War in Ukraine

Dear ,

Trouble at home, trouble abroad. Australia is being challenged at a number of levels, but there are some common themes.

Floods, war and pestilence are all historical inevitabilities, yet every time one or the other occurs, for many it’s as though it is for the first time. Yet it’s predictable that each will happen, the problem is predicting where, when, and the size of the problem.

I thought about writing about the floods, and I’ve already written a number of times about COVID, but instead I’m going to write about the first major war in Europe since World War II and its implications for domestic energy policy.

This war is an event that I foreshadowed in newsletters 12 months and more ago, which were turned  into Spectator articles, and republished on On Line Opinion We’ll need to pay a higher defence premium under Biden (November 2020) and The Taiwan test (April 2021).

As I said in the second piece:

With a self-obsessed US ruled by a near-senile gerontocracy driven by barely post-pubescent revolutionaries like Alexandra Ocasio-Cortez, it's natural that the two great, nuclear-armed mercantilist nations would push against it to see whether they can both achieve long-cherished aims of regaining territory they feel is theirs.

Despite the almost inevitably of this conflict it appears to have caught the West, in particular, napping, and it’s changing the conversation about energy and international trade.

The bad thing about the good times, is that they lure you into forgetting just how bad the bad times can be, and tempt you to luxuriate in a Lotus land of impossible fantasies.

And the West has had almost 80 years of good times since World War II. Yes, there have been wars, and economic collapses, but the arc of human advancement has been mostly up.

This has accelerated in the last 40 years because of the longest-ever bull market in interest rates which has driven assets to historically high prices, encouraged innovation by lowering the cost of speculation, and encouraged governments and households (not so much companies) to borrow to historically unprecedented levels. The result has been an increase in living standards, and turbo-charged perceptions of wealth due to asset price inflation.

The West has also benefited by the outsourcing of manufacturing to low cost developing world countries, who’ve been happy to wear the cost of lower wages for the benefits of urbanisation, and this has contributed to deflation in the price of goods, counteracting to some extent stagnate wages in the West.

As a result we’ve been able to indulge ourselves not just with luxury goods, but luxury ideas. Some of these ideas are deep Green environmentalism; climate change hysteria; the ideas of critical race theory, intersectionality (and victimology generally); equality of outcome as opposed to equality of opportunity; safetyism; and replacing a guilt culture with a shame culture, and empiricism with relativism.

Which is partly what has caused the Ukraine War. If you are Putin looking at the West you see a spoiled generation frittering away the wealth of its parents on vanity projects that make it materially, emotionally and spiritually weaker.

If we want to prevent more wars, then we need to walk these ideas back.

The West has become delusional, incapable of understanding others on the other’s own terms. When Whitehouse Press Sec Jen Psaki attempts to haul in the Taliban rape and pillage in Afghanistan by saying “The Taliban also has to make an assessment about what they want their role to be in the international community” you know the US administration has lost its mind.

And if you know it, so do Vladimir Putin and Xi Jinping.

Putin’s reasons for invading Ukraine are a put-up job.

It’s not to do with having another NATO country on his borders. He already shares borders with 5 NATO countries, and by making Ukraine part of Russia he will definitely put NATO missiles on his borders by moving the border.

It’s also not to do with Ukraine being Russian. Some Ukrainians are ethnically Russian, but most of them are Ukrainian, and while Ukraine was part of the Russian federation at some stages, it has a long history of being independent, as well as being conquered and administered by a number of other countries, including Poland and Lithuania, the Austro-Hungarians and the Ottomans.

It was even ruled by Vikings at one stage, so does Sweden have a territorial claim?

In Putin’s case, he’s invading because he can. He’s a warlord running a modernish mercantilist oligopoly. He’s about raw power and self-aggrandisement. Just like the Varangian (Viking) rulers of the Ukraine were.

He’s also about legacy, for himself and his country. And like Peter the Great, a man who he apparently idolises, he’s not too concerned how many dead bodies he has to climb over to secure that legacy.

Like Peter the Great he also appears to believe he has a right to rule Russia, and that in some fundamental way he owns Russia and Russians. As Louis 14 said “L’etat, c’est moi” – that’s the basic monarchical mindset.

That is an entirely different way to how a Western ruler would see themselves.

So if Putin gets his way in Ukraine, it is the triumph of the past over the present and the future, and would see a rolling back of the rules-based order. He would have his imitators, starting with Xi Jinping.

What are the consequences of this war for Australia?

If we are going to win the arm wrestle with the past we need to muscle up. That means spending more on arms and munitions than we do at the moment, and possibly expanding our men and women under arms.

It also means making our economy more resilient.

The sinews of war are economic, and we need to ensure we have a strong economy, with multiple redundancies. If a low carbon economy is the goal, then we have to recognise that wind and solar will not achieve that at any reasonable cost, and we need to embrace nuclear power.

Fourth generation small modular reactors provide us with an opportunity which are cost competitive, can be plugged into the existing network, and can be decentralised, so they are harder to disable than a conventional coal-fired system.

There are many impediments to nuclear power, not least legislation passed by John Howard banning it. We need to start now to address these issues.

Nuclear should also allow us to be cost competitive in manufacturing as SMRs appear to produce as cheaply as coal-fired power. But this is an idea with a 10-year horizon at least before it could be instituted to any degree.

The current scramble in the USA, UK and Germany to replace supplies of Russian gas with domestic, or other sources, reminds us how important energy self-sufficiency is. It also demonstrates the role that Australia could play by making the world less reliant on potential bad actors for their energy.

That is something we can do something about almost straight away.

We need to take away impediments to oil and gas production. One of those is the Environment Protection and Biodiversity Act which has been weaponised to allow green activists to delay, or prevent, necessary development.

I’m not against the environment, but there has to be a cost benefit trade-off between human life, and say, the black-throated finch.

The government also needs to look at the role of corporate regulators, corporations, and the ASX in punishing companies who produce fossil fuels by strangling their access to finance. Governments should determine emissions policy, not outsource it to would-be corporate oligarchs.

Of course the market has a role to play, but this should be on the basis of economics, and there are many uses for which there is no alternative to oil and gas, such as plastics, fertiliser, transportation, steel production, and firming and backing-up unreliable renewables.

There is a green-left fantasy that there is somewhere you can go to buy all the renewables you need, and that you can and should therefore junk all your current assets. It’s not true. There is an economic cost to closing, say, a power station well-before its end of life. And there is just no economic alternative to, say, natural gas, to manufacture plastics.

Even if there were, the physical resources are not there to replace them all at the same time. Acting as though there is will lead to increased commodity prices (as we are seeing at the moment), and increased poverty and misery (which we are about to see in Europe) as well as an increase in deaths.

It’s ironic that the same people who say one life lost to COVID is one life too many, and we should spend all we have to protect that life, are so cavalier when it comes to the deaths that occur through lack of access to affordable energy and goods.

We also need gas to firm-up unreliable electricity generation in the network. The batteries aren’t available, and neither is the pumped-hydro, so while we persist with the solar and wind fantasies, we’ll need open-cycle gas power generation.

Of course we need to significantly increase gas exports. Our allies, even those like Germany and the UK, which the Greens would have you believe are far ahead of us in decarbonising, need gas because there is no alternative.

Which means releasing much more land for exploration in NSW and Victoria, as well as expediting the building of new gas pipelines to bring already existing reserves closer to market and lowering the cost.

The Deep Greens are already piling-in spreading the furphy that the Ukrainian war proves the need for “cheap renewables”. We need to meet them with facts, figures and emotion. Many of them are funded in part by Russian and Chinese organisations. The war front is not as far away as you might like.

Regards,

GRAHAM YOUNG
EXECUTIVE DIRECTOR