The Era of "Geopolitical Subsidies" Looms

Energy emergency could force new policies

“Geopolitical Subsidies” is a concept/expression of Abishur Prakash

As Hungary caps the price of fuel, after oil prices hit $119 a barrel, nearing the $150 “crisis line” that Qatar previously warned about, the European Union (EU) has begun discussions around how to curb exploding energy prices.

For the EU, the squeeze is not just the Iran war, as less than 10% of the bloc’s liquified natural gas (LNG) flows from the Middle East, mainly Qatar. Europe faces a three-fold crunch: its own ruling to phase out Russian gas imports by the end of 2027, as Moscow still supplies anywhere from 15% to 20% of Europe’s gas; total European storage levels for gas falling below 30% of their capacity, at a moment when European natural gas prices climb a staggering 70%, making new reserves and supply extremely expensive; and Europe’s own reluctance to increase gas imports from the US, a dependency that could be weaponized down the line.

There are no “good” options as Brussels discusses financial support for certain sectors, continent-wide energy caps, or even cutting taxes temporarily. A stone’s throw from EU borders, the UK faces its own nightmare: the nation only has two days of gas storage, and a former advisor is warning the country to prepare for “fuel rationing.”

Outside of Europe, the world is in its own scramble.

Thailand is burning through $32 million a day to subsidize diesel, a figure that could reach $320 million by March 18th, all from the nation’s state oil fund. An Indian restaurant union is warning that without new supplies of liquified petroleum gas (LPG), around 50% of hotels and restaurants in Mumbai could shut down within days. For now, some restaurants have slashed their menu offerings. And, Africa is bracing itself for Gulf investments to dwindle or disappear as Arab capitals keep capital on hand and cancel obligations abroad, unsure of what comes next, a major disruption to African development plans.

The world is entering an unprecedented energy emergency that eclipses that which started after Russia’s invasion of Ukraine. So far, nations are unlocking reserves, doling out cash, or moving military assets to try to reopen the Strait of Hormuz. None of this is guaranteed to work.

The new energy crisis is centered on two parts.

The first is the actual supply of energy to the world, which is paralyzed. On March 14, the Strait of Hormuz marked its first day of zero activity, meaning not a single vessel traversed the chokepoint. There are rumors that Chinese and Indian ships may have safe passage, alleviating “some” Asian pressure. Except, the energy crisis is already bigger than Iran. There is Russia’s threat to restrict energy flows to Europe, China’s move to limit jet fuel supplies to Australia, and warnings, like in Pakistan, where LNG supplies will run out by April 14, according to current storage levels. Nobody knows what the supply situation will look like next. Will US gas exports surge? Can Australian LNG save the day? How far is the world from a dual gas-oil crisis?

Second is what happens as the energy crisis worsens. How do governments shield their economies and societies?

This brings the focus to the next state policies. At a moment when governments are stepping into the economy, from technology to trade (geopolitical capitalism), the state is likely to step in at this moment too. The world may be on the verge of “geopolitical subsidies” - where governments continuously subsidize sectors and businesses because of geopolitical turmoil, starting with the burgeoning energy emergency.

There may be little choice.

Without gas and oil supplies stabilizing, businesses will need continuous assistance. Sporadic loans can only go so far. And the energy situation is not the last geopolitical shock. What may be looming is a new dawn, where governments open the taps of capital - credit, refunds, grants, bailouts, investments - to keep their economic engines online. In tandem, some nations are likely to use the current emergency as the trigger to build more reserves, be it oil, semiconductors, or batteries. The next subsidies may not be financial, but actual resources themselves, supplied by the state.

On some level, the subsidies have already started, like what is happening in Thailand. However, geopolitical subsidies go beyond subsidizing diesel, petrol, or gas. They are about governments taking a permanent position of permanently subsidizing the resources that businesses need, and which geopolitics is squeezing.

Geopolitical subsidies further intertwine the state and economy. They point to governments accepting that organizations are ill-prepared for what is happening and looming. Once they begin, the state will be permanently supporting companies, a continuous pipeline. For now, governments may assist without question. In the future, might they demand something in return?

-Abishur Prakash aka “Mr. Geopolitics”

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Mr. Geopolitics is the property of Abishur Prakash/The Geopolitical Business, Inc., and is protected under Canadian Copyright Law. This includes, but is not limited to: ideas, perspectives, expressions, concepts, etc. Any use of the insights, including sharing or interpretation, partly or wholly, requires explicit written permission.