Introduction: As the world continues to grapple with an ongoing series of local and global crises, destabilization has become a recurring theme. One of the first casualties of the Covid pandemic was energy, and that industry’s difficulties have only been exacerbated by geopolitical conflict and climate change, a struggle we explore in our first article. As energy has become a key component of the war in Ukraine, the dangers of interdependence have led many to question the wisdom of hyper-globalization, a topic our second set of articles explains. These risks are just as evident in the widespread food concerns arising from Putin’s war, as many countries struggle to source critical food supplies, the subject of our third article. Our fourth article investigates the less physically dangerous yet nevertheless destabilizing impact of the collapse of stablecoin TerraUSD, which has broad implications for both traditional and crypto finance. In all these things, it is important not to lose sight of history. Crises have come and gone, not without deep pain and they are never easily resolved, but people are resilient, and often the best of humanity is illustrated by the worst circumstances. Let us support the men and women of courage and integrity who must carry these burdens.

The US Can’t Make Enough Fuel and There’s No Fix in Sight

Gerson Freitas Jr, Barbara J Powell, and Chunzi Xu, Bloomberg

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The US may be heading into a fuel supply crisis as demand and prices soar. But high prices and the rebound in demand are not driving the issue: there is not enough refining capacity to turn oil into usable fuels. About 5% of refining capacity, more than one million barrels a day, has been shut down since the beginning of the pandemic. Demand plummeted during the thick of the Covid-19 pandemic, forcing some companies to shut down their least profitable crude-processing plants for good. Now, demand is ramping up not only in the US but also abroad in Latin America and in Europe as it seeks alternatives to Russian oil. Even though refiners are reaping huge profits from escalating fuel prices and demand is set to spike, there are no plans to bring the shuttered plants back online. Usually, a surge in demand and a shortage in supply would trigger new investments, but oil companies are not willing to invest billions of dollars to build new plants. While demand is hot in the short term, the transition away from fossil fuels in the long term has disincentivized investment. Bloomberg Intelligence analyst Fernando Valle explains, “too much refining capacity was closed during the pandemic…Diesel shortages and the price surge are likely here to stay.”

What’s Next for the Global Economy? 

A Better Globalization Might Rise from Hyper-Globalization’s Ashes

Dani Rodrik, Project Syndicate

Beware a Global Economy with Little Fires Everywhere

Mohamed A. El-Erian, Project Syndicate

More and more economists and policymakers are coming to the conclusion that the hyper-globalization of the 1990s has come to an end. Global markets have become a secondary concern to the pandemic and Russia’s war on Ukraine. Public health and national security are at the top of the agenda and the crises the globe has experienced over the last few years have pushed national economies to rethink economic interdependence. So, where is the global economy headed now? Dani Rodrik argues there is a possible good scenario where the global economy can balance the prerogatives of the nation-state and the requirements of an open economy. Hyper-globalization had its issues, including distributional problems and the inability to balance the zero-sum logic of geopolitical competition with the positive-sum logic of economic cooperation, among other contradictions. As a first step towards a “better globalization”, policymakers need to first fix the damage done by hyper-globalization’s inefficiencies by “reviving the spirit of the Bretton Woods era, when the global economy served domestic economic and social goals,” and not vice versa. Second, great powers should acknowledge the new multi-polar world order and cease the quest for global supremacy. To usher in a period of better globalization, global cooperation must trump the geopolitical competition that has pushed countries to minimize their economic interaction with one another. 

Furthermore, economists and policymakers must beware that the new worldwide pattern of “little fires everywhere” could be just as damaging as big shocks are to the global economy. The Nobel laureate economist Michael Spence believes the probability of simultaneous growth, energy, food, and debt crises is very high for many developing countries. The consequences of such a scenario would extend well beyond those countries and will bleed into the global economic and financial systems, so it is in advanced economies’ best interest to reduce the risk of little economic fires everywhere. Mohamed E. El-Erian argues a preemptive multilateral debt-restructuring and relief initiative is a necessary first step, in addition to the bolstering of emergency commodity buffers and financing facilities critical to reducing food crises. If left unattended, “these small fires can coalesce into one that is just as threatening as the initial large fire that acted as the catalyst.”

The Coming Food Catastrophe

The Economist

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Twelve percent of globally traded calories have been threatened by Russia’s war in Ukraine. With inflation already eating into global purchasing power, the rapidly rising cost of food has left one in five people globally without food security. Whether or not Putin intended to weaponize food in his conflict, his actions will continue to multiply global suffering among those already most destitute as long as Russia and Ukraine’s exports are stunted. With Ukraine’s crops sitting inaccessible due to blockades and planting interrupted by war, Ukraine is unlikely to contribute any more food to global supplies. The ravages of climate change have also damaged global yields in key crops around the world, while supply chain and financial struggles have severely disrupted the farming industry. Fear over food shortages has pushed many countries to cut exports to preserve their own supply, endangering areas without food resources. As these pressures mount, there will undoubtedly be political blame-shifting and buck-passing, but we must not allow the temptation of inaction to prevent us from caring for the needy. It will require courage to mend what has been broken in global food supplies – continuing exports when supplies seem threatened rather than hoarding, allocating scarce resources to the deepest needs rather than the deepest pockets, sacrificing some production of biofuels to free up crucial feedstock, and breaking up the Black Sea blockade. None of these solutions are easy, but they are necessary to avert the coming food catastrophe.

How a Digital Token Designed to be Stable Fueled a Crypto Crash

Jack Denton, Barron’s

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The crash of the “stablecoin” TerraUSD has catalyzed a collapse in many cryptocurrencies, including Bitcoin and Ether, as well as other stablecoins. With over 90% of crypto trading volume occurring in stablecoins (a type of cryptocurrency whose value is pegged to an underlying collateral asset, such as the US dollar, to reduce volatility and facilitate transactions), TerraUSD’s collapse cast significant doubts on cryptocurrency’s potential as a long-term store of value. As the number of privately-issued digital currencies has ballooned over the past few years, central banks have become concerned that the lack of oversight would take the guardrails off parts of the economy as regulators have less control over money flows. On the other hand, stablecoins form the backbone of many key cryptocurrency functions, from market-making to liquidity instruments to smart contracts. While TerraUSD’s crash may have been something of a black swan – the token collapsed due to intense selling pressure after $14 billion of the token was deposited at a cryptolender offering 20% yields and Terra’s collateral was unable to keep up – the event shows the dangers of an unregulated financial landscape which has often been compared to the Wild West. The US Congress has begun to draft legislation to bring stablecoins into a regulatory framework to ensure issuing institutions can meet their liquidity obligations even under a panic scenario. With crypto assets becoming a larger part of even traditional finance’s value structure, there must be strong rules in place to insure against another collapse.