Christof Rühl, member of the Advisory Board of Crystol Energy and a Senior Fellow at the Center on Global Energy Policy at Columbia University, discusses the latest global macroeconomic developments and energy markets in this weekly interview to the Gulf Intelligence.
Christof comments on whether central banks have been desperate for someone to blame for the inflation we see today, stressing that the reality is that the wall of money that they have created has been the cause. And they were warned – many economists, very supportive of their policies initially, have said in the last six months that too much easing was going to create inflation. Rising energy prices and food prices have not been the root cause of inflation – it’s been monetary policy. And usually, a one-off increase in prices such as energy is not inflationary anyway – it’s just a shift in relative prices.
On whether it is too late to try and control it, he believes that it’s not central banks primarily anymore that can change anything. It’s the fiscal packages, and what’s in the pipeline for example in the US with the infrastructure projects under way, that will be executed with social expenditure. What happens there will have more immediate impact on energy markets than whether the Fed tapers or not. And even when tapering starts, it won’t work as it’s just a misallocation of capital, despite being inflationary. Market participants today know that there’s no way around taking monetary easing off the table at some point, unless the real economic situation deteriorates because of Covid or another similar crisis. Wall Street knows that this can’t go on.
Christof further discusses the impact of the European energy crisis on economic recovery, which has not been weighing on much yet because governments are stepping in with subsidies. However, what we are seeing is natural gas becoming a globally traded commodity, no longer subject to fixed price long term contracts, or to oil. It’s become a cyclical and strongly volatile commodity. The other thing we are seeing is this link to the energy transition. It’s very disturbing for consumers, especially in Europe, who are used to stable electricity prices, to see this volatility. That will become stronger when the energy substitution is under way and don’t forget, government subsidies cannot be used with the energy transition. Add to this the fact that coal is coming back, it’s clear that the transition is going to be much harder than people expected.
Christof is joined by Mike Muller, Head of Vitol in Asia. Dyala Sabbagh from the Gulf Intelligence moderates the discussion.