Is the Kazakh uprising just the beginning?

There’s a clever quote from a clever fellow (I can’t remember the details of either) along the lines of, “Most people will accept anything… except being unable to put food on the table for their family. Then they snap.”

We’ll get back to that. Because in our modern world, it seems to be fuel prices that trigger chaos first.

If you’ll recall, it was rising fuel prices which sparked the Yellow Vest movement in France, whose name I won’t try to spell in French after being admonished by readers in the past.

And now fuel prices have sparked chaos in Kazakhstan. What’s Kazakh for Yellow Vests? Cары жилеттер, according to Google Translate anyway.

In the UK, we’re not at protest levels… yet. But the EU’s VAT on fuel has become a major political topic. Not to mention the drama over the fuel shortages a few months ago…

What is it about fuel prices and protests?

Well, there are lots of clever analysts who equate energy with life. It’s the most basic building block. Money is, in a way, just pent-up energy, they argue.

This sounds a bit naff, but the underlying idea is sound. It takes energy to get or make anything. It is known as the master resource because of this.

Whether you expend your energy to make something directly (mill grain to make flour), or get paid for expending your energy in your day-job, and then buy flour with the money you earned, it was a conversion of energy into stuff (or services) that really happened either way.

Thus, money masks what’s really going on. Our economy is really based on energy conversion, not financial transactions. Money and transactions just make things more efficient by allowing specialisation and economies of scale.

Therefore, the key question for growing an economy is energy input and output. How much you get per unit of energy expended.

And so, when energy becomes more expensive, it impacts everything. Every human activity. It rearranges what activity makes sense to spend your energy on, and how much.

That’s what makes Europe’s energy crisis so dangerous, as we’ll look into a little more in a moment. It may seem like high gas and electricity bills are just high gas and electricity bills. But, as the world is discovering, they mean far more.

Food is of course just an energy source like any other. Actually, it’s an especially important one, in a way. And so let’s move on to where our hearts truly lie – our bellies.

In my home of South East Queensland, currently being hit by its first wave of Covid so far in this pandemic believe it or not, supermarket food shelves are empty, according to the media anyway.

Now, as far as I know, we’re talking about a food exporting region, so you can’t blame Brexit for this one. And Queensland is far from alone, of course. But the point is that our pandemic has reached where we are most vulnerable and what people tolerate least – food.

There’s another connection between energy prices and food prices. Energy and food production are tied at the pip.

That’s especially true over in the Netherlands, where a huge amount of Europe’s food is grown in greenhouses. That makes them very energy dependent, and so food prices are tied to energy prices.

The Dutch greenhouse operators, however, didn’t just decide to charge more for their food. That would be too capitalist. Instead, they followed the socialist playbook and reduced a lot of their production. I wonder what the consequences might be.

It turns out that even fertiliser is energy dependent. A blog post on International Man explained how:

Natural gas is THE critical input into making fertilizer. Urea is essentially ammonia in solid state, the process of which entails reacting ammonia with CO2. And we all now know — thanks to the climate nazis — that CO2 is currently the devil. The problem of course is that with no natural gas there is no urea, and with no urea there is no fertilizer. And with no fertilizer…

This comes from a piece called “Here’s How the Energy Crisis Turns Into Hunger and Then… War?”

Coming full circle, the urea shortage itself led to supply chain chaos in Australia by making a mess of fuel supplies. Bloomberg’s summary of just how interconnected things are is brilliant:

The shortage of urea that has pushed global fertilizer prices to unseen heights is threatening supply chains in Australia.

At least half the diesel-fueled trucks in the nation require an exhaust fluid based on urea to keep running, according to Warren Clark, the chief executive officer of the National Road Transport Association of Australia. The additive, known as AdBlue, is used in modern diesel-fueled trucks to improve air quality by cutting emissions of nitrogen oxides.

Energy shortages in Europe and China have seen heightened demand for coal and natural gas in power and heat, reducing the amount of the fossil fuels available as feedstock for fertilizer production and sending prices to record highs. Supply challenges have been heightened as major exporters Russia and China curbed fertilizer shipments, and South Korea last month even enlisted military transport planes to ship in urea from Vietnam and Australia, which is now facing a shortage. 

This makes the real point of today’s Fortune & Freedom much better than my article itself. The extent of just how complex and interconnected things are makes it extremely dangerous to meddle in the economy with lockdowns, mandates and other restrictions.

Semi-conductors, gas, fuel or food – they’re all tied together in ways no politician or civil servant understands or can predict.

But we do understand the consequences when they hit us. And sometimes we know who to blame.

When those consequences are soaring used-car prices, we don’t really mind. My grandmother-in-law’s new Mercedes took so many months to arrive that the family want her to stop driving by the time she got it last night. (We inherited her old car.)

But when it’s food at the centre of the problem, that makes our stomach lurch.

Japan’s McDonald’s stores recently ran out of French fries and had to fly over three Boeing 747 loads of potatoes from Vancouver to ease the shortage.

The point, again, is that the fragilities of the supply chain drama are now hitting us where we are most vulnerable. On food supplies and food prices. That means the world could well erupt in chaos.

But surely the end of the pandemic will resolve all this? Perhaps. Or it could change into something similar.

Grant Williams of Things That Make You Go Hmmm has been telling several interviewers about why he thinks our high rates of inflation will continue. And part of the underlying argument is that, when you’ve experienced shortages, you don’t mind paying more. Toilet paper being the example Williams refers to.

Let’s not mention Germany’s World War I and subsequent inflationary experience here.

If customers are willing to pay more, having shortages still fresh in their memory, then businesses can charge more. Or “pass on costs”, if you’re an executive.

The Daily Mail reports, “Three in five firms set to hike prices in coming months as ‘unprecedented’ cost pressures put a break on recovery”.

But don’t worry too much. Governments around the world are busily solving all these problems by imposing vaccine mandates, isolation rules and testing chaos.

Bloomberg has another angle on how they’re being helpful:

The European Central Bank’s inflation forecasts may need to be revised upward because of the continent’s attempts to cut carbon emissions and transition to green energy, Executive Board member Isabel Schnabel said.

[…] the energy transition may lead to inflation remaining higher for longer, thereby potentially raising the risks of inflation expectations destabilizing,” Schnabel said in a speech to the American Economic Association on Saturday, adding that the ECB would need to act in such a scenario.

So, voters are looking at higher inflation and higher interest rates over the green energy campaign.

If you ask me, all roads of blame lead to a metaphoric Rome. And the Kazakhs are only the first to get there.

Nick Hubble
Editor, Fortune & Freedom