Weak links in finance and supply chains are easily weaponized | Hacker News Reader

Weak links in finance and supply chains are easily weaponized

nature.com

107 pointsrntn24 comments

This has already happened. It is not a coincidence that we went from $-40 oil to $130 oil in the span of two years.

I posit the Saudis and Russians deliberately maintained elevated production levels into the COVID shutdowns in an attempt to handicap US energy production. Bankruptcies in the US ensued. Wells were shut. Supply went offline. Now we're begging them to turn the wells back on, and they're not interested.

Evidence to ponder for the unbelievers.

[0]: In March 2020, Saudis and Russians can't come to an agreement about cutting output into a global shutdown (this was clearly a show)

https://www.csis.org/analysis/oil-price-war

[1]: Trump pushes Saudis to cut production into negative oil, US bankruptcies ensue

https://www.reuters.com/article/us-global-oil-trump-saudi-sp...

[2]: Biden tells Saudis to boost production amid $100 oil

https://www.businessinsider.com/us-officials-ask-saudi-boost...

[3]: At all time high prices, OPEC is still behind its production targets.

https://www.reuters.com/business/energy/opec-oil-output-marc...

The beauty of this strategy is that is creates the continued fear that at some point the Saudis will turn on the tap and oil can go sub $60 again (see futures prices at the long end of the curve), so the US is still wary of investing in oil and gas to deal with the shortage.

Everyone seems to forget the Saudis created an oil crisis in the 70s for political gain once. How we are not talking about this today more actively is beyond me.

Did you read the article? The article explains at length that “this has already happened”.

This is a nice story but this:

> Bankruptcies in the US ensued

Never happened. What happened is that the US voluntarily shutdown their oil production out of concerns for the environment.

So however this idea of the Russians and Saudis would surely make for a good plan, it's more suited for the plot of a new TV series.

> Never happened. What happened is that the US voluntarily shutdown their oil production out of concerns for the environment.

As someone who lives in Texas not too far from the oil patch, this made me double cringe. Folks were put out of work, companies went under. They didn't voluntarily decide to stop feeding their families for the reasons you noted. Where did you get that information??

"Bankruptcy debt across the North America oil and gas industry passed $100bn in 2020 for the first time, reflecting the huge financial impact of the pandemic-triggered market crisis.

In what was “arguably the most devastating year in history” for the sector, 108 companies filed for Chapter 11 bankruptcy support, with a combined debt of $102bn, according to an analysis by consultancy Rystad Energy."[0]

[0] https://www.nsenergybusiness.com/features/oil-gas-bankruptcy...

It was in their interest to keep producing oil. If you stop you can lose market share.

This play of locking all Russia's valuable commodities in, with the only out being in the direction of China, seems risky. It relies on Russia making a series of catastrophic economic mistakes (although, parenthetically, that is an outcome backed by history). The obvious way this plays out is that Russia's economy snaps back really quickly and a Russia-China trade corridor starts firming up because there are no other options. Then they both benefit from it.

It isn't yet so clear that the weak links in finance can be so easily weaponised against a state by foreign powers. Economic warfare always seems to me to be a series of self inflicted wounds. It would be interesting (and terrifying) to see whether these attacks would work against a liberal economy.

Part of the weakness is that 'warfare' is probably not the best way to conceptualize it.

In actual warfare I end someone's life and they do not wake up the next day to fight me, or I wound them to a similar outcome. In 'economic' warfare I still wake up the next day when you freeze all my assets, or stop sending me my goods, or stop servicing my departments.

It's just a fundamentally different dynamic. And I agree, it's not clear.

That said, I do think these actions were necessary, geopolitically. My tangential opinion is that there have been two implementations of Capitalism in conflict the past decades, Western and Chinese. It's what I think has spurned the capital booms in each and acted as the foundational fabric for lots of cultural and political skirmishes.

But in this environment China could not necessarily be seen in direct competition and vice versa. Here, Russia acted as a sort of European conduit for China's geopolitical aims and cultural propaganda.

These western economic actions now help to more clearly split the two implementations in order to, I speculate, give the Western system time to breathe and consolidate. Lick its wounds. Whether it meets its goals, i'm skeptical, but I do believe it's rational even if it causes Russia to re-orient rather than collapse.

It may also be beneficial as a warning to smaller nations looking to try and keep a foot in both, if Russia can't do it...

Two thoughts:

1. I believe Russia also has India as a trading partner, so a resource rich country has access to over half the world’s population — they’ll figure it out.

2. I believe that China has already weaponized finance against the US, from funding organizations at universities to coercing policies at major companies, eg Disney and WarnerMedia, to demanding IP transfers from anyone who wants to do business there. My understanding is that the US was woefully unprepared for a one-way open market and the disruptions that would bring to their economy.

> My understanding is that the US was woefully unprepared for a one-way open market and the disruptions that would bring to their economy.

Sure - we're attached to the idea that the market will self-manage all this stuff, and it's antithetical to the US' culture that a government would directly interfere with it.

Don't blame China for our broken systems of corporate governance.[1] It was people on our end, who actually had the leverage in these transactions, who decided it was a good idea to exchange long term competitive advantage for a few years of record profits followed by bankruptcy. (for many of them) All China did was weaponize our greed against us.

[1] It's also worth noting that government(s) played their part in facilitating much of this by not saying 'no' to some of these deals.

If a man gives another a knife, asks to be stabbed, and is stabbed. Do we blame the knife, the asking man, or the opportunist?

Not sure this analogy accomplishes what you intend.

In such a case the opportunist (China?) is still committing assault and possibly murder. The victim (USA?) is likely joking, trying to show off, mentally unwell, or already suffering so much it would be mercy. Anyway, it appears you're trying to say the USA should realize it was asking to be exploited because they were too short-sighted or naive.

It might be more apropos to look at it as a con man thinks he spots a mark, runs his con but gets conned himself. At every step he can see the tables are being turned and there are multiple opportunities to walk away, as it's a long con. However, the instigating con man's greed won't allow for it. He then cries out 'that's not fair... he conned me!' There are no innocent victims in this story.

This is just one anecdote and to be treated as such, but I think it's interesting:

While India still buys Russian oil, it seems they demand huge discounts:

https://hindustannewshub.com/russia-ukraine-news/india-deman...

I actually read it on the Russian language Moscow Times first, which mentions Bloomberg, but I'm linking this English article (which mentions MT as source).

Another article, on the English Moscow Times (4th March): "Russia Running Out of Oil Customers" -- https://www.themoscowtimes.com/2022/03/04/russia-running-out...

So it looks like even though Russia still finds buyers it's not easy for them regardless.

Similar for technology, again linking to an English version of what originally was a Russian language article on the Moscow Times (.ru version). It looks like even China does not want to break sanctions on technology sales to Russia: https://hindustannewshub.com/russia-ukraine-news/china-has-j...

I'm reading a lot of "The sanctions don't work", citing that street life in Moscow seems normal. In reputable major German news sites such as Der Spiegel oder Die Zeit, for example, or from some Republicans yesterday (the Washington Post reported).

This might make sense if we were talking about the same resources being distributed in different ways, however this is not the case in many fields. Gas is a good example, Russia sells to Europe and China from completely different wells. It is not the case that when Europe stops buying, they can just sell the same gas to China. It's not economically feasible to transfer all the way across Siberia, they simply end up selling less.

The Chinese are known for executing crazy big infrastructure projects quickly and well. That energy is valuable. Now maybe shipping gas across Siberia is impossible. But if it isn't and 1 unusually clever Asian out of a population of ~2 billion figures out how to do it economically then this series of forcing moves might look really silly in hindsight.

Where this myth about "shipping gas across Siberia is impossible" comes from? Projects like Yamal LNG https://en.wikipedia.org/wiki/Yamal_LNG are already operational. On top of that Chinese gas consumers are not dramatically further away than consumers in western Europe - it's only matter of 2-3 years to build a pipeline to connect them.

No surprise. Uncovering this dependency graph at a granular level is a holy grail of industry analysts because it drives the dynamics of the sector. Definitely a non-trivial task as many companies view their supply chain as a major competitive advantage and would heavily lobby to avoid having to make meaningful disclosures.

> the United States has begun to survey supply relationships.

China has ordered a 'stress-test' on its economy[1] in case of Russia type sanctions, Which I assume would also uncover similar data about weak links in finance and supply chains.

[1] https://www.theguardian.com/world/2022/may/04/beijing-orders...

Meanwhile, the earth burns in the background. Bad to worse for next few decades.

If we secure things so there can be no financial war, we're left only with war. Kinetic war. Of course, that also wreaks havoc on finance. Is that not so?

I feel the concentration of production issue seems a big issue with 3 variables that have huge negative potential; 1) Weaponising as the article 2) General "things go bad" and the need for redundancy, especially as we say with COVID how selfsish people and countries can be with resources, and 3) general quality of life as business increasingly becomes megacorp and how that effects things like income distribution, enrepreurship and centralising population type effects.

It's hard to deal with in a capitalist society but I feel the first and best step is we've probably gone too far with globalisation and need to encourage certain minimums of domestic production for key areas. This should improve both global and national redundancy from any natural or human made crisis.

This is it. The core of societies and production, the root of geopolitics.

To map out these supply chains is to map the material and social relationships of whole economies.

And what this article is talking about is war. The edge between standard financial coercion and kinetic war is getting more blurred.

Capitalism undergoing more tension

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