Portside

The warning signs that the Democrats were in deep doo-doo on the economy were clear for years. In 2021, CNN described inflation as a “political nightmare for [Joe] Biden.” By the fall of 2022, the “Biden–gas price index” showed his popularity was moving in lockstep with the price of a gallon of gasoline. As gas prices rose, Biden’s ratings fell — and when prices eased, his numbers improved. By December 2023, NPR reported that Americans were in a sour mood because of the high price of groceries and gas. A month before the election, a majority of Americans — 52 percent — said they were worse off than they had been four years earlier.

Nothing is deadlier to incumbent presidents and parties than economic woes. The early 1990s recession sent George H. W. Bush packing after one term. Barack Obama trounced John McCain in 2008 after eight years of GOP rule led to the Great Recession. Jimmy Carter was kneecapped by inflation fueled by the Iranian Revolution, which knocked out 4.8 million barrels a day of oil production and sent prices skyrocketing.

Days before the 1980 election, Ronald Reagan famously asked, “Are you better off than you were four years ago?” The resounding “no” carried him to victory against Carter, ushering in the Reagan Revolution. Days before the 2024 election, Donald Trump reprised Reagan’s question at Madison Square Garden and was greeted by a chorus of “nos.”

The Sanctions Spiral that Doomed the Democrats

Kamala Harris, like Carter, was torched by conflict-fueled inflation. Historian Adam Tooze, a rare voice of clarity among today’s journalists, points out that the spike in food and energy prices in 2021 and 2022 was worse than the inflation caused by the 1973 oil embargo triggered by the Arab-Israeli War and “second only to the Iran-crisis shock of 1979.”

History appears to be repeating itself with Trump lining up cabinet-level wrecking balls for an unprecedented counterrevolution. But Harris’s downfall was not caused by a Middle East war, even if evidence is mounting that her embrace of Israel cost her Michigan and possibly other swing states.

Harris lost because of the Ukraine War. Or more precisely, she lost because of sanctions the White House imposed on Russia in response to Vladimir Putin’s illegal invasion of Ukraine on February 24, 2022. While the sanctions largely failed to weaken Russia, which shifted its economy to China and India to escape US pressure, they enabled hedge funds and Wall Street to place bets that sent commodity prices soaring. Inflation was already heating up in late 2021 from lingering supply-chain shortages and oil prices rebounding from the pandemic. But the speculative frenzy proved lucrative for big traders and turned smoldering US inflation into an inferno.

The effects pummeled Western consumers and brutalized low-income countries. By January 2024, the cost of groceries had soared 22 percent for Americans, spelling doom for the Democrats. If not for inflation, Harris would have likely glided to victory.

How did sanctions affect inflation? It starts in the Clinton era, when deregulation hollowed out safeguards. In 1999, Congress passed the Gramm-Leach-Bliley Act. It blew up Glass-Steagall, the Depression-era law that erected barriers between commercial and investment banking. For 150 years prior to the repeal, goods like wheat, pork, and copper were traded on exchanges like the Chicago Mercantile Exchange. Exchanges reduced risks, tamped down price swings, and smoothed the chaos of local markets and events by building national and international markets. Farmers, millers, warehousers, and food processors could bank on predictable prices and feed a rapidly growing nation. Speculators played only a modest role, providing liquidity and bridging gaps between buyers and sellers. This system enabled the United States to become an agricultural powerhouse, even if it didn’t prevent the wipeout of Dust Bowl farmers during the Great Depression.

The situation worsened in 2000, when Congress passed the Commodity Futures Modernization Act — a move that deregulated financial derivatives, leading to the banking collapse of 2008 and the Great Recession. That same year, the Chicago Mercantile Exchange changed from a nonprofit to a for-profit corporation. In its new guise, it sought “to maximize trade volume and trading fees in hyper-speed electronic transactions and trade data reporting,” according to the Institute for Agriculture and Trade Policy.

With these changes, Clintonian neoliberals cried havoc and let slip the dogs of war.

Turning Wheat Into Gold

In 1991, Goldman Sachs created a commodity index. It was “a new kind of investment product, a derivative that tracked 24 raw materials, from precious metals and energy to coffee, cocoa, cattle, corn, hogs, soy, and wheat,” according to Foreign Policy. Initially a niche product, it exploded after deregulation. Freed from trading restrictions, Goldman gorged on commodities, prompting other banks to follow. From 2005 to 2008, speculators poured $300 billion into commodity index funds. According to Foreign Policy, “The result of Wall Street’s venture into grain and feed and livestock has been a shock to the global food production and delivery system.” As Wall Street inflated food prices worldwide by 80 percent, some 130 million people fell into extreme poverty and 40 million people into chronic hunger, Mother Jones reported.

Financial regulators and reforms like the Dodd-Frank Act failed to rein in commodity index funds. By 2022, markets were poised for a new round of speculative frenzy. When Russia invaded Ukraine, Washington and its allies issued twenty-one rounds of sanctions within one week. Biden crowed they were “the toughest ever imposed on a major economy.” Except they bombed. Not only did Russia’s economy and war machine shake them off, critics argue they have backfired by “strengthening Moscow’s hardline position, undermining the utility of alternative strategies, and shoring up the Kremlin against future international coercion.”

The sanctions wreaked havoc in global markets, with dire consequences for the US economy. Russia is one of the world’s top producers of natural gas, crude oil, industrial metals, fertilizers, wheat, and seed oils. Nine days after Russian tanks rolled into Ukraine, wheat contracts on the Chicago Board of Trade had leaped 54 percent. Within eleven days, Brent crude oil futures skyrocketed to $139 a barrel. In three trading days, nickel soared 270 percent on the London Metal Exchange. Fertilizer prices surged more than 30 percent in early 2022.

Price spikes had much more to do with speculation than shortages. For example, while the war disrupted less than 1 percent of global wheat supply, one wheat index fund doubled its net assets within a week of the invasion. One analyst told Bloomberg at the time, “Wheat futures are in ludicrous mode, there is no other way to say it.”

Michael Fakhri, UN special rapporteur on the right to food, blamed financial markets and hedge funds for spiking wheat prices, stating, “Their fear, their panic, their algorithms cause the price to spike. It didn’t reflect real world supply and demand, real world readjustment to find new supply routes, real world concerns — it reflected the needs, desires and function of the financial market.”

Speculators Win, Consumers Lose

One seasoned oil analyst claimed that casino-like bets on ever-increasing oil prices were self-fulfilling. He attributed the surges to meme-stock herd behavior and AI trading algorithms that magnified price fluctuations such that “a change in fundamentals that might have moved prices by 50¢ or $1/bbl will cause a change of as much as $10.” One economics institute argued that “excessive speculation” was responsible for 24 to 48 percent of the increase in West Texas Intermediate crude price, before and during the oil bubble inflated by US sanctions.

The story of the rocketing price of nickel, crucial to making stainless steel and EV batteries, was even more absurd. For decades soused traders at the venerable London Metal Exchange would strike verbal deals in a pub next door, but after new owners overpaid for the exchange, they opened the trading pit to hedge-fund sharks to generate more revenue. Opaque trading allowed big players to acquire huge positions, leading to the meltdown. The ripple effects spilled over into the real economy. Within days, producers and sellers of nickel compounds warned they were reducing production, canceling deliveries, halting new orders, and facing “huge losses.”

Fertilizer was the one sector hit by shortages due to sanctions on Russia and its client state, Belarus. But shortages hurt the West more than Russia. The United States Department of Agriculture says the two countries are “the world’s top fertilizer exporters, accounting for nearly 20 percent of the three major types traded globally: nitrogen, phosphate, and potash.” In 2021, the EU and United States sanctioned potash from Belarus. The next year, they imposed Russian fertilizer producers with tariffs, shipping bans, and penalties on company owners.

Europe compounded its woes by trying to wean itself off Russian gas. Gas is essential for fertilizer production and forgoing Russian supply further crimped supplies and sent prices soaring further. The White House claimed carve-outs in the sanctions allowed for the free flow of Russian fertilizer and grains. But shipowners, ports, bankers, and insurers shunned Russian goods for fear of being caught in the US sanctions net, again adding to price increases.

On top of these challenges, the fertilizer market’s oligopolistic structure magnified the crisis. The handful of companies that dominate the market “caused prices for chemical fertiliser to double and in some cases even triple” in a two-year period, according to the Institute for Agriculture and Trade Policy. For the first half of 2022, the nine largest corporations recorded an increase in profits of more than 100 percent over all of 2021.

The Sanctions-Sponsored Cash Cow

The story of US sanctions is simply that of modern finance, where speculation and profiteering is the only imperative. Bloomberg reported that commodity exchange–traded funds hauled in $4.5 billion in new investments the first week of March 2022. It was “an inflow that would normally be seen over the course of a month.” Wall Street banks nabbed $20.1 billion in commodity trading profits in 2022, three to four times the amount they made in a typical year before the pandemic.

All told, commodity traders hauled in a staggering $150 billion in 2022, triple the amount in 2019. It was a corporate orgy all around as Big Oil doubled profits and food giants racked up profit gains as high as 73 percent in 2022.

One industry paper is a smoking gun for how speculators drove trading and profiteering. It gushes over how “sanctions on Russian energy” created “extreme volatility,” redirected oil and gas flows, and “triggered a dramatic rise in electricity prices and a rush to renewables.” This volatility sparked a dramatic expansion of trading energy–related commodities, generating 74 percent of all commodity trading profits in 2022. The paper also noted a surge in “non-asset-backed traders” who accounted for more than 60 percent of all trades that year.

In short, deregulation of commodities and derivatives in the 1990s opened the door for pure speculators — independent traders, hedge funds, and big banks — to exploit uncertainty in commodity markets caused by US sanctions on Russia in 2022. The speculators fueled volatility and inflated prices, profiting from chaos that left inflation and shortages in their wake. In the Global South, the fallout manifested as rampant hunger and numerous countries near the brink of collapse.

The role commodity speculators played in inflation is straightforward. Dave Whitcomb, head of Peak Trading Research, which specializes in commodity trading, blamed “momentum traders,” who chase market trends, for propelling prices, explaining that because

they’re buying wheat, or buying coffee or buying corn, that buying interest will drive prices higher than where they might otherwise be. So, for consumers who are buying pasta, or cereal, or anything made of wheat, in the spring of 2022 — they were paying higher prices because of momentum traders.

Others point to commodity index funds as additional culprits.

Weapons of Financial Destruction

Apaper coauthored by former Fed chair Ben Bernanke confirms the link between sanctions and inflation. For the first six months of 2022, food and energy accounted for about half of inflation, which topped 8 percent month after month. Supply-chain shortages added nearly another point to inflation, which were also caused by sanctions. Reuters noted that “sanctions against Russia are battering the global aviation industry” with costlier jet fuel, less air cargo capacity, and longer and costlier flight paths, causing air freight rates to spike. Sanctions roiled seaborne cargo as insurance and fuel prices went up, payment mechanisms were frozen, and hundreds of Russian ships were denied entry or stuck at European ports, squeezing capacity still sluggish from the pandemic.

Sanctions could not have been more ill-timed. Inflation had climbed to 7 percent in 2021, largely driven by energy prices and supply-chain shortages. But for most of 2021, Fed chair Jerome Powell argued inflation was limited to a few sectors, big price surges in automobiles were receding, and supply-chain kinks were untangling. But as Russia began amassing forces on Ukraine’s borders, oil, gas, and wheat prices spiked in December, feeding inflation two months in advance of the invasion.

Moscow bears plenty of responsibility for the economic turmoil as its invasion of Ukraine was a war of choice. But sanctions are a choice, too. The United States currently targets more than thirty countries with sanctions, pushing hundreds of millions of people into desperation. Even the American Conservative calls sanctions “weapons of financial destruction.” Two weeks after Russia invaded, it presciently warned that the West has “thrown a wrench into the gears of important sectors of the world economy. They are badly underestimating the fallout. Remarkably, they did this against the backdrop of a worldwide crisis in supply chains. That is about to get a lot worse.”

The fallout was catastrophic. In 2022, sixty-one million people faced hunger, mainly due to high food prices resulting from the Ukraine War. In Europe, far-right parties capitalized on sanctions-induced stagnation, with GDP growth below 1 percent, and sought to exploit backlash against Ukrainian refugees. In the United States, economic frustration fueled Trump’s rise.

The sanctions also failed to achieve their primary goal. Russia endured the economic penalties and Trump appears poised to broker an unfair settlement to the war, potentially requiring sanctions to be lifted — meaning Ukraine’s years of death and destruction may all be for naught.

Celebrity Fundraisers Against Inflation

Biden had options for deflating the commodity bubble. Michael Greenberger, a law professor at the University of Maryland who worked as a regulator on futures and derivatives at the Commodity Futures Trading Commission in the fateful late ’90s, says Biden could have closed a loophole in Dodd-Frank that allowed for unregulated derivatives trading. He notes that Biden could have signed “an emergency rule [that] would bypass the usual public comment period for the purpose of perpetuating an immediate change.”

Instead, the job was left to the Federal Reserve. While it has received fulsome praise for bringing down inflation without triggering a recession, its actions contributed greatly to suffering in the Global South and economic woes for US workers. Three weeks after the invasion, on March 17, 2022, the Federal Open Market Committee began raising interest rates aggressively. Over the rest of the year, it raised rates 4.25 percent. That strengthened the dollar against other currencies, which for American consumers lowered the cost of imports and oil, which is traded in dollars. But for debt-laden consumers it created new pitfalls.

From 2021 to 2023, auto-loan delinquencies surged 50 percent for households in the bottom half of income, while monthly payments increased $100 or more for all income groups. Credit card delinquencies rose 34 percent from the eve of the war to one month before the presidential election. Mortgage rates climbed so high that the annual income needed to buy the median-priced home doubled from about $70,000 to $140,000 in two years. The monthly mortgage payment for new home buyers swelled by 52 percent — or an additional $838 — with the result that only 24 percent of households could afford to buy a home.

Even more damaging to Democrats was daily life. Gasoline leaped from $3.41/gal in January 2022 to $5.03/gal by June, only five months later. Since 2020, the price of many fast-food items have shot up by 50 to 100 percent. From 2021 to 2024, grocery bills rose 22 percent. Biden decided to run on the threat to democracy and abortion rights. These are undeniably crucial issues, but this past April, 65 percent of Americans said they were living “paycheck to paycheck.” Every time they grabbed a burger, filled their tank, or stocked up on groceries, they were frustrated and upset. Trump channeled that anger. He blamed “Comrade Kamala,” immigrants, China for the poor economy, and made wild promises to fix everything.

Harris, meanwhile, ran the “Fyre Festival of campaigns,” spending tens of millions of dollars for events with Bruce Springsteen, Beyonce, Oprah, and Usher. There are plenty of other issues that dragged Harris down, whether it was her past as a prosecutor, embracing Dick Cheney, or chasing after mythical Republican suburban women. But the economy and inflation defined this election. When Harris bothered to talk about the economy, she read from a “Wall Street–approved economic pitch.” It was a fatal mistake.

Arun Gupta is an investigative reporter who has written for the Washington Post, the Daily Beast, the Intercept, the Nation, the Guardian, Yes! Magazine, and other publications. He is a graduate of the French Culinary Institute in New York and author of the forthcoming Apocalypse Chow: A Junk-Food-Loving Chef’s Inquiry into Taste. Read all of Arun’s reports, essays, and criticism on Substack.

Jacobin is a leading voice of the American left, offering socialist perspectives on politics, economics, and culture. The print magazine is released quarterly and reaches 75,000 subscribers, in addition to a web audience of over 3,000,000 a month.