The Wrong Game of Chicken

You’ve heard of the game…

Two cars on a single stretch of road hurtle head on toward each other. Each driver determined not to swerve first because the one who does… loses. If neither do, well…

IMHO, it takes a rare kind of stupid to play “Chicken.” 

Those who do are unable to weigh the costs of either outcome of the game. What stakes could be high enough that the risks associated with winning — totaling your car or getting killed — are more acceptable than being the chicken?

Well, not everyone is that smart (after all, two people invented the game). 

But it’s one thing when two idiots jump in their cars and step on the gas to determine supremacy in a gene pool that doesn’t prize logical thought. It’s entirely another when world governments do it in an effort to do the same.

Yep, they’re back doing it again…

Playing Chicken with Energy

A couple months back, in the July Streetlight Confidential, I wrote that since none of its previous sanctions were getting the job done, the European Union hatched yet another idea:

“…the EU finally put on its big boy pants and decided to hit Russia where it hurts. About a month ago, they came up with the brilliant idea of banning insurance for ships that would transport its oil.”

No more insuring Russian crude shipments meant no more shipping Russian crude. But US Treasury Secretary Janet Yellen was quick enough to spot a flaw in the plan.

Because many shipments of Russian oil are insured in the EU and UK, Treasury Secretary Janet Yellen has repeatedly said she is concerned that the EU’s plans could take Russian oil off the global market and further drive up prices.

You don’t get to be Treasury Secretary by not knowing a thing or two. 

So they all went back to the drawing board until last week when they announced they were ready to move forward with their plan. And this is where things get “chicken” stupid…

Buckle Up!

Under the plan officials have been discussing this summer, the G-7 nations would bar financing and insuring Russian oil shipments unless the oil is sold below a set price.

Important note: Western governments would set that price. But what will that price be?

“Our goal here is to create a permission structure that allows Russian oil to flow but reduces their revenues,” Deputy Treasury Secretary Wally Adeyemo said in an interview Wednesday.

Apparently he said it with a straight face. In case that wasn’t clear…

Among the key details still under discussion is the price at which the cap would be set. Officials are trying to find a balance between limiting Russian revenue and maintaining an incentive for Russia to sell its oil.

Read those two quotes again… the plan is to pick a price that punishes Russia, but won’t take them out of the oil producing game entirely. They clearly have no idea how the game of chicken works…

Russia Does…

There’s so much wrong with this plan, it’d be laughable if it wasn’t so scary. 

First, they’d need buy in from China and India — Russia’s two new best customers (who — thanks to all the government intervention — are currently paying about 22% under market for their oil imports).

Then they’d need to police the black markets that would inevitably spring up. (They always do when governments try to restrict critical markets.)

Finally, they’d need Russia to play along… 

And no sooner did I type that than this headline crossed my ticker…

Russia says game on! (I’m surprised it took them that long!)

The plan is doomed to fail (but not before it wreaks all kinds of unforeseen volatility and havoc on the global economy and energy markets) because most sane governments won’t want their citizens to freeze and starve. 

Sane governments. 

Too bad there’s no sanity test before getting behind the wheel…

Make the trend your friend,

Bob Byrne
Editor, Streetlight Daily