Author Archive for: Rupture.Capital

Gas prices over $5 a gallon displayed at gas stations in Mill Valley, California, on February 23 amid the escalating conflict between Russia and Ukraine. | Justin Sullivan/Getty Images

Especially gas.

The backdrop of global and domestic inflation in the United States was already worrying. Now, Russia’s invasion of Ukraine stands to potentially make the situation worse.

The conflict has roiled global markets in recent days, causing stock market turmoil, sending oil prices higher, and injecting even more uncertainty into an already off-balance worldwide economy. It’s also sparked concerns that inflation, already running hot, could run even hotter. In the United States, the Consumer Price Index, which measures the average change in prices consumers pay for goods and services, was up by 7.5 percent over the past year in January. That’s a 40-year high. The hope was that inflation would soon start to come down, and that factors driving it, such as high gas prices and supply chain woes, would finally pass. Now, it appears that the situation could be quite the opposite.

“What we’re observing is essentially an energy price shock and a financial markets shock that comes on the back of this already concerning inflation environment, an environment in which global supply chains are already stressed and in which there is already some degree of uncertainty as to the outlook,” said Gregory Daco, chief economist at EY-Parthenon. “It’s not just a shock in isolation, it’s a shock in that context.”

Russia is one of the biggest oil and gas producers in the world, and any disruptions stand to have a major impact on prices. Earlier in February, JPMorgan analysts projected that disruptions to oil flows from Russia could push oil prices to $120 per barrel. (For context, oil was priced in the $60 per barrel range a year ago, and started 2020 in the $70s and $80s.) Oil has already jumped above $100 a barrel, the first time it’s done so since 2014, though it’s since come back down.

“The concern is that Russia would somehow curb oil exports if they really feel backed into a corner,” said Patrick De Haan, head of petroleum analysis at GasBuddy. He noted that Russia delayed shipments of natural gas last fall when Germans delayed the approval of the Nord Stream 2 pipeline from Russia to Europe. “Who knows? Maybe Russia will do that again with oil,” he said. “That’s certainly a nightmare situation, but it could happen.”

Americans — already dealing with high gas prices and annoyed at the rising costs of heating their homes — are in for a bumpy ride. Gas prices matter not just for people filling up the tanks of their cars but also because of shipping and transportation. The conflict could also translate to high diesel prices and jet fuel for airplanes. “The inflation machine is just not going to slow down,” De Haan said.

According to AAA, the average price of gas nationally is $3.54 a gallon, up significantly from $2.66 a year ago. That number now stands to climb even higher, especially as the summer months approach, which will put more people on the road.

Joe Brusuelas, chief economist at accounting and consulting firm RSM, told CNN that the Russia-Ukraine conflict could push inflation to 10 percent year over year, driven in part by gas. By his calculation, an increase in oil prices to $110 could increase consumer prices by 2.8 percent over the course of a year. Alan Detmeister, an economist at UBS, told the New York Times that if oil hits $120 per barrel, inflation could get to 9 percent in the coming months.

“It becomes a question of: How long do oil prices, natural gas wholesale prices stay elevated?” he told the Times. “That’s anybody’s guess.”

President Joe Biden has promised to try to protect Americans from a spike in gas prices, but his options are limited, if there are any at all, according to De Haan. “The president has insinuated that he’s got it, he’s going to do everything he can, but he doesn’t have anything else in the closet to do,” he said. Striking a new nuclear deal with Iran could help, but it’s no silver bullet, nor is it clear it’s very likely to happen. “It’s no Russia, in terms of oil supply.”

Higher oil prices could also weigh on economic growth. People and companies having to spend more on oil and gas could dampen spending in other areas, and that could cut into GDP.

There are other areas where the Russia-Ukraine conflict could show up in consumer prices. Russia is the largest wheat exporter in the world. As the Times notes, Russia and Ukraine make up 30 percent of global wheat exports, and Ukraine is also a major exporter of corn, barley, and vegetable oil. Disruptions to any of that could lead to disruptions in the commodities markets, therefore pushing up prices eventually at the grocery store. Bloomberg reports that the Biden administration isn’t yet going to impose sanctions on Russia that would impact aluminum, which would throw a wrench in the global supply, though aluminum and metal prices have already gone up.

“It’s a combination of a set of commodities that are being produced either in Ukraine or Russia that have been affected,” Daco said. He warned that if further sanctions are imposed on Russia, it could affect aluminum and commodities prices even more. “It’s a wide spectrum of agricultural, energy, and other commodities.” Thus far, the US has not put sanctions on commodities, though it has on major Russian banks. Europe and the United Kingdom have imposed sanctions as well, and more are likely on the way.

Reuters reports that the White House has warned the microchip industry about the possibility that Russia will curb access to some of the materials it sources from Ukraine and Russia and to look into diversifying the supply chain. A chip shortage and kinks in the semiconductor supply chain have contributed to higher prices and challenges across a number of industries, including cars and phones.

To be sure, there’s still plenty of uncertainty around what will happen in the Russia-Ukraine conflict and its economic consequences. Brusuelas told MarketWatch that the inflationary pressures depend “on the severity of sanctions and what happens on the ground.” However, he said inflation is probably not going away anytime soon.

In the United States, this will be a headache for the Federal Reserve, which is already on track to likely start to raise interest rates in an effort to combat inflation and otherwise roll back some supports for the economy.

“Energy prices mean that inflation is going to stay well above the Fed’s target in 2022, and that’s going to stiffen the Fed’s resolve to normalize monetary policy this year,” Bill Adams, chief economist for Comerica Bank, told Vox. “Inflation was drastically above the Fed’s target in 2021 and had looked like it was about to slow in 2022, but the surge in energy prices caused by the invasion is going to keep inflation higher for longer.”

Adams did, however, note that the US economy is quite strong at the moment, despite inflation. Jobs are coming back, and supply chain problems are being worked out.

“The big picture is that the US economy is strong and is well-positioned to absorb a shock like higher energy prices or disruptions to commodity supply from the Russia-Ukraine war,” he said. “We’re in a better position to absorb this shock than, for example, in 2006-2007 when energy prices were jumping but consumer balance sheets were much more stressed than they are today.”

Still, for Americans already navigating inflation, the current crisis is likely going to push prices up before they come down.

The spread between 2- and 10-year Treasury yields shrank to its narrowest since April 2020 on Wednesday as investors monitored the Russia-Ukraine crisis.

The CIA recently declassified parts of a letter written by two U.S. senators that revealed the existence of a previously unknown bulk spying program that collects and stores Americans’ data. The letter, written by Senators Ron Wyden and Martin Heinrich, calls for the CIA to reveal the details of the program. It was sent to Director of National Intelligence Avril Haines in April 2021. Much of the letter remains classified, and neither the senators nor the CIA have provided any specifics about what the underlying spying program entails.

“Among the many details the public deserves to know are the nature of the CIA’s relationship with its sources and the legal framework for the collection; the kinds of records collected [redacted] the amount of Americans’ records maintained; and the rules governing the use, storage, dissemination, and queries (including US person queries) of the records,” the senators wrote. The mention of the CIA’s “relationship with its sources” is likely a reference to the telecommunication companies providing the data, a reminder of the symbiotic roles private companies play in national security surveillance.

The existence of the CIA’s program was first disclosed to members of the Senate Intelligence Committee in March 2021, according to Wyden and Heinrich. They became aware of the bulk collection from a report issued by the Privacy and Civil Liberties Oversight Board (PCLOB), an independent executive branch agency whose members have access to classified information. That review, known as “Deep Dive II,” remains classified, but the CIA partially declassified a set of recommendations issued by the board. That document revealed that when CIA analysts enter a search term, or query, into the program, a “pop-up box will appear to remind the analysts” that they need to provide a foreign intelligence justification for the search. Analysts are not required to document that justification; the oversight board recommended requiring it.

Although Wyden and Heinrich, who both sit on the Senate Intelligence Committee, said they were only informed about the bulk spying program in March 2021, a CIA official told The New York Times that Congress had already been told about the data collection. That official suggested that the new information in Deep Dive II had to do with the “repository and analysis tools for storing and querying that data after its collection.”

If the CIA is lying to Congress, or misleading members through wordplay and hiding behind technicalities, it would not be the first time in recent memory an intelligence official had done so. In 2013, then-Director of National Intelligence James Clapper lied to Senator Wyden in an open hearing about bulk surveillance of U.S. persons. Wyden asked if the National Security Agency (NSA) collected “any type of data at all on millions or hundreds of millions of Americans.” Clapper responded “no,” later adding “not wittingly.”

Clapper’s obfuscation was a key motivation for Edward Snowden, then an NSA contractor, to leak documents to journalists exposing multiple mass surveillance programs. Following the Snowden disclosures, Clapper referred to his own earlier testimony as “clearly erroneous.”

There have been other episodes of tension, in some cases outright hostility, between intelligence agencies and their congressional watchdogs. At the end of Obama’s second term in office, the Senate Intelligence Committee assembled the most exhaustive accounting to date of the CIA’s role in the post-9/11 rendition, detention and interrogation program. Commonly referred to as “The Torture Report,” the document was designed to expose the CIA’s lies about the efficacy and necessity of torture. In the days immediately before the report was to be released, Sen. Dianne Feinstein, whose office was the primary author of the report, revealed that the CIA had spied on her staff. Then-CIA Director John Brennan initially denied the allegations, but later admitted the CIA had inappropriately surveilled Senate staffers while they were using a CIA network to conduct their research. The report remains classified, other than an executive summary that was released to the public with heavy redactions.

When it comes to what prevents the CIA from using this bulk surveillance repository to search for U.S. persons’ data, Goitein writes, “Let’s be honest: nothing.”

Although little is known about the newly disclosed CIA bulk spying program, Wyden and Heinrich wrote in their letter that its legal foundation is Executive Order (EO) 12333. That order, signed by President Ronald Reagan in 1981, serves as the authority that governs most covert foreign intelligence activities carried out by the U.S. government. It purportedly bans the assassinations and covert action “intended to influence United States political processes, public opinion, policies, or media,” but the order gives wide latitude for overseas physical and electronic surveillance. Executive orders are issued by presidents, and by definition have not been passed by Congress. Although the intelligence committees in both chambers are supposed to have broad oversight over the CIA, NSA and the rest of the intelligence community, programs and activities governed by EO 12333 generally have more autonomy than those controlled by statutes, such as the Foreign Intelligence Surveillance Act (FISA). The bulk spying may have something to do with collecting “financial data” as it relates to ISIS, as suggested by a different, partially declassified PCLOB report. If it does, it would suggest a familiar pattern in the “war on terror,” namely, intelligence agencies claiming that countering the threat of terrorism requires mass surveillance with no congressional or judicial oversight.

Elizabeth Goitein, codirector of the Liberty and National Security Program at the Brennan Center for Justice, reacted to the newly disclosed surveillance program by summarizing the distinctions between the two types of legal authorities. “You might be asking, didn’t Congress end bulk collection? The short answer is no,” she tweeted. “In 2015, Congress passed a law aimed at prohibiting bulk collection when the government is acting under [FISA], but FISA only applies to certain types of surveillance that target U.S. persons or happen inside the United States. When the collection happens overseas or falls into one of FISA’s statutory gaps, it takes place under Executive Order (EO) 12333.”

Goitein added that “most foreign intelligence surveillance actually takes place under EO 12333, not FISA. That means it is subject to no statutory constraints whatsoever, and there is no judicial review or oversight.” When it comes to what prevents the CIA from using this bulk surveillance repository to search for U.S. persons’ data, Goitein writes, “Let’s be honest: nothing.”

The Snowden disclosures partially reveal the nearly limitless authority that intelligence agencies have claimed under EO 12333. The NSA program MYSTIC, revealed based on Snowden’s leaked documents, was “capable of recording ‘100 percent’ of a foreign country’s telephone calls, enabling the agency to rewind and review conversations as long as a month after they take place,” The Washington Post reported in 2014. The Intercept reported two months later that a MYSTIC sub-program called SOMALGET had targeted the Bahamas, without the country’s government’s knowledge or approval. Both MYSTIC and SOMALGET operated under EO 12333.

Despite the well-documented abuses the CIA carried out under the auspices of the war on terror, and during the Cold War before that, there is very little political will at the moment to abolish the agency. However, the idea has been broached over the decades. In a 1974 speech, then-Senate candidate Bernie Sanders called the CIA “a dangerous institution that has got to go.” In 1991 and 1995, Sen. Daniel Patrick Moynihan introduced legislation to abolish the CIA and move some of its authorities to the State Department. Presidents Truman and Kennedy each expressed their reservations about the CIA’s authority, as did Secretary of State Dean Acheson.

The recent disclosures from Senators Wyden and Heinrich are a reminder that the CIA sees itself as an institution beyond the reach and control of Congress, and U.S. and international law. The agency can’t be trusted, and has repeatedly shown that it can’t be reformed. It may be well past time to resume questioning whether it should exist at all.