Heat waves, Spanish elections, and wheat prices BoP Brief #1
Heat waves, Spanish elections, and wheat prices BoP Brief #1
Welcome to the first Business of Power Brief
Heat waves are testing Southern Europe's power grip
The Mediterranean is facing scorching temperatures. Record-breaking heat has also been recorded in Rome at 42.9°C (109°F) and in Catalonia at 45.3°C (114°F).
Rising temperatures have increased the use of air conditioning and fans in the Mediterranean. Indeed, until recent years, most homes didn’t have those – my parents don’t have an AC; luckily, I visited them in Barcelona before the heat wave took over.
Why this matters?
That has put pressure on Southern Europe’s electric grip. Italy has secured its gas supply through close relations with Algeria to cope with the situation. Last summer, Spain had the highest electricity prices in the EU, prompting the socialist administration to implement an energy price cap, and other measures, such as limiting AC temperatures to 27°C (81°F).
Increasing solar energy capacity and electricity efficiency has played a vital role in preventing an electricity crisis in Southern Europe.
Italy is Europe's second industrial power and third-largest economy, and Spain, the fourth-largest economy, has faced the consequences of high electricity prices in the past. Furthermore, agriculture and tourism, which relies on low costs to boost margins, may suffer due to the combination of high prices and the deterrent effect of scorching temperatures on northern European visitors.
How does this affect Europe’s energy crisis?
With the aim of making Europe independent from Russian gas, some in the EU have thought about converting Southern European countries into giga-renewable electric plants to supply Central and Northern Europe.
However, despite the increase in their renewable output, they still need to achieve self-sufficiency.
Recurrent heat waves and increased Mediterranean consumption to combat rising temperatures may limit their capacity to contribute to the rest of the EU.
That means American LNG must keep flowing.
What to pay attention to?
So far, the surge in electricity consumption has resulted in relatively mild price spikes. However, the evolving energy and electricity market due to rising temperatures demands attention.
My take:
Many thought that the European energy crisis was over after a mild winter but didn’t anticipate the real risk was in a hot summer.
Nothing New Under the Sun for Upcoming Spanish Elections
This will be a pretty Mediterranean-focused brief. This Sunday, there are general Spanish elections. That doesn’t matter only because I’m from Catalonia but because the Spanish state, although surpassed politically by Poland, remains the fourth country in the EU.
I wrote a piece, Nothing New Under the Sun, for IM 1776, where I analyze the upcoming elections while considering the changing mood in right-wing politics across Europe.
My point in the article is that beneath the turbocharged rhetoric of culture wars and the Franco vs. Republic revival, there is not much substance in terms of programs and changes in fundamental economic policy issues, such as industry, energy, the Euro, and security issues, like NATO or Ukraine.
About Vox, this is what I have to say:
The current role of Vox in Spanish politics is to fulfill the performative needs of the culture war of the conservative Right, just as Podemos does for the liberal Left. Vox provides an updated right-wing national conservative force with a Franco-nostalgia flavor. But memes about the return of a Chad traditionalist Spain are just memes.
But don’t take me wrong, that can be more than enough for Vox’s voters and international sympathizers:
Nonetheless, Vox could play a key role in steering the wheel to push back some of the policies of the left-wing coalition. Progressive gender policies will be halted, and maybe the Trans Law reversed. Limiting funding for organizations promoting liberal agendas is where the PP-Vox coalition might have the most impact, and also in curtailing the power of pro-migration organizations like Open Arms. But it is hard to see anything getting done beyond this point.
What to expect?
To a certain extent, European and American investors and other interested parties can be relieved about the prospects of these elections.
It is true that if a right-wing coalition comes to power, we could expect an increase in social conflicts organized by unions, social movements, and Catalan nationalist forces.
Don't be fooled by analysts of the memesphere: the Socialists are the true pacifiers of post-Franco Spain.
The latest polls give the majority for the right-wing coalition between the PP and Vox.
I still believe Sanchez has a shot on Sunday. Like the Pied Piper of Hamelin, he knows how to play the tune of "Fascism is Coming" or idol culture bits – like saying that he likes Taylor Swift – to divert attention from issues like inflation, economic distress, or youth unemployment.
Again, if you want to know more, check out Nothing New Under the Sun.
Black Sea grain deal down, wheat prices up
Russia's warning to treat vessels heading to Ukrainian ports as military threats, potentially leading to a naval blockade on Ukraine's ports, has increased grain prices by a 9%.
According to the FT:
Wheat, maize and rapeseed futures on Paris-based Euronext all hit multi-month highs, closing 7.8, 5.7 and 5.6 per cent up, respectively. Wheat futures in Chicago rose by almost 8 per cent to $7.25 a bushel.
Also, the EU ban on Ukrainian grain, requested by Bulgaria, Hungary, Poland, Romania, and Slovakia, seems to be a factor in increasing wheat prices.
National geoeconomic interest trumps other considerations. There are limits on European support to Ukraine, even from those that may feel more threatened by Russia.
What are Moscow’s goals here?
Russia’s move aims to disrupt Ukraine's grain exports, which had been allowed under the Black Sea Agreement – brokered under the UN, with the help of Erdogan.
But Moscow is not happy with the results of the Black Sea Agreement.
Russia is the world's largest exporter of wheat. Western sanctions haven’t directly targeted that sector but have made life more difficult for Russia’s grain exporters.
Russia’s wheat export sector problems lie in the difficulties in accessing global payment systems because they are not part of SWIFT and in accessing financial assets, insurance, reinsurance, etc.
And in their logistics, first, due to the lack of components of machinery needed to repair trains, railways, ships, etc. Second, difficulties in shipping their grain.
Russia may exert pressure on global food markets to scrap some concessions in these areas.
What are the consequences?
Many analysts have pointed out the relationship between the increase in food prices and social turmoil. At the beginning of the war, there was plenty of talk about the impact on the developing world.
A few weeks ago, there were concerns about rising food prices propelling France’s latest protests in the banlieues. I think that the problems of France’s social fabric go a long way, but naturally, higher food prices don’t make anyone happy.
This week’s long read: “Don’t Learn Value From Society“
My recommendation for this week is Wolf Tivy’s Don’t Learn Value From Society, published in Palladium Magazine.
Wolf has one of the best ways out there to combine analysis of crude existing realities with specific, actionable advice that one can take at a personal level.
In his latest, he encourages us to face social dissolution by recovering the values of Abraham:
The values invoked are significant: multiplication of biological kin, sovereign control of living space, eternal fame, rewards to friends and punishments to enemies, a universal benevolent impact, and harmony with the plans and laws of God and nature. These are things that, unlike slavecoin, have a very hard material existence outside of any particular symbolic social system. They are not the product of moralism, propaganda, or symbol manipulation. They are the fruits and substance of true life and true independence. This is the ball that Abraham kept his eye on in all his dealings.
If we limit ourselves to following current social values, we are not asking ourselves the essential questions:
Are you working on something that will achieve eternal fame? Are your enemies being cursed and your friends blessed? Does your winning at these things serve any great and higher plan of blessing for all creation and all peoples?
If you like this one, I recommend another of his articles that we could consider already a classic: Quit your job.
Well, this is all for this week. I hope you enjoy and subscribe; I will update this weekly.
Have a great weekend,
Miquel