World War III Has Already Begun: How an Energy Crisis Could Impact Bitcoin and Global Politics

Summarized from Author Hayes’s latest article: [https://cryptohayes.medium.com/curve-ball-c9866f34555]

As tensions rise between the United States, Russia, and China, many experts believe that World War III has already begun, albeit in a more covert manner. This conflict is being fought through proxies, cyber attacks, sanctions, and other means, with the availability of energy playing a crucial role in determining the outcome of wars.

In a recent essay, Author Hayes argues that Bitcoin could respond in interesting ways if there were a major disruption in the availability of hydrocarbons, causing their global price to double or triple overnight. The essay outlines potential scenarios that could cause such a disruption, with the first scenario involving Israel and/or Saudi Arabia bombing a critical infrastructure in Iran being the most likely.

Hydrocarbons like crude oil and its refined products are highly energy-dense, making them essential to modern life. The US is the largest global producer and consumer of oil, which gives it an economic advantage. However, blocking the Strait of Hormuz, a key oil chokepoint, could lead to a net global deficit of 13.5mm b/d, which is approximately 13.6% of daily global demand. Only 3.8mm b/d can be rerouted via pipeline, leaving a significant shortage of oil. This could cause the price of the marginal barrel of oil to become extremely expensive, affecting poorer nations the most.

The US, despite being the largest oil producer, is still a net-energy importer, and its foreign policy is heavily focused on securing a pliant Middle East through military force to ensure a stable supply of oil at global prices. However, the US has ample untapped oil reserves, and if it were to bring 2.5% of its proven 41.2 billion barrels online, it could achieve energy self-sufficiency. If the US were to go all-in on energy production, it could become the swing energy producer of the world, supplanting Saudi Arabia, and have immense power over the price of energy, reducing the need for military action.

The European Union (EU) is deficient in energy and heavily dependent on imports, with Russia being a significant supplier. The author doubts that the EU will restore friendly relations with Russia or reduce its energy usage, and therefore expects the European Central Bank (ECB) to print EUR to pay for increased imports of Norwegian, US, and UK oil. However, they believe that those countries will not accept EUR for their oil, so the ECB will need to sell the EUR for USD in the global FX markets, weakening the EUR but making EU exports cheaper. The ECB may also use newly printed EUR to purchase equity and debt from Western energy companies to enable them to pump more oil.

Japan heavily relies on imported energy, making it vulnerable to supply disruption. To pay for its American oil imports, the Bank of Japan may use its money printer to invest in US energy companies or manipulate Japanese Government Bond prices. With "reshoring" trends, Japan may have limited opportunities to sell goods to the US to pay for oil, making printing money the only viable option.

China is also heavily reliant on oil imports, with most of its oil coming through the Strait of Malacca, which is vulnerable to disruptions. China needs to diversify its oil supplies and increase delivery via overland pipelines, but this will take time and face obstacles from other nations. If China needs to slow its economic growth to shore up its energy supplies, the Communist Party would likely execute such a policy, with credit funneled to firms that could help build infrastructure to pipe Middle Eastern and Russian oil into China.

An energy crisis could lead to the US becoming the world's most powerful and plentiful crude oil producer without having to resort to military action. In such a scenario, the EU and Japan would have no choice but to prostrate themselves financially by printing money to buy whatever oil the US would give them, leading to a global loosening of monetary policy. This could create a favorable environment for hard assets such as gold and Bitcoin, which are often seen as a hedge against inflation.

However, the Bitcoin network requires a significant amount of energy to operate, particularly for mining new coins. Rising global energy prices could impact Bitcoin mining, and the cost of running a profitable mining operation could become too high for some miners. In the short term, this could lead to a drop in the hash rate of the Bitcoin network, making it more vulnerable to 51% attacks.

On the other hand, an energy crisis could also create new opportunities for renewable energy sources such as solar, wind, and hydroelectric power. As the price of traditional fossil fuels skyrockets, renewable energy could become more economically viable, leading to increased investment and innovation in the sector. This, in turn, could lead to a more sustainable and decentralized energy infrastructure, reducing the world's dependence on oil and other non-renewable resources.

In conclusion, an energy crisis caused by a major disruption in the availability of hydrocarbons could have significant geopolitical and economic consequences, impacting countries and industries around the world. The US, with its vast untapped oil reserves, could emerge as the dominant energy producer, while the EU, Japan, and China may have to rely on printing money to buy increasingly expensive oil. Hard assets such as gold and Bitcoin could benefit from a global loosening of monetary policy, but rising energy prices could also impact Bitcoin mining. Ultimately, the crisis could create new opportunities for renewable energy sources and a more sustainable energy infrastructure.