Transcript: Russia's War

The transcript of this week's interview with Chris Cook, available to everyone

[00:00:00] Rachel: Chris, I'm so grateful to have you on the show again, just a few weeks after your last episode about energy markets, because it's all kicked off. Russia's invaded Ukraine. There's all these talks of how economic sanctions are gonna hurt Russia, despite the fact that we're really dependent on Russian energy. And I just thought it'd be best to have you on to clarify what's actually being proposed and if it will be any use in, in your experience. So first of all, thank you for joining me again. 

[00:00:27] Chris: Well, thank you for making the, uh, the contact because you know, it's a subject of great interest. I mean, 40 years experience, really. So, um, yeah, where to begin?

[00:00:38] Rachel: Just before I hit record, we were talking about your experience with Iran, the energy market there, and the sanctions that were put on Iran. Can you give a little bit history into that and what we might learn, um, from those sanctions and how they're being applied now to Russia? 

[00:00:54] Chris: Yeah, well, I mean, my history with Iran began 20 odd years ago. My colleague and I, we put forward a proposal to around the time that the new, the Intercontinental exchange was taking over the petroleum exchange. We believed that that would lead to financialization of the oil markets, which it has in the last 20 years. And my friend being Iranian, we wrote to the governor of the central bank in, uh - who he knew - in Iran obviously, and, um, we recommended that a middle Eastern benchmark should be put in place. 

[00:01:28] Rachel: What does that mean exactly? 

[00:01:30] Chris: The global benchmark price at the moment is Brent north sea has been for a long time, but Brent, the Brent field is only a small part of it now, almost vanishingly small. It's the Norwegian fields which are the biggest ones now. And the, the other benchmark prices, what's called west Texas intermediate, which is a U S one. And, and in fact, the market benchmark has sort of swung back to the U.S you know, that's a sideline. Point was I worked on the, uh, middle Eastern benchmark when I was at IPE in the nineties, because that's where all the oil is. So it's an obvious place to have a benchmark price, you know. 

And we, we put this recommendation forward for a middle east exchange, and then the phone went about two, three years later. And next thing I know I'm over in Iran at the central bank, making the presentation for a, what became known as the Iran oil bourse. So rather than have it as a middle Eastern exchange, they wanted it as an Iranian exchange, which is fine. And it was from that my experience of Iran sort of - I've been there a dozen times I've seen how it's changed in the interim period of 15 to 20 years as a entire new generation has grown up and the changes that took place have been absolutely fascinating.

But more to the point I've seen sanctions at work and I've seen and talked to people at top level over there about the effects of them, and observe the effect of them. And there are essentially two types of sanctions that were applied. One was physical sanctions. So you, you literally, the Iranians literally he couldn't lay their hand on the goods and service, the goods that they wanted. They couldn't get them. Well, that backfired because they started building capacity, being smart people. And they started doing that themselves. Because of course what they call the curse of oil, is it rich nations get rich and fat and lose any sort of capacity to do the stuff themselves and bring in outside contractors to do it. They call it the resource curse, you know, which it is. 

So physical sanctions just didn't didn't work, never really have. Financial sanctions, different ballgame, and the Americans gradually developed over a period, but they were strict. I always say that they were tactically became quite smart and they're getting smarter, stay still, and we can go on to that. But they were strategically failed, massively, because what happened was the Ahmadinejad regime was completely, it was a kleptocracy, and if the Americans, had done what they did everywhere else, like to Russia, and said, okay guys, here's some bank accounts, you know, ship your money out. Iran would have collapsed. It would have collaps- in the same way that post-Soviet Russia collapsed. If the Americans had been smart, instead of coming up with literally self-defeating sanctions, which is what they did. They were financially- they were just dumb sanctions.

But gradually in more recent years, what they've done is they've personalized them. Now that is quite smart. Okay? Actually looking at the people in power, finding where their assets are, where their kids go to school, stuff like that, because that's what they all do. You know, all the Iranian elites educated their kids in America, and so targeting them- and this is exactly what I think they're now doing or looking to do with Russia-. that's a smart sanction compared to these indiscriminate ones, which is basically about punishing the population 

[00:05:01] Rachel: Right. 

[00:05:01] Chris: And is self-defeating because it just makes them more pissed off, actually, you know? does that help?

[00:05:09] Rachel: Yeah, absolutely. So I mean kind of dipping into what we discussed the last time then as well. What I'm picking up on that is that people- it's not really in human nature to just um rollover, is it? Like if you take something away from communities and populations, they will find a resilient way to get what it is that they need. And that's what happened in Iran. Um, and certainly, um, we're seeing in Russia right now, the queues of this population, most of whom do not want this war. 

[00:05:37] Chris: Mmm. 

[00:05:38] Rachel: Queuing up to try and take, you know, liquid cash out of the bank because they're terrified of what's going to happen. But we are also seeing, you know, attempts at personalized sanctions against the Russian oligarchs, twenty-five of them that kind of run the country. So you think that that will be more important than cutting Russia off from S.W.I.F.T, for example. 

[00:05:56] Chris: I think it's more effective and certainly than, than cutting them off from the S.W.I.F.T, which is a bit of a knee-jerk reaction. It's very worrying what they've done. Very worrying - oh yeah, yeah. This weaponization of the dollar is, is, is really dangerous, really dangerous, you know?

And again, I think that that, that will, I mean, people have be saying, oh, it's going to lead to a new- there's all sorts of rubbish talked about the Chinese as going to be the next global currency. No, it's not, not until they completely changed their policy, it won't be. People don't even tend to understand what a reserve currency even is. But everybody does want to come up, I think, with a more rational market structure. And that's the sort of thing I've been working on for a long, long time. It just isn't... 

For me, this, we're going through a sort of transition to something different. I think this event, you know, Putin doing what he did, which, frankly, I think he's, you know, it's a big mistake, strategic mistake. Um. But it literally is going to change the game. 

I mean, what the Russians have always wanted or for a long, long time, is a different, I think a new settlement is what they've been looking for. We never really cold war, settlement. They attempted them with the Minsk agreement and I think the Paris charter. But I'm sorry, the Americans made a massive strategic mistake by essentially saying, okay, well despite what we actually said we would do, we will extend NATO eastwards. And that's, that's a strategic error by the Americans. And I think just because Putin might be paranoid, doesn't mean they're not out to Because they are out to get him.

But we are where we are, Rachel. We are where we are, we have to find a constructive way forward. And you know, that's not particularly evident at the minute.

[00:07:50] Rachel: Absolutely. So tell me then about Europe's dependence on Russian energy. I mean, how dependent are we, how much of our energy do we get from them? Could we reach the stage where we sanction them economically, and then they just turn off the tap and go, well, there you go then, no more energy for you. 

[00:08:09] Chris: Yeah, that is a risk. And that's a risk that is, it's a sort of nuclear option, you know, if we're not getting paid for it, the Russian cause say why send it, you know? But let's actually just go back a bit, Rachel. Because, you know, during the cold war, which really was, you know, a cold war, you know, it was really quite, you know, this clash of ideologies between the west and the east. I mean, the USSR was reliably supplying, you know, oil and gas to the West, who were reliably paying them for it. Okay. And it's interesting because, as a parallel to that, when Iran was at its most radical under Khomeini, guess what? They were flogging oil to Israel via Marc Rich as a middleman, right? And then we're doing it quite reliably and nobody batted an eyelid about it. 

It was only once the middlemen got in, right, when the markets got in, when the oligarchs got in and what I call it in Iran the Theoligarchs got in, right, after Khomeini died, that's when people- because if you do that, you can start dipping your bread. And that's what they started to do. And the previous cutoff - and everybody says, oh, Putin cut off the gas. Well, actually he wasn't being paid by Ukrainian oligarchs who were essentially taking a great big fat transit tax, which is what it was, you know, and he got rather pissed off about it. And I can't say I blame him as a sort of supplier.

[00:09:47] Rachel: When was this, sorry? 

[00:09:49] Chris: That was about 2014 or so. 

[00:09:50] Rachel: Was that before or after he annexed Crimea? 

[00:09:53] Chris: I think I'd have to, I'd have to check on the dates when he actually cut off Ukraine, but it was, it was essentially a commercial dispute between two, between two oligarchies. And it also led, I mean, we also, that's one of the reasons why you're looking at Nord stream, isn't it? Because he decided that, well, actually, I need to diversify my supply routes.

And everybody said, oh my God, you know, the Russia, we're going to be more reliant upon the Russians. Well, actually it increases the resilience that you have if you've got more than one supply room. And it works two ways, you see the thing is, Rachel, pipelines have two ends. You know, it's not like you can divert a pipeline somewhere else, you know, you're sort of stuck with it. And then, you know, gas molecules flow one way and euros or dollars flow the other, you know? So that there is a mutual dependence there. 

[00:10:44] Rachel: Hmm. How, how much of our energy supply are we currently getting from Russia? 

[00:10:48] Chris: We're not getting any to speak of. Europe is getting between 30 and 40%. 

Yeah, but equally that works two ways. Most of, most of Russia's supply and sales goes to Europe, you know? So yeah, Germany is a big customer. Um. You know, Holland, most of the countries. We maybe get, a little bit makes its way through, but it's hard to distinguish one molecule from another. They don't have Russian, Russian flags on them, you know?

[00:11:17] Rachel: So hang on, tell me then what, let, allow me this little thought experiment, right? Europe does its -, uh, well, the west, which is really is the West now - do their economic sanctions and try and hit the oligarchs. And then Putin turns the tap off and goes right, fine. You don't get any more energy. Would he then continue financing the war for example? 

[00:11:40] Chris: Well, I mean, if, it's not actually difficult to print rubles and buy things in rubles. Provided, providing he's self-sufficient in terms of the means of production, provided he's got the metals in Russia, he's got the things he needs in Russia. Well, he can print rubles to do it.

[00:11:59] Rachel: I thought, I thought the whole thing was, you're not allowed to print money. 

[00:12:03] Chris: Well, no, that's that, that is the completely misconceived banking world in which we live. And that's a subject of another session, Rachel, I'm booking the third one now. But no, I mean, the monetary system we have at the moment, you may have come across modern monetary theory, MMT, for instance, which is interesting, but it's incomplete, in my view. I came across it a decade ago, it's interesting what they do. But I personally take the view that, you know, treasuries and central banks are just so last century. You know, that we're going to move on to more decentralized and distributed financial system. Hence I'm at the Institute for strategy, resilience and security, because resilience is bottom up and that's where the world is leading. But again, park that.

Yes, they can print. What causes inflation is not printing money. It's having the resources, or rather, not having the resources. Okay. But you can actually, you can actually print rubles and spend them in your own country and there'll be no inflation provided the resources of that. You've got a problem if you actually need stuff from outside of Russia. So maybe parts or materials, or raw materials in particular, but Russia does have a pretty wide spread of materials. 

But there are things they don't have, certain components, high-tech components and whatnot. But again, China will be only too happy to supply them with that these days. And China, the thing is that at the moment Russia does supply a lot of gas to China and China wants everything Russia can produce, but most of the, a lot of fields are not connected to pipelines that go to China, right? They're looking to actually put pipeline in to make that possible because at the moment, you know, you can have a monopoly, but on the other side, you've got a monopsony, know, you've only got one buyer or you've only got one seller. So it is this sort of two drunks holding each other up. 

[00:14:01] Rachel: Yeah. 

[00:14:01] Chris: Europe in particular, Germany in particular, because they're a big, they are a powerhouse, and, and, and France has of course big nuclear fleet power. But Germany, holland ,Holland is very interesting. They've got a, there's a 50% joint venture between the Russian company alpha and the Dutch. And so they own gas fields in the north sea, and they've essentially got a pot of production, which they, they can use as like, um, you know, sort of pool, which they can trade with. 

They, they opened, uh, Gazprom opened retail um, energy outlets, if you like. Gazprom provides business, uh, gas in the UK, has done for a good while because there's no cap. There's no cap on the, um, on business gas prices. There is a cap on retail gas prices.

[00:14:55] Rachel: Oh, that's interesting. 

[00:14:58] Chris: Hmm.

[00:14:59] Rachel: So then let me continue and please tell me if this thought experiment is completely useless, but if we may continue it, then. Russia's pretty independent arguably then. It has access to its own energy supply. It has access to a lot of raw materials and resources, and it's got its big pal China over there that would be happy to supply whatever it's missing. Um. Then say Putin as a madman were to take that step and up the ante. What would Europe's response be? I mean, could he use this energy dominance to win this war? 

[00:15:33] Chris: He could make life very uncomfortable. Um. We're winter now. Um, but it would be, it would be, it would make life very uncomfortable for Europe. It would. Um, not so much for us because we, we get very, we've got the Norwegian gas. A lot of it. In fact, one of the jokes is, um, we actually export gas. We don't, we don't use everything that's produced in our sector of the north sea. And our north sea producers are making out like bandits right now. 

[00:16:05] Rachel: What do you mean, 

[00:16:06] Chris: Well, you know, think about it. If the price is massive, who's on the other side of the trade? producers and the oil producers are making phenomenal amounts of money. You should see the profits that BP, Shell and the rest of them are making, you know, the ones in the north sea. And Iran actually owns gas in the north sea. Not many people know that. They are actually providing gas to the UK. They bought it, you know, they were very canny. They actually invested in those fields under the Shah. 

[00:16:35] Rachel: Right. 

[00:16:35] Chris: right. So that's been around a long time and they made some canny investments. So that gas is about, they supply about two and a half percent of UK gas, that's when it's not exported to somewhere else. The whole point is that we should- the market sends energy to the highest price, irrespective of any requirements for resilience that we have, you know, you should see what's going on in Norway right now. It's insane, absolutely insane what they're doing with these electricity markets. And I say, I said 20 years ago it would end this way. It was nonsense.

[00:17:12] Rachel: So then, sorry, just, to like take a little detour, then. Imagine if we in place a resilient energy market, based on, you know, the research that you and your colleagues have been doing. Um. How would that impact global security in the future? I mean, what kind of position would that put a nation like Russia in that has so much energy, or China that has so many resources and materials?

[00:17:43] Chris: Hmm. Well, I mean, they would love it, a resilient market. That's what they want. You see at the moment, right? The Russians have supplied- people have said, oh, the Russians are deliberately holding back, you know, deliveries. No they haven't. What they've been doing is all their contract- they want as many contracts as possible to be long-term. They want to supply on a long-term basis. 

Whereas the market, it is about insane day-to-day trading, right? We're setting prices, day-to-day practically. And then we, we wonder why we get spikes in prices and, you know, well, one of the reasons, again, there's no storage. We had gas storage. You need a buffer stock in order to supply out of stock. Well, guess what? We shut it down five years ago or something like that, because there was no, there was no profit in it. It's insane. It's an insane market. This is what happens when you commoditize molecules, when, when you buy and sell molecules and you buy and sell electrons and that's, before we even talk about the insanity of it buying and selling CO2, sorry, I go on a rant very easily. 

[00:18:54] Rachel: My kind of rants. 

[00:18:59] Chris: But I mean, but coming back to the points, which is one of your questions is what else can we do? What would a resilient market look like? And that's, that has been the subject of my work for the last 10, 12 years or more. And I've got a fairly clear view of what that is.

Firstly, what you don't want is to change any law, right? Because always what happens is somebody resists that. You know, somebody is always benefiting and the person who's losing is the one who wants to change the law. Right? So that's what you get. You don't want to have a method whereby you need to change the law. And that means sort of mutual agreements. 

Now, what we're proposing, the ideas are not just mine, I've been working with a friend of mine who actually is an Iranian friend. He's actually in London for the first time in years, actually. And he invented, he was one of the most senior Iranian, um, energy people. He reported directly to the OPEC representative and he was in charge of all the Caspian oil and gas, uh, multi-billion budgets and whatnot. Very, very intelligent, lovely man of great integrity, which is not always the case.

And going way back to the, um, there was a war in 1990, between Armenia and Azerbaijan and it, we had round two, actually only a year, less than a year ago. We had the round two in that war. And it was a nasty war. It went on for about eight years. And of course Iran is on the border of both of those countries. And it's one thing what, what they did, because my friend actually, he suggested that this should be done, was that they supplied gas, supplied gas to an enclave that was isolated called Nagorno-Karabakh. And they were going to freeze to death, lots of people, you know, it was war time. Everything's destroyed, a lot of things destroyed. 

And, and Iran supplied gas, to Nagorno-Karabakh, which was an enclave of Armenia. In exchange, they got spare electricity coming from a nuclear power plant in Armenia, it was an ex-Soviet era power plant with spare capacity. So it was a swap. Okay. Iran did not sell its gas. This is the key point. They didn't sell it in exchange for dollars and then buy electricity with dollars. What they did was they swapped it. 

And Mahmud did this again, I'm giving you his name. And, um, what he also arranged was for a swap, they called it the Caspian oil swap. So oil from Turkmenistan came into the north of Iran and that oil was financed and funded by venture capitalists, you know, oil companies, who were wondering how the hell can we get paid? You know, so the oil was supplied to the temporaries refinery and, and swapped for a supply of a different grade of oil coming out of the Persian Gulf. And that that's what I would call a geographical swap. The other one, the other one was a swap of converting one form of energy for another. Yeah? 

Now these are, these are swaps of flow. And these swaps of flow can be done in addition to anything else you're doing. So there's no reason why Russia, for instance, could not supply gas into this pool of gas that sits in Europe, particularly when they've got this pot of, you know, Wintersol gas sitting there as well. And that could be swapped for a supply of gas coming into the UK, right? It's not sold. It's supplied and swapped, for maybe a supply of then power in the UK. They could do that using swaps and it goes, it transcends this commodity market. It's what's called over the counter. It's an additional tool. No reason why it can't be done at all. You could do it tomorrow because it's a mutual agreement. So that's the sort of thing, that's the way I see it happening, these swaps. 

The one I wax lyrical about because I'm really more interested, not so much in, in, in, in, oil and gas and electricity, but how do we actually make the transition to, you know, a new economy? That's one of your questions. And there are different forms of swap. The best one is the 1778 swap that James Watt did. You know, the Scottish inventor? He invented a new pump, much more efficient than the old one. He didn't sell it to the Cornish tin mines who had a water pumping problem and had a very inefficient pump.

He gave him the use of it. Pumping as a service in exchange for a third of the coal they saved. Now, the beauty about that model, Rachel, is you're saving at the retail price. Right. Whereas if you're selling, you know, if you actually sell power, it goes in at the wholesale bid and you buy it back. So you, you know, you sell for five pence what you buy back for 15 or now it's 25 or 30, right? Savings are made at the retail price. And I talk about smart swaps because I believe that the biggest trade of the 21st century is going to be a swap of what's between our ears, you know, knowledge, know how, know who, a swap of that for carbon fuel savings made at the retail price and electricity made at the retail price.

Does that make sense in terms of, uh, a market in, essentially, in services? So just to conclude the sort of, the current market is centralized. It's got middlemen called exchanges and banks and whatnot. They're the middleman. And it's capital intensive and it's intensive in resources. What we're going to, this smart economy, is intensive in intellectual capital, if I can call it that. And so we're seeing a complete paradigm shift going on right now, I believe. And, and it's, I think it will, it will take place much more quickly than people think.

[00:25:13] Rachel: See you, you had me convinced the, during our last interview about, you know, market 3.0. 

[00:25:19] Chris: Right. This is a good example of it.

[00:25:21] Rachel: Yeah. But I mean, the thing to me, the question that comes up then would be: well, a) can these resilient markets promote um, global stability and peace? And then how could these resilient markets function during times of war? 

[00:25:42] Chris: Hm. Well, what I'm saying is, I mean, what Mahmoud or the Iranians called, what they did, they called it energy for peace. Right? But they called it energy for peace. And you know, what is it Putin is looking for? He wants stable, long-term, supply agreements. He says so. You know, what he didn't want to do, and what they haven't been doing, is selling gas on the open market because it's volatile.

Now, if you think about it, Rachel, I mean, I, yeah, I think I mentioned this before, the supplier, the producer wants stable, high price, transparent markets and the buyer wants stable, low price, transparent markets. But the middleman? Stability and transparency are death. They don't make money that way. 

[00:26:33] Rachel: Yeah.

[00:26:33] Chris: What we're talking about, back to the last session I had, cutting out the middleman requires this combination of swaps on the one hand and literally monetizing energy on the other with this very simple idea of here's a voucher that you can use to pay your electricity bill, right? A token if you like, but not a blockchain or, you know, or a token in that sense. It's a promise or an IOU, think of it as an IOU, you know?

[00:27:03] Rachel: Would that then improve inter-governmental relationships if they were swapping, rather than trading through middlemen? 

[00:27:11] Chris: Yes, because, I think so, because first of all, they have to be transparent to do it. You know, that that's one thing. Secondly, the interesting thing about these energy credits is they've got names on them, right? Dollar bills don't have names on them. Okay? So if you're into sort of, you know, and a lots of people are into sort of, you know, corruption, things like this. I mean, it's, it's the norm in many countries, we just do it in a much more subtle way, you know? Um. But we're involved in it, nonetheless. 

Well, if you, there's somebody I know said many years ago, he said the difference between electronic cash and electronic money is electronic money knows who owns it. Right. And that's exactly the point. There would be a level of transparency here because what we're talking about Rachel is a prepayment. That's what, that's, what a voucher is. It's a it's prepayment. And you know, if you issue, if you sell forward a lot of your production in this way and you get prepaid for it, what is the risk the buyer? Well the risk is that you don't actually have the supply that he's paid you for.

[00:28:20] Rachel: Hmm. 

[00:28:21] Chris: to be transparent. Otherwise, it's not going to work, you know. But transparency is not enough. You also need what I would call quality control, which if you go back a thousand years, that was the mint did. The mint, the mint was quality control. You would bullion to the mint and they would assay it, they would coin it and they would issue it, but it wasn't the mint coin. They were just the quality control mechanism. I think we'll see that reinvented in modern form. Rachel, I do. 

You know, you could see like, um, imagine an energy treasury? I write about that, and a mint, and an exchequer, which is a shared data, shared ledger, it was exchequer, what it was. Exactly.. Shared public ledger. 

[00:29:05] Rachel: Like the blockchain.

[00:29:06] Chris: Well ,the blockchain, the trouble with that is it's a collective and it's replicated at vast expense of energy. 

What, What, I invented in 1998 was a shared market ledger. Basically shared registration. Um, and there the uniqueness, because what you had to have- thing about the blockchain is, it meant you couldn't do double spending? Nor could you in what I invented back then, because you had it in unique time order, right? It would be registered in unique time order. The difference is that the block chain is what I would call synchronous. It's all registered at the same time. 

[00:29:47] Rachel: Right. Yeah. 

[00:29:48] Chris: What I'm proposing is that it's asynchronous and it's just registered in unique time order. But by doing that, and what I did predated the blockchain by 10 years and basically exchanges use it in a proprietary form um, it just works and it, and it is a unique. So from that point of view, the blockchain, the blockchain and coins, what they actually did, Rachel, which is I think a game changer, they literally demonstrated that debt, equity, derivatives are not the only forms of instruments out there. The coins may have subjective value, but they're not the old system. Whereas what I'm, what I'm saying is prepayment also has objective value and it was there before debt ,equity and derivatives even existed. But I'm sure I riffed about this last time we spoke.

[00:30:44] Rachel: Well, let's, let's get back to Russia and this, and this energy question. I mean, um, do you think it's likely that Putin know, use that question of- do you think it's likely he'll turn the taps off? Or that he'll up the ante in that way? 

[00:31:03] Chris: I think there's a- if, if the west continues with its chosen path, it might, he might say sod it. 

[00:31:12] Rachel: Hmm. 

[00:31:13] Chris: Why not? What difference does it make? 

[00:31:15] Rachel: Yeah. 

[00:31:16] Chris: That is the risk.

[00:31:18] Rachel: What do you think would be a better strategy, um, from the west to deescalate the conflict also put him, and also put him in his place. I mean, it is shocking what he's done, invading a sovereign country. 

[00:31:31] Chris: Completely. Absolutely. Now I agree with you a hundred percent. Um, and there's a large degree on, on one side of the argument about whataboutery, you know? Yeah. What about what the Americans did, blah, blah, blah, blah. That doesn't excuse what he's done. What he's done is absolutely wrong. And, and in my view, well, I mean, I I'm, I'm not sure that, um, Yeah. I don't think he's quite the dictator that people think he is. Put it this way, there are people in Russia who could come together and say, right, that's enough. 

[00:32:05] Rachel: Yeah. 

[00:32:07] Chris: And I have a feeling that that might be what happens. They really are quite, you might not, you might not think this, but they are holding back quite a bit in, um, in Ukraine. Ukraine does have an interest in making the most of what is happening and every death is a tragedy. I mean, don't get me wrong again. I'm not excusing anything that's going on at all. But, um, there are two sides to every coin and I think there's a huge reluctance, don't forget it's mainly a conscript army Russia has got. They're people who talk the same language. You know, body bags starting going home is not good. 

[00:32:42] Rachel: Yeah. 

[00:32:42] Chris: He's got a mobile crematorium and all the rest of it, is what I've heard, I don't know if, that's apocryphal to me. But yeah, I mean, what's the end game here? Well, I do think the only settlement has to be a whole, you know, a whole system, has to be. You know, like the Minsk agreement attempted to be, and the Paris charter attempted to be. But the, you know, the, the U.S like with the Bretton woods agreement, they want, they, they had it their own way. Right? And they, they're probably saying, well, okay, we can weaponize the dollar and the dollar is going to be there forever. I don't think so. 

[00:33:20] Rachel: Yeah. 

[00:33:21] Chris: And I think also people underestimate the influence of China. 

[00:33:25] Rachel: Hm. 

[00:33:26] Chris: You know, China, it did make some sort of intervention, not that long ago. And, and I think Putin basically, don't forget, his only access to goods and services is coming via that Chinese pipeline if he shuts this one down. Right? I personally wouldn't want to have the Chinese as my only buyer. They're pretty ruthless. They're pretty ruthless. You know, I would like to have an alternative buyer, if I had Chinese buyers, you see the point? 

[00:33:56] Rachel: But then couldn't that be quite a good move strategically for the west? Hasn't the great fear been that there's these two big powerful nations, China being the alpha dog, but Russia being a big threat, nonetheless. But if Russia has to cow to China in that sense, don't you kind of then minimize one of those, one of those risks? 

[00:34:17] Chris: Yeah, you sort of do, but it's not stable. 

[00:34:20] Rachel: Yeah, true. 

[00:34:21] Chris: It's not stable. Um, you know what, currency do they settle in? Well, the Chinese in one way, they settle in yuan and the other, they settle in rubles. Um, But they still maybe price, probably price in dollars implicitly. You know, it's not sustainable. A new global means of exchange and clearing system is needed. dollar is not it. And we've seen how much the dollar is not it. The chinese must be literally crapping themselves in terms of where do we put our money now, if the Americans can grab every last cent we've got? 

[00:34:56] Rachel: Right. Yeah. 

[00:34:57] Chris: Which is what's happening here, you know? And, and I think some of what America has just been doing, and look at what they did with the Afghans. No, thank you very much. We're going to have that money and we're going to give it to people of 9/11. Well, hello, 9/11 wasn't down to the bloody Afghans. It was down to the Saudis, you know, or Saudi people anyway, on that plane, et cetera, et cetera, et cetera, you know? No, you can't, you cannot, it's not sustainable the way it is, and I think that's why it's sort of end of an era stuff. There needs to be, uh, you know, um, uh, you know, call it a Bretton woods mark two or whatever you'd like to call it, but there has to be a new settlement.

[00:35:34] Rachel: Oh, that's interesting. So maybe the United States of America is overplaying its hand here, flexing too many muscles that are making it actually weak because people just won't accept it. 

[00:35:45] Chris: Yeah, I think so. I think that's the way it's going. I mean, there are wise heads there, many wise heads in the U.S. But there's always this American exceptionalism been sitting around for a long, long time, you know? If you go back to Bush and when, you know, when they, they attacked Iraq and it was all - it was all going to be very difficult. But guess what? It was all over in weeks, and the Americans then could have come up with a new settlement, but oh no, the neo-cons, real men go to Tehran. That's what they were saying, you know? That was a moment that was lost. But I think we've now reached a point at which people have got rather tired of all the killing and whatnot. I really do think so. There's a big change needed and it has to, it has to be holistic and the markets are part of it and the payments are part of it.

[00:36:36] Rachel: I mean it also sounds like - we discussed this before, we discussed, you know, equity and through that equality, it also sounds like, you know, if you want to create markets 3.0, where there's a sense of swaps and you're getting rid of middlemen and you're accounting for transparency. I mean, it also then means that there is no space in the world for a top dog regime, like the United States. 

[00:37:01] Chris: Yeah. 

[00:37:02] Rachel: And it's interesting to hear this because you see a lot of stuff on Twitter, especially, um, the minute that this war kicked off, there was a certain section of leftists that like to say, well, you know, it's because the west did this and U.S has a history of doing X and, you know, they're domineering and on and on and on. Don't think that was the moment. Um, but nonetheless, what you are clarifying is that the market systems that are currently in place are kind of supported by and engender that United States. 

I wonder if that's causing this amount of friction for nations like Russia and China, but then would it not happen that another, power vacuum and one of these other nations would step in and take top position?

[00:37:44] Chris: Well, I think that the key, the key to it is this word about, it's dominance. You know, the Americans have this doctrine, they introduced in 1st of July, 2017. It was intriguing, under Trump. And yet it was, it was introduced by a Democrat, Gary Cohn and Rex Tillerson, who is like, you know, he is a Republican, but he's a very, he's not exactly a Trump Republican.

And I thought at the time, what the hell are they doing? In a Trump administration? You know? And I couldn't work out what they were doing, um, until I saw that happen, this energy dominance doctrine. Because at that moment, what they then did, the Saudi stopped pricing oil on the 1st of July, 2017, when they brought this new doctrine in, they stopped pricing oil against a formula, which based on Brent called B-WAV, Brent weighted average, which they'd been doing for 16 years under the Intercontinental exchange. You know, who founded the Intercontinental exchange? Gary Cohn. 

[00:38:48] Rachel: Right. 

[00:38:48] Chris: Gary Cohn of Goldman and John Shapiro of Morgan Stanley for dinner one day and came up with a fantastic, fantastic strategy, and implemented it. And they literally financialized the oil market. But that changed, that paradigm changed at that point into energy dominance, because what essentially that meant was the Brent benchmark has over the last two or three years essentially given way. So it used to be the Brent dog wagged, the WTI tail for a long, long time, but now WTI is sort of the new one. And even that's changing, and I could wax lyrical about, you know, market technicalities, but I won't. But the point is the Americans dominate the oil market and my thesis is, and this is pure speculation because you'll never prove it, but I'm 99% sure that they have linked the dollar to oil. they've linked it.

[00:39:48] Rachel: What does that mean? 

[00:39:49] Chris: Well literally it's like an energy standard. It's an oil standard, that they've essentially fixed it. So the dollar and the oil price are linked. It's called a peg. I believe so. It's within certain boundaries, Rachel. So it might be between certain maybe plus or minus 5% of a particular target rate. But what they've also done, and this is not a new strategy, you know, one of your questions I'm just looking at here is: why did the price of oil break $100 per barrel once Russia invaded?

 Well, the reason is, it had reached $90 before it did. And it had no business being at $90, right? If you go back only three months, it was $65. And what we saw was a massive flow of funds coming into the market, nothing to do with physical oil prices. Right? Physical oil, the physical oil market had nothing to do with it. This is financial purchases. 

Don't know if I gave you an example previously, but it's such a good one: between mid 2007, the price was $80. By July of 2008, it reached $147. And people say it could do that again. Yeah. Within five months in 2008, it was $35. And by the middle of 2009, it was $80 again. So it went 80, 147, 35, 80 in two years.

During that time, Rachel you know how much the actual physical supply changed? 

[00:41:30] Rachel: No idea.

[00:41:30] Chris: Less than 3%. Now that- yes. Less than But Rachel, that's not a market. That's a casino. That is an absolute casino. 

[00:41:42] Rachel: Yes. 

[00:41:42] Chris: And it's a casino with, I like to say , zeroes and a crooked croupier right? That's how bad that was- and is.

You see, commodity market 1 0 1: if a producer can support prices, if he can, he will. And he can do so for decades. Like the tin market from the second world war, all the way to 1985 was supported a cartel of producers. The other markets did the same, coffee, cocoa. They all tried to, in order to support the price, you have to have a means of storing inventory. Right? You've got to keep, you've got to keep products off the market, like DeBeers with diamonds, same thing. 

[00:42:27] Rachel: Yeah, I remember that case study. 

[00:42:29] Chris: Classic case, that was like a monopoly. But you know, that's what happened until eventually in 1995, I started in regulation the year after, cheap material came in. The producer cartel ran out of money, and the price went from $8,000 a tonne to $4,000 a tonne overnight. You know, and I believe that that's what's been happening in the oil market. That we call it, I call it macro manipulation, which can go on for decades. The, the copper market was manipulated by Sumitomo for 10 years. And that, in my view, is what's been going on here. 

[00:43:09] Rachel: How, sorry, because they're holding inventory? 

[00:43:12] Chris: Well, in this case, it was Enron to blame. And Enron came up with a new technique of funding things called prepayment. Right? But it was done invisibly. I advocate prepayment as a means of funding things, but it has to be done visibly. Enron did it invisibly, so that 70% of their funding, the underlying business never existed. You know, it's a fascinating case study of uh fraud. People went to prison for long terms because of it. But that opaque prepayment enabled, um, oil to be funded invisibly to the market and Isabella Kaminska, she invented the term, the expression, dark inventory, which is inventory which appears to be in somebody's ownership, but somebody else has prepayed. And that's not, that's not visible. 

I'm absolutely sure that it's no, it's no accident that ICE came along after Enron died because, um, you know, that technique has created a, essentially a false market in oil, where there are people in the know as to where this dark inventory is and people who don't know, which is most, mostly everybody else. And the market has evolved over the last two decades. You know, different people have been involved, things have happened, et cetera, et cetera. But those techniques are what have made this market the thoroughly - it needs to be reconfigured immediately.

I gave evidence to the treasury select committee in July of 2008. Okay. I said then that we had to have, that what the market was doing, and we had to have some sort of transatlantic regulation of it. Did we get it? No. But it's just not sustainable anymore. It's just become, we just need to have a different.. I talk about a global clearing system, energy clearing system, some sort of mutual agreement. You may know, from your history that at Bretton woods Keynes came up with the idea for a clearing union, he called it the Bankor. It was a different model to the one that the Americans imposed. But that's an interesting piece of economic history. But it is achievable mutual, global agreements are achievable. And I think that that's, that's the way that we're going to have to go. 

[00:45:43] Rachel: And that would impact the relationships between nations, between governments and - I mean, I just think it seems harder to imagine going, you know, invading a nation, your neighbor, um, if you have these mutual transparent agreements set up. 

[00:46:00] Chris: Absolutely. And, and not just that, there's a, there's a bigger opportunity and that is, think how much money and talent is being wasted on increasingly baroque weaponry, and aircraft carriers with no enemy, you know, and, and no, no purpose other than to make profit for, you know, pretty indefensible businesses.

When I was last in Moscow and I've only been there twice, I was at a show. And there were weapons manufacturers there who were making presentations in relation to renewable energy systems because those guys have the expertise in engineering, you know. But it's, you could say it's a sort of source to Ploughshares I think, which is needed here, Rachel. All of that talent, if it's put to the sort of smart swap that I talk, talk about. That I think is what needs to change, but that will take a sea change in attitude and we have to get there from here, which will mean, you know, baby steps. Um, cause we have to build trust. Um, because at the moment there isn't any, far from it, it's the opposite.

[00:47:08] Rachel: Yeah. Yeah, yeah. Which is part of this key problem of even beginning thinking about peace talks over that part of the world at the moment.

I have one final question, and that is: this invasion has, um, been used as a reason as to why we need to transition away from fossil fuels because of, for example, Europe's dependency on Russia, and transition to renewables. Is that possible? Is that likely? What would, what would that look like? Is the market ready for it? Is it a real solution to a bigger problem? Or is it just sort of people jumping on a bandwagon for different cause. 

[00:47:48] Chris: Well, you're talking about some people who said that, but the usual suspects are saying the opposite. They're saying this proves the need for more fracking. This proves the need for everything. So you are saying you're you're, you are correctly saying what one constituency is, is saying. But there's another one who I think are probably in the ascendant at the moment. 

[00:48:09] Rachel: Yeah. 

[00:48:10] Chris: Well, let's go back on all this stupid greenwash, all of that. You can hear them can't you? 

[00:48:15] Rachel: Yeah. 

[00:48:16] Chris: What we have to do I think is to come up with a, you know, a sort of a balance. You know, I'm, um, I'm into mutuality and cooperation and, and that fundamental point of would you rather have 100% of nothing or a smaller percentage of something? That's what it comes down to. Yeah.

[00:48:36] Rachel: I just, I think this, this concept of mutuality is so interesting because I think in today's sort of paradigm, the concept of resilience is sort of like individual strength. So on a geopolitical level, it's like if a nation could survive by itself, if that nation can fight, or if it had access to resources or whatever, and it just requires such an imagination to stretch that out to resilience is actually cooperation. And then the fantastic impact that that would have geopolitically, and on our markets and on people's wellbeing. It's at first exciting, but also it's quite saddening too, because it's such a stretch of the imagination. You realize just sort of how behind we are really, um, in dealing with these questions. 

[00:49:20] Chris: Yet, Rachel, the future is already here. One of the, um, pieces of the global plumbing that's been sitting there for 150 years, I mentioned it before, I think, is the protection and indemnity club where ship owners have been clubbing together for 150 years to ensure risks that the private sector won't take. And a lot of the ship owning industry are not nice people. Uh, some of them you know, are, but you can imagine that some of them most definitely are, you know, pretty ruthless. And yet, and yet it is in their self interest to club together, to mutual benefit, to minimize losses. And I think that mutual risk sharing is crucial to the markets of the future, that mutual acceptance of each other's credits, mutual acceptance of an assurance and risks.

I'm convinced that is the framework within which we can make a progress, you know, whether it's in the gas market. And I've always CH4 is CH4 is CH4. You know, and instead of, oil being price priced in the dollar and gas being priced against oil, which is bonkers. Why, why don't we just say well, okay, why don't we just have the dollar and oil priced against gas? You know, cos gas is the same everywhere, you know, CH4. Except we're talking not so much CH4, Rachel, as the thermal MMBTU. So that, that is the potential for a sort of transitional mechanism that sort of gas clearing union. And my friend, Mahmud and I, we put this forward 10 years ago in Tehran. Yeah. But nobody's, nobody's listening.

[00:51:01] Rachel: People might be listening now. 

[00:51:02] Chris: I hope so. Tune into the podcast and you'll hear it.

[00:51:07] Rachel: Chris, thank you so much for your time. 

[00:51:09] Chris: Oh, pleasure. ,Rachel. Oh no, pleasure.

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© Rachel Donald