PRICE WARS - How Responsible is Wall Street for the Cause & Consequences of the War in Ukraine?
New articles I wrote for Tribune and Jacobin try to answer this question.
The Pundits of Anglophonia have no shortage of villains, and unsurprisingly they all hail from distant lands. There’s Xi Jinping whose Covid-zero policy closed factories and ports and unleashed a supply chain crisis upon the rest of the world. There’s Germany’s ex-premiere Angela Merkel who closed nuclear power plants, forced Europe into a decade of austerity when green investment was needed, and doubled down on (then) cheap natural gas imports from Russia. Then there’s biggest monster of all, Vladimir Putin: the minator at the heart of the global labyrinth. The reckless tyrant hellbent on realising his bloody historical fantasies on Ukraine, and then through sky-high commodity prices, the entire world.
But as I laid out in Price Wars, the labyrinth is by no means an accidental feature of any monster story. As I wrote in the introduction:
I realised that, in our telling of monster stories, we had overlooked an archetypal feature. Monsters confront man not on an open plane but always in an elaborate maze. Whether in Ancient Greek myths or Hollywood movies, the labyrinth is as essential to the story as the creature itself. Think of winding hotel corridors in The Shining, the spaceship in Alien or the mall in Dawn of the Dead. It is precisely these enclosures that makes the chase exciting. It’s not, however, the feature we remember. Instead, we are captivated by what is unusual and grotesque. As The Feed has adopted the tropes of the horror genre, it has incorporated its archetypal distortions. The monster is the star, inflated into an awesome physical creature whose destruction is understood through his monstrous biology, psychology or ideology. But real-life monsters are not superhuman; they are Homo sapiens made of flesh and bone. Their power comes from the architecture they inhabit. It enables as well as constrains.
The labyrinth that enables and constrains Putin is the international commodity markets. It is how Russia’s gas, coal, wheat, and oil is turned into cold hard cash: the fuel that fuels well, everything - invasions included. As I argued in the book on the start of the war in 2014, and more recently for the Spring/Summer print edition of Tribune on the 2022 escalation, high oil prices are the decisive factor for Moscow’s hot wars.
The media has been awash with stories on the war’s impact on the commodities markets, and the cascading crisis - ‘cost of living crisis’, the ‘global hunger crisis’ etc - that have followed. So it’s been strange to see endless discussions of war, oil, and wheat with little mention of the characters who turn real world events into market prices. That is to say, commodity traders and financial speculators. They are the ones who control the shape of the labyrinth contains every monster, especially the commodity-dependent Kremlin. The prices their collective bets produce have the power to place them in formidable cages, or blow the doors off giving them the freedom to run and rampage wherever they please.
There has been an unspoken assumption that their role in this story has been neutral: dutifully turning geopolitical risk into elevated prices. Confusingly, much of the reporting on commodity price movements has included quotes from professionals decrying the volatility as irrational. But for some reason these concerns have almost always fail to rise to the level of the headline, and remain buried beneath the lede.
When wheat prices crashed in June, I took a dive into the reporting and found evidence of irrationality everywhere. In fact, the market’s own price ‘correction’ - erasing the gains from the war - is an admission that the speculators made a mistake.
For Jacobin, I delve into why this happened. Put simply, it came down - yet again - the battle of narratives. The ‘crisis’ narratives dominated in March 2022, and narratives ‘resiliency’ failed to catch on. That is, until the Fed itself changed the narrative on June 15 by raising rates by 0.75 per cent. The ‘recession’ narrative took off and displaced the others. And prices of everything, from Meta to Bitcoin to… wheat all sunk together.
This is yet more striking evidence that the commodities markets remain financialised. That is to say, that their prices are mostly determined by the in and out flows of financial capital. Sure, a war here or a drought there may produce a bump, but it’s perhaps indistinguishable from a random walk. Noise, in other words. And it’s precisely the transformation of commodities into financial assets that lay behind two previous commodity spikes, and the cascading carnage that followed (as I argued in chapter 2 of Price Wars).
Thankfully, I’m not only one the drawing attention to Wall Street’s role in this crisis. Jayati Ghosh argued in Project Syndicate that finance had unmourned commodity prices from supply and demand. Margot Gibbs and the Lighthosue Reports team did a deep dive into speculation and the hunger crisis in May. Ann Pettifor has been likewise been tackling wheat and oil prices on her newsletter System Change. And Isbella Weber and Meg Jacobs have an import piece out on price stabilization in The Washington Post.