 Winter is coming. An Iranian state-backed daily is supposed to have warned the European powers as negotiations continue over the Iran nuclear deal. And it does look like for many countries in Europe the crisis is set to escalate over the next few months. Over the past few days, you have seen how Russia, for instance, has stopped supplies on the Nord Stream 1 pipeline. There is a lot of concern over gas supplies, what will happen in the energy market. Prices are increasing. About the British and the German governments have stepped in to try to assuage their population, their step, they have brought in energy caps, for instance, or measures to support their population. However, all this does not really explain why this is happening and what is likely to happen in the coming months as well. We will be discussing all this in Mapping Fault Lines. We have with us Prabir Purkayastha. So, Prabir, we have seen a protest break out in many parts of the world over the issue of inflation. We know that in the UK for months, trade unions, other sectors have been protesting. We recently saw a mass rally by opposition parties, other parts of Europe as well, and we are not even going into the other parts of the world. But taking Europe specifically a key concern seems to be the question of energy. Now, there are two aspects to it. One is, of course, the Russian decision to stop the supply to Nord Stream 1 because of sanctions imposed by the Western European countries, but also the question of rising energy costs which are connected, which have more dimensions than just the gas supply. So, could you maybe take us through why energy has become such a key fault line at this point of time? Well, let us put it this way that the European fault line is energy because to see how Europe looked at itself from the beginning, at least post the Second World War, was that it was an industrial power, it command the industrial market, of course, with the United States, which is also a major industrial power at that stage, and it was built on the fact that it will be able to access from the 60s onwards, it was built on the fact, it will be able to access Russian gas, and that I saw with you then, but really the major part of the gas fields were in Russia, so Russian gas, so energy would come or cheap energy would come, stable supply from Russian gas, and then they would be an industrial power, they could phase out coal later as coal became identified as a dirty fuel, but in Germany the shift was also because their ability to mine coal was causing subsidence, and there was a lot of resistance to that, so they had to phase out coal also, and importing coal again became with climate change a problem, and therefore they looked at the Russian gas, but behind all this, and this is done at the time that Helmut Kohl was in power, so it was really a bipartisan decision that this would also bring peace to Europe, so therefore tying Soviet Union at that stage and the European Union's economy with cheap energy would be a long-term solution that there would be no war, so this is obviously what is breaking down now, now European Union is pretending to be very hurt at the fact that Russia has imposed different sanctions saying okay, if you don't buy in rubles and I don't sell to you, which at the time they protested they went back to buying in rubles, though with some kind of swap taking place within the Russian bank itself, so they could say we didn't buy in rubles, we actually bought it in euros, but also they accepted this condition, but as they have been threatening more and more sanctions on Russian gas, Russian oil, other sanctions, insurance and so on, I think Russia has also now taken to it, okay, we don't have a long-term stake in your market, so we can actually start not supplying you gas from earlier, they are still saying not to do if you want, they are also supplying some gas to Ukraine, even now some pipeline to Ukraine is still supplying gas, so it is not that they have completely cut off gas, but they are now saying sanctions because of your gas turbine, whatever is to be done on the repairs of the gas turbine is violating your sanctions, so you withdraw your sanctions on the gas turbine, etc, etc, leaving all of that out, the reality is that the Russian retaliation to European Union sanction and don't forget, they have seized or at least frozen $150 billion, probably more of Russian money from Russia's central bank and other banks in Europe, those that money was in European banks, they have effectively seized it, though they're calling it freezing, so already that part is there, so you cannot talk about bad blood and how your retaliation weaponizing gas, which for instance, the European Union president is saying, without taking into account that you have actually weaponized finance, you have weaponized the money that is needed for international trade, both with dollar and with euros and with yen, three of these financial blocks got together to do what was essentially declare a financial war through Russian banks out of the Swift system and so on, so given that this is the retaliation that has come, the question is, why has the electricity prices risen by 4 to 6 times even more in some of the countries when gas is not the only source of production of energy, in fact in France it hardly produces 25 to 30% of energy, a lot of it is nuclear, in other countries also there is some part which is produced by gas, but there is non, the renewables are now in online, some nuclear is also there and some part of coal is still there, it's not been phased out completely, so given that how much of the electricity price rise should take place because of the gas price rising is a question and it is an interesting question because Germany only 11% of the, or 15% of the production of electricity is through gas, large parts of it is through other means, so why is the electricity price also rising by 4 to 6 times, sometimes even higher when the cost of gas is only a small fraction of the amount of fuel cost for the electricity sector and that has really to do with a complex market that the European Union has built in which the last block of power which is accepted on the grid, that price becomes the price for everybody and that means those who are using coal currently they're still using coal, nuclear wherever it's possible and of course renewables which extra energy is really free, that means whatever you are getting out of that incremental cost is really free, but it is charged as if it is bought and it's really being bought or it is being produced using the most expensive fuel which is gas, now this is the unfortunately the mechanism which has been set in place in European Union, other countries like UK too and that is the cost of this really, really sharp price rise which is though it is blamed on gas and Russia this is not the entire, in fact the much bigger is that you've built an energy market, electricity market conforming to something which is theoretically you believe in but it's nothing to do with the actual price of electricity or the actual price of fuel. That's interesting Praveer because you're putting forward an argument which I think we're not talking too much about in terms of how electricity markets are structured in the first place. So could you maybe take us a bit more to that before we look at the larger implications? You know this is the product of what was originally the counter revolution if you want to call it or the really the brutal dictatorship that Pinochet government brought in Chile massacres, large scale violations of rights of the people putting thousands on tens of thousands of people in jail etc. One of the consequences of the Pinochet coup in Chile was the electricity market which it was created. This is really Milton Friedman and what's called his Chicago boys who created the market which they use something called marginal utility price which is the last electricity entering the cost of the price of the last electricity unit entering the grid is the price for the entire electricity production. This is the economic theory as Varun Sviyarifakis has said the former minister of finance for Greece has said this is all mythology of the market. This is really what happens. This is something which is completely artificially created and let's be clear why it was created. It was created to incentivize private investments in electricity and give them more than adequate returns and that was what was done in Chile. It was private electricity sector was privatized. This was followed by Margaret Thatcher who privatized the CEGB effectively broke it up. It was a integrated utility broke it up and again they took the same argument what is the latest last unit of price electricity entering the grid that is the price for the grid. Now this is the very artificial construct which has been created of software and everything has been put in place to measure it how it is to be done. It's a complex system that has been put behind it but the entire argument was really that this is the way we can incentivize private players and it was in order to privatize the electricity sector at a mass scale. This is what European Union has also followed. So what you see is the market is really this that there are buckets or time slots for each time slot there are bins by private players who are the generators the grid and distribution they are still integrated in Europe. They then see in each time slot what is the most expensive power and that becomes the electricity price for everybody. Even if that power which is supplied is only a very small fraction of power entering the grid at that time slot. What it does then is if wind is free solar is free because that's really not dependent on any fuel that electricity also gets priced at the most expensive fuel price cost which is energy. Now this is the shall be the problem with this kind of artificial construct of the market. It's not linked to the price of production it is linked to what is called the marginal utility price which is as I said the last electricity block that enters the market if it is the most expensive then for all other electricity that has been supplied for that time slot that becomes a price. That is why even though for instance in Germany gas is only 15% of the cost of production and only 15% of the electricity is produced by gas that price of electricity has risen by six times. This is this means somebody is making money who's who are making money those who have for price of electricity production is very low they're making killing out of it old coal plants of some nuclear plants which have been faced where being faced out which are still being really being used now and of course all renewables. So people's anger is also against the renewables it's not helping me price of electricity is going up they're making killing. So all this is also true for England for instance UK UK has not seen gas but it is also pegged to the most expensive gas that they buy and that is why the price rise for the consumer is coming out to be four to six times or if you take a two-year scenario it could be as as as large as about 10 times and then the people who are facing winter don't forget the winter is still to come you're going to get heating issues in Europe it's going to be damn cold if we're in UK or your parts of Europe. So there the question will be do I find buy food or do I buy you'll pay for electricity this is the choice that's to be there of asking or looking for windfall profits being taxed or taken away gas prices being subsidized what they're doing is essentially giving money to the electricity producer they're not willing to touch this and some kind of subsidy to the consumers which will be given by the state. So protect private profits balance some walks the bills that are going to come giving people money but do not look at the fundamental nature of the electricity market which as I said Parifakis is a nice article when he says blow up this irrational electricity market that's the cause of the problem currently. Praveer but looking at these arguments then what we see is on the one hand the government's unwilling to cut down on the profits of private corporations on the other hand facing an issue in terms of having access to energy and therefore resorting to certain ways of you know certain monetary ways to basically control inflation because inflation is one of the biggest problems facing facing people right now so they're going to hike interest rates at this point but keeping all this in mind is there for many countries in Europe are we looking at a very dangerous situation where the economy is going to crumble because of this? There's no question that this is going to be a very difficult situation for the common people and that is because while the price of electricity will be partly subsidized only going to be partly subsidized the private profits are going to be high but this is not an issue where you can control inflation by raising the interest rate now that is because this there is a shortage of now of gas now by using a market improvement like interest rate this is not going to problem this is not also problem of increasing supply if increasing cheap gaps or gas supplies or energy creating energy is the problem it is not not going to be done by adjusting the inflation rate so what's going to happen price of electricity rises a whole bunch of industries also become uneconomic what are they steel stainless steel for example aluminium cement we can go on fertilizers there is a whole bunch of industries glass for instance so a number of these industries then if they become uneconomical and they are they are shutting down at the moment that means loss of jobs so raising the interest rate is not going to solve these kind of issues that are coming so in fact that that is why what we are likely to see and this is also true in a larger sense with the global economy that if in energy prices are raised like this and now the g7 has said they will sanction if you buy russian gas above a certain price so effectively you are you are going to use the financial weapons against other countries too now all of this is going to lead to a situation where people are saying this is really a formula for stagnation that this is not something can handle with only monetary means which means you need to return to a path of peace see how the situation can be solved and therefore the need for negotiated settlement and coming back to the table it's peace which will solve the problem continuing wars economic first the physical war of course that is what is causing all of this then the economic war the information the war all of this is not going to solve the problem that you are facing so I think that's a very important element that Europe is facing the problem that the energy market which actually energy flows the energy market that provide the balance to the EU's economy that is not going to be solved that problem is not going to be solved by tinkering with the interest rate which is the only monetary instrument that is being thought of at the moment and in at least in UK we don't know what European Union is going to be European Union is going to do there is no attempt to talk about the market reforms there is no attempt to talk about let's have a look at how the regulation should be done for the electricity sector there is in fact the only discussion is when should we have windfall profits taxing windfall profits and how much should we give to the people so the basic structure is going to be left as is so your issue is your point that you are making is very well founded that this is not going to solve the problem of the European economy because with this electricity prices we have already seen shutting down of a number of industries in Germany for example which is the biggest you know manufacturing power still in Europe and if that Europe is going to be in a much harder place the US is still protected it has its own you know it produces gas and oil so it is not that open to the kind of market fluctuations you see they're not going to be able to help you a European Union much in spite of all they have said because their own LNG facilities have suffered some setbacks there have been some accidents they have released about a huge amount from their strategic reserves for keeping the prices stable they cannot release much more in fact they have to charge the special reserves that they have given they have put into the market so with all of this US though it is not going to suffer the same way it has problems we have been manufactured goods in China but it's not going to suffer the same with energy but European Union is really going to see its economy take a huge hit because of the energy it has brought for itself the reason that it is not addressing any of the electricity market issues which they again is self-created and the fact that they believe that doubling down on sanctions and playing hardball with Russia will solve the solve their problems because Russia at some point will come to its knees I don't think that is likely to happen we are in for some really tough times in the international arena don't forget all of this affects everybody there is a food crisis there is a primary but you know fertilizer crisis all of these are also along with what we are seeing and what's an energy crisis for Europe is also an energy crisis for a lot of other parts of the world thank you so much for being for that analysis that's all your time for today we'll be tracking many such issues around energy as well as the larger war incoming episodes of mapping fault 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