drivers and many other workers – that took place in the winter of 1978-79. Brutally cold weather and snowstorms across the UK compounded the ensuing economic chaos.