Western companies still doing business in Russia

Fewer than one in ten Western multinationals with subsidiaries in Russia has quit any of them in the year wo22 since the Ukraine invasion began.

This finding by two highly regarded academics, Simon Evenett from University of St Gallen and Niccolo Pisani from IMD Business School, contradicts earlier reports of a mass exodus by Western businesses and points to a lack of alignment between the geopolitical strategies of Western governments and the commercial realities of Western businesses.

The study identified 1,404 companies headquartered in EU and G7 countries with a total of 2,405 subsidiaries in Russia before its February 2022 invasion of Ukraine. Only 120 of these companies, or 8.5% of the total, had exited at least one of their subsidiaries by the end of November.

Moreover, some of the companies that have trumpeted their withdrawal from Russia, such as McDonald’s and Nissan, have buy-back options. Russia’s anti-monopoly agency says McDonald’s can repossess its Russian operations within 15 years, while Nissan, which sold its business to a Russian state-owned enterprise for €1, can buy back within six years.

The study is at odds with earlier work by Yale University’s Jeffrey Sonnenfeld, which said more than 1,000 companies had pulled out, threatening Russia with economic oblivion, but it is broadly consistent with research by the Kyiv School of Economics. The latest research double-checked the prior-data bases to see whether companies that said they were withdrawing had in fact done so.

The researchers acknowledge that there are many sound reasons why companies might fail to withdraw. A Western firm operating in a sector excluded from official sanctions may decide that it is inappropriate to abandon its Russian customers, who may have played no part in the decision to invade Ukraine or in the prosecution of the armed conflict, they wrote.

In other cases, Western firms may not want to abandon long-term relationships with employees or suppliers or decide to cease operations because of the societal relevance of their products and services (for instance, the supply of lifesaving medicines).

Even when a Western firm has decided to exit and committed to do so publicly, it may still ultimately fail to do so. For instance, it may not be able to find a buyer for its subsidiary that is prepared to pay a high enough price. And even when a buyer is found and the price agreed, the Russian government may have put in place obstacles that impede or anyway delay the sale, or ultimately prevent transfer of proceeds abroad.

It can take time to conclude such sales in adverse circumstances so it is likely that the percentage quitting will rise, however the evidence shows the overwhelming majority of Western companies with operations in Russia are staying put.

US Treasury Secretary Janet Yellen has repeatedly called on the US business sector to strengthen the resilience of its supply chains by friend-shoring, or redirecting investment to allies. In the context of the risk of conflict in the Taiwan Strait, she urged US businesses to pay greater heed to geopolitical realities. We are seeing a range of geopolitical risks rise to prominence, and it’s appropriate for American businesses to be thinking about what those risks are.

However, the latest study suggests that those pressures may not translate into meaningful changes in the international footprint of companies. It is reasonable to conclude that the high cost of exiting an operation that may have taken years and billions of dollars to establish has restrained companies from following their country’s wishes, even if that means they are effectively ‘trading with the enemy.

The authors note that, if the immense geopolitical pressure on companies to decouple from Russia has been resisted, it’s unlikely that the similar pressure for companies to pull out of China will gain traction. For every US$1 invested in Russia, Western multinationals have US$8 invested in China.

They argue that the Russian economy is large enough to be a good test of the willingness of companies to respond to geopolitical pressure, while not being so large (as China’s economy is) that Russia’s future economic prospects are decisive for the global strategies of most companies.

The study found wide variation in both national and sectoral responses to the geopolitical pressure to withdraw from Russia. About 16% of US firms have closed subsidiaries, compared with 15% of British firms, 7% of Japanese firms and 5% of German firms.

Companies were more likely to close loss-making subsidiaries than those with healthy profits. The 120 companies that have shut subsidiaries in Russia represent 15.3% of the pre-invasion workforce of Western multinationals in the country but only 6.5% of the profits. The inclusion of large service firms like McDonald’s and Starbucks among the exiting firms would help to explain this difference.

In the manufacturing sector, the 50 subsidiaries that were sold or closed were responsible for 18.6% of the workforce of Western operations in the sector but only 2.2% of the profits.

The study said its finding that 8.5% of Western multinationals had exited their Russian operations was almost certainly an overestimate. Companies were counted if they had withdrawn one or more subsidiaries but not necessarily all their operations in Russia. The presence of buy-back options casts doubt on the finality of exits.

The study says greater attention should be given to the costs of decoupling and friend-shoring.

If the write-offs announced by publicly traded Western companies are anything to go by, divestment, decoupling, and supply chain reconfiguration are likely to be costly to firms, their employees, and their shareholders.

If those costs must be borne on geopolitical grounds, who should bear them? Answering this question is of the essence since to date Western corporate retreat from Russia has been limited.

 

 

Key Event of Maritime Trade in 2022

As year 2022 draws to a close it is pertinent to look back at some of the biggest stories that have been covered by Seatrade Maritime News over the last 12 months. For the readers interest we have chosen six major themes.

Tanker market boom

A geopolitical Black Swan supercharged the tanker market. The risk of a major confrontation between Russia, Europe and the United States completely redefined oil trade. Assessing the impact of a possible oil embargo on Russia is a near impossible task. But undoubtedly global oil trade and prices were severely impacted.

By the end of October it was an extremely different picture. As the cliché goes, the tanker sector was on fire. Charter hires reached stratospheric levels on the back of longer voyages for crude oil and for refined products, as well as small and large gas carriers.

As the latest phase of sanctions against Russian oil exports came into force in early December things continue to look extremely good for the tanker sector.

Impact of war in Ukraine

Much of what caused the boom in the tanker market has been the war in Ukraine, which of course has impacted more than shipping. But the invasion by Russia also left over a thousand seafarers stranded on vessels at Ukrainian ports.

Over the coming months seafarers were gradually evacuated from stranded vessels. However, a blockade of Ukrainian ports quickly started to have a serious impact on global food markets and prices as the country is major exporter of wheat and grain. Over a period of months much work was done to create an international corridor for grain exports from Ukraine with a humanitarian corridor and was up and running by the end of July.

“Inchcape Shipping Services (ISS) reported the ports of Odessa, Chornomorsk and Pivdennyi opened as of July 27. ‘We can expect the first vessel sailing by the end of the week, as it’s critical to release the vessels which are still blocked in ports,’ said ISS. Once blocked vessels are cleared, activity will continue via convoy, accompanied by a lead vessel.”

The humanitarian corridor has continued to provide a vital lifeline for grain exports, on occasion it has been threatened with closure. Meanwhile the war continues to have other impacts on shipping such as the growing dark fleet of tankers aimed at busting sanctions against Russian oil exports.

P&O Ferries mass firing

Switching gears considerably and at the start of 2022 the name Peter Hebblethwaite would have meant little to most, but he was in few short months to hit global headlines. Peter Hebblethwaite is of course the CEO of P&O Ferries who was to be branded Britain’s most hated boss.

The branding of P&O Ferries boss as the most hated was a result of the mass firing of 800 seafarers over Zoom on March 17. “Video circulated online of the moment P&O notified some of its staff by Zoom call that their employment was ending the same day.”

Somewhat ambitiously P&O Ferries had planned to have its fleet back in service with agency crew within seven to ten days of the mass seafarer sackings. However, the return to service of P&O Ferries did not go remotely to plan and by the end of May it was still struggling to get it all its vessels back into service.

On May 26 it was reported the UK Maritime & Coastguard Agency clearing the Pride of Canterbury in a Port State Control inspection. One vessel in the P&O Ferries fleet still needed a Port State Control inspection before it can return to service. The whole fleet of 10 ships required inspection after P&O Ferries sacked 800 of its seafarers without warning by Zoom call on March 17.

The fleet did all get back into service, but the backlash continued and in October Hebblethwaite was forced to drop off a panel at the annual Interferry conference and in November voted the world’s worst boss by the International Trade Union Confederation.

Container shipping mega-profits

Container shipping enjoyed unprecedented earnings in 2021 and 2022 but as this year has progressed it has become clear that this is not going to last. We started out 2022 reporting that analysts Drewry had upped their annual forecast for container shipping’s EBIT in 2021 to US$150 billion to US$190 billion. As 2022 continued the profits reported by lines were to get even more staggering and in August we reported on the results of Maersk in Q2 just as they were hitting their peak.

Maersk reported an underlying EBIT of US$8.9 billion for the second quarter but behind the 15th consecutive quarter of on-year earnings improvements, there were signs of change. Profitability in the group’s ocean segment rose ‘significantly’ compared to Q2 2021, as softening volumes and short-term rates were comfortably offset by higher contract rates.”

The extent of the plunge in container spot rates to come was to take even the most pessimistic by surprise. In mid-October we reported: “In a research note entitled ‘Fast and furious’ HSBC noted spot rates reported by the Shanghai Containerized Freight Index (SCFI) had fallen by 51% since the end of July – a decline of 7.5% per week. It was also highlighted that spot rates were now well below the levels of contract rates entered into at the start of 2022, especially on the Transpacific trade.

“In fact, at this pace of a 7.5% week-on-week decline, spot rates may hit the average spot rates of 2019 by the end of 2022, a level where we expect capacity discipline to meaningfully emerge, especially when rates go below cash costs.”

As spot rates head back down to 2019 levels this is particularly concerning for container lines as they negotiate long term contracts for 2023, and there can be little doubt that earnings will be considerably impacted.

Decarburization in focus

It's hard to talk about 2022 without mentioning decarburization and emissions. The industry’s ambitions, regulation and IMO targets have gone well beyond their traditional realms of the trade press. Watching the mainstream press trying to cover week-long bureaucratic meetings at the lumbering beast that is the IMO is not something we ever expected to see.

While the focus has more often than not been on regulation it is moves the industry itself is taking in terms of investing in alternative fuels that are the single most concrete actions. Over the last year we’ve seen growing traction around ammonia and methanol as a marine fuel, the latter attracting significant ship orders. However, while ships are on order the availability of green fuels is another matter. In July we covered an interesting story on potential source of cheap sustainable methanol.

In a September episode of the Seatrade Maritime Podcast it talked to Chris Chatterton of the Methanol Institute. Amid all the talk on regulation and targets the most significant change is the coming into force of the IMO’s EEXI and CII regulations, latter for carbon intensity proving particularly controversial.

These were covered in depth by correspondent Paul Bartlett in a November In Focus episode and as Paul commented, “The pressure is already on however, as ship-owners and operators should have drawn up new ship energy efficiency management plans (SEEMP by the end of this year.”

The December meeting of the IMO’s Marine Environment Protection Committee (MEPC) saw some long-awaited progress on a revision of the IMO’s GHG strategy. IMO Secretary-General Kitack Lim said at the close of the meeting, “It cannot be stressed enough how crucial it is that we keep the momentum and deliver an ambitious and fair, revised IMO GHG Strategy at MEPC 80 next year.”

The return of live events

Moving into the final topic for year-end review without a doubt 2022 was the year the of the in-person event with a huge bounce back in conferences, exhibitions, seminars and cocktail parties.

Winding back to March and CMA Shipping in Connecticut was one of the first larger gatherings followed Singapore Maritime Week in April although the latter was still restricted to some extent by Covid measures.

But revving it up a whole different level was the return of Posidonia in Greece in June. As noted at the time in monthly Maritime in Minutes podcast, “If anyone had any doubts about the appetite for inputs and events post pandemic Posidonia clearly spelled these, the exhibition halls packed with visitors from around the globe. There were huge traffic jams against the venue. And of course, there were the parties.”

It was quickly nicknamed Partydonia and it wasn’t hard to see why. But there was plenty of serious stuff going on as well including for ourselves at the Seatrade Maritime News with a raft of live event coverage as well as recording episodes podcasts with Stealthgas CEO Harry Vafias and Vassilios Demetriades the Shipping Deputy Minister of the Republic of Cyprus.

September saw the massive SMM event in Hamburg back on the calendar.  The event was hugely well attended and had strong theme of decarburization running across both the exhibition and conference content. Our Europe Editor Gary Howard summed up the whole event in a piece entitled Drowning in Decarburization.  It drowned out every other topic at SMM 2022, but most of the maritime industry still awaits direction.

Global food crisis demands urgent response

Russian President Vladimir Putin’s invasion of Ukraine shocked the world, forced Western countries to respond, and is driving up the cost of energy and food across the globe. 

However, the most urgent economic, social, and human crises are unfolding in poorer countries where populations face war, spillover-driven inflation, and more expensive foreign-currency debt.

Together these dynamics put populations in Asia, Africa, and some parts of Latin America and the Caribbean at risk of shortages, riots, unrest, and famine. The conflict in Ukraine is directly affecting supplies of food. News of a deal between Russia and Ukraine to allow grain exports is welcome. Russia and Ukraine together account for nearly a third of global wheat supplies, so any stoppage or constriction in trade affects access to basic foodstuffs for many.

Wheat prices are up while sunflower oil, meat, poultry, and a raft of other staples have also risen, driven by higher fuel and fertilizer costs. The United Nations' Food Price Index, which captures the effects of war and supply disruptions, recently reached an all-time high of 156, up from 103 in 2020.

The alarming economic and political crisis in Sri Lanka shows what may occur elsewhere. Long-standing poor governance and corruption in the South Asian country has combined with economic crises, price hikes, and fuel and food shortages to snap the threads of economic and societal stability. The result is unrest, riots, and a collapse of the government.

Sri Lanka is unlikely to be the last country to face economic and governmental strife. Other poorly run, indebted, and stressed states - and their populations - could be weeks or months from similar turmoil. As Kristalina Georgieva, Managing Director, International Monetary Fund, points out, food crises “can unleash social unrest, (yet) … hunger is the world’s greatest solvable problem”.

As the rich in the West grumble, governments in poorer states are reacting by placing restrictions on food exports, according to World Bank President, David Malpass. While inflation is bad for all, the poorest were already spending at least half of their income on food. They have extraordinarily little room to absorb price increases before they go hungry and their children face malnutrition.

Oxfam estimates as many as 323 million people are on the brink of starvation; the United Nations reckons 869 million are facing hunger. Unfortunately, the leaders of the world’s wealthy states are so far doing too little to avert the developing food emergency. In June the G7 group of nations, led by the United States, pledged US$4.5 billion to address the looming food shortage, but this is not enough to avoid disaster.

It’s not the first time insufficient pledges by the world’s richest economies have delivered worse outcomes for the planet. Two years ago epidemiologists estimated that vaccinating the populations of lower-income countries against Covid-19 would cost just US$2 billion. The costs of a failure to equitably distribute the vaccine are conversely massive. 

It is estimated that the negative impact for lower-income countries was US$156 billion in 2021–2022 and US$216 billion the following year. Yet rich nation donors came up with only US$700 million, while providing economic support worth US$15 trillion for their own populations.

The food crisis requires rapid action and resources of at least US$22 billion, according to the UN World Food Program. Delay will only increase the human, economic, and societal costs.

The invasion of Ukraine has hobbled the G20, whose members include Russia. The group’s recent meeting in Indonesia ended in discord. Yet the pandemic also demonstrated that when crisis strikes only state actors, acting collectively, can marshal the necessary resources, spur private and public policy action, and get fast results.

The International Monetary Fund, World Bank, and regional multilateral development banks in Asia, Latin America and Africa should be charged with managing the food and fuel crisis and equipped to step in urgently. These bodies, although consensual in nature, can direct resources and relief without a veto from Russia or its allies. This institutional room to act must be used swiftly.

We believe the response cannot wait until the World Bank and IMF hold their annual meetings in October. The leadership of these and other pillars of the global financial system must be empowered and act now.

First, they should monitor the fiscal and economic stability of countries facing increased distress from debt and rising food prices.

Second, they should redirect existing and additional multilateral and bilateral resources. Current promises, such as the US$2.3 billion committed by the World Bank, are insufficient.

Third, leaders whose countries are in or nearing a crisis should receive multilateral support, with no shaming of that necessary step from public or private creditors and credit ratings agencies.

Finally, public and private creditors should exercise restraint and be willing to take haircuts on their debt to secure stability. No one should profit from malnutrition and misery. Lenders must be part of the solution, not the problem.

National political and financial leaders still must work to avoid a food price crisis, famine, and human catastrophe. Recent history suggests politicians often lack the will to act, even though they know what is needed and that the upfront financial costs are manageable.

Russian pipeline resumes supplying gas to Europe

Russia has resumed pumping gas to Europe through its biggest pipeline after warnings it could curb or halt supplies altogether.

The Nord Stream 1 pipeline restarted following after a 10-day maintenance break but at a reduced level.

It may be recalled that on Wednesday, the European Commission had urged countries to cut gas use by 15% over the next seven months in case Russia switched off Europe's supply.

Russia supplies Europe 40% of its natural gas requirement last year.

Germany was the continent's largest importer in 2020, but has reduced its dependence on Russian gas from 55% to 35%. Eventually, it wants to stop using gas from Russia altogether.

Russia's President Vladimir Putin has sought to play down fears, promising that state gas firm Gazprom would fulfill all its contractual obligations. His spokesman, Dmitry Peskov, denied that Russia was using gas for political blackmail.

The pipeline is only delivering 40% of its capacity, and the head of Germany's network regulator warned that the resumption of gas flows was not a sign that tensions were easing.

"The political uncertainty and the 60% cut from mid-June unfortunately remain," Klaus Müller said.

Gazprom cut the flow of gas through Nord Stream 1 last month, blaming the delayed return - due to sanctions - of a key piece of equipment which had been serviced in Canada.

The turbine is now believed to be on its way back to Russia, but President Putin recently said that if it is not returned, supply would have to be reduced further.

He has also pointed out that another machine is due to be sent for service soon, according to Russia's Tass news agency.

The continued reduction in gas supply through Nord Stream 1 is likely to make it more difficult for countries to replenish their stores before winter, when gas usage is much higher.

European countries have been looking for alternative suppliers of gas, for example LNG from the US, which can be transported by ship.

But building the infrastructure needed to import gas from new suppliers can be expensive and time consuming, which makes it unlikely that Russian gas can be replaced completely before the coming winter.

Instead, it may be necessary to cut gas consumption, and on Wednesday the EU Commission President, Ursula von der Leyen, announced a voluntary target for all EU countries to reduce their gas use by 15%.

In late February, in response to Russia's invasion of Ukraine, Germany abruptly halted plans to open a new pipeline - Nord Stream 2 - which would double the supply of Russian gas to Germany.

Critics of the Nord Stream 2 project had long argued that it would give Russia too much control over Europe's energy supply.

 

China and Russia to lead a new economic bloc

The news that Sinopec, Chinese state-run oil refiner, has canceled plans for US$500 million investment in Russia’s energy sector does not portend a general decoupling of the economies of China and Russia.

On the contrary, it signifies a temporary halt to an economic partnership that is likely to grow in size and complexity as world powers regroup into new, rival blocs in the aftermath of Russia’s invasion of Ukraine and the massive sanctions that aligned nations have levied on the aggressor.

That’s according to Ross Kennedy, a senior fellow at the Securities Studies Group and founder of Fortis Analysis, who spoke to EpochTV’s “China Insider” program on April 02, 2022.

A few weeks prior to Russia’s invasion, Chinese leader Xi Jinping and Russian President Vladimir Putin announced a “no limits” partnership, a relationship that has not shown signs of diminishing even as Moscow becomes a pariah on the world stage over its ongoing assault on Ukraine. But Beijing has not yet rushed in to provide significant economic help to Moscow, cautious about being impacted by Western sanctions in the process, according to Kennedy, a logistics and supply chain expert.

“Beijing, despite declaring pretty forcefully and openly that there are no limits on ties between Moscow and Beijing, still also has to take into consideration what the impact of sanctions may be. And right now there’s a bit of a gray area concerning how capital flow is going to work between the two countries, particularly on the investment side,” Kennedy said.

Calling China a “consumption powerhouse” that continues to need enormous amounts of energy and raw materials, Kennedy said that the availability and ease of goods produced in the Black Sea region and the eastern part of Russia still holds significant appeal for Beijing. Though China’s rulers are wary for the moment about what contravening the sanctions on Russia might mean for China’s economy. Hence Kennedy is skeptical about the long-term significance of Sinopec’s decision.

“I don’t think this is an indicator that China is cooling its support of Russia. I don’t think that it is really reflective of anything other than Sinopec, and other companies, being instructed by Beijing to just be a little bit more cautious right now and make sure that state-owned enterprises don’t have exposure to Western sanctions,” he said.

Despite the Sinopec decision, trade is still ongoing at a high volume between the two powers in such product groups as animal feed, vitamins and trace minerals, amino acids, building and construction materials, and other longstanding components of the Russia-China trade relationship, Kennedy said.

Rather than a decoupling, Kennedy sees the likelihood of Chinese state-owned enterprises ramping up their purchases of energy products and grain from Russia. In Kennedy’s analysis, China, India, and possibly other powers will take advantage of the lower prices of energy products available to be shipped by tanker from Russia as the latter power increasingly finds itself shut off from Western markets. A marked increase in non-dollar- and non-Euro-denominated transactions is highly likely, he added.

“It’s pretty clear that Moscow and Beijing and even some of the other countries of the world, like India and Iran, are working and collaborating pretty closely on having the ability to settle transactions among themselves,” Kennedy said.

The increasing reliance on transactions that do not involve Western currencies or banking systems takes place under the rubric of BRICS, the group of powers composed of Russia, China, India, Brazil, and South Africa. Kennedy sees BRICS as the nexus of this growing consolidation and formation of a bloc rivaling Western democracies.

Besides the devastation of Ukraine and the imposition of massive sanctions, Russia’s invasion of her neighbor has helped start to usher in a new geopolitical landscape. The new bloc will not emerge overnight. Rather, it is in nascent form, Kennedy said.

“We are seeing the emergence of Russia-China-led sphere of economic and geopolitical cooperation that will stand in contrast to what is more of an Anglosphere, or a transatlantic type of alliance among Canada, the US, and our NATO partners,” Kennedy said.

“I think as we look back in three years, five years, ten years, we’re going to see that it’s really two fully formed economic blocs that have some level of cooperation between them where necessary,” he continued.

To the extent that trade and cooperation occur between the rival blocs, it will depend on facilitators that have a presence in both blocs, such as India, Saudi Arabia, and possibly the United Arab Emirates, Kennedy predicted.

He called the new geopolitical configuration unprecedented since the days of the Cold War, when the world broke down largely of the Soviet Union, Western powers led by the United States, and a number of developing countries loyal to one or the other.

 

Why oil prices slip below US$100 per barrel?

Oil prices have slipped below US$100/barrel this week despite the ongoing war in Ukraine and a structurally tight market. To understand the factors moving oil markets, make sure you sign up this blog to get regular updates.

The return of Iranian oil to markets is back on the global agenda after Moscow received guarantees that it could continue trading with Iran after sanctions are lifted. This news sent crude prices below the US$100/barrel mark, the lowest level in three weeks.

The reappearance of COVID-19 in China only added to the downward pressure in oil markets as the country hit a two-year high of 3,500 cases on Monday, doubling day-on-day. Stringent curbs were reintroduced in many major cities, most notably Shanghai and Shenzhen being put under lockdown.

This raises fears that Chinese demand over the upcoming weeks might drop below the stagnating levels of first two months of 2022.

In spite of the IEA claiming that Europe could essentially halve its dependence on Russian gas imports within a year, March gas flows have so far averaged 30% higher than February. 

Leading oil majors Shell, BP, and Equinor announced they would not be trading Russian oil and products for the foreseeable future, but that is not the case with gas. 

European spot gas prices have in fact come down over the past week on higher Russian pipeline supplies, with May ‘22 TTF prices trending around US$40/mmBtu. 

Gazprom exports in January 01 to March 15 to non-CIS countries have totaled 30.7bcm, down 28%YoY, primarily on the back of Europe seeing mild weather throughout the winter season. 

European Union Endeavor

European Union member states have agreed on a fourth package of sanctions against Russia following its invasion of Ukraine. The details of the sanctions were not disclosed. It is anticipated Russia's "most favored nation" trade status would be revoked. This could open the door to the bloc banning or imposing punitive tariffs on Russian goods and putting Russia on a par with North Korea and Iran.

Sanctions were set to include an import ban on Russian steel and iron, an export ban on luxury goods including cars worth more than US$55,000 and a ban on investments in oil companies and the energy sector. They would also add Chelsea football club owner Roman Abramovich and 14 others to the EU list of sanctioned Russian billionaires, diplomats said earlier in the day.

European Commission President Ursula von der Leyen has also said the EU was working to suspend Russia's membership rights of leading multilateral institutions, including the International Monetary Fund and the World Bank.

The latest sanctions will be formally in place once they have been published in the EU's official journal, which will follow soon.

OPEC Stance

Organization of the Petroleum Exporting Countries (OPEC) said on Tuesday that oil demand in 2022 faces challenges from Russia's invasion of Ukraine and rising inflation as crude prices soar, increasing the likelihood of reductions to its forecast for robust demand this year.

Oil prices shot above US$139 a barrel this month, hitting peaks not seen since 2008, as Western sanctions tightened on Moscow over its invasion of Ukraine and disrupted oil sales from Russia, helping to fuel inflation that was already rising.

In a monthly report, OPEC stuck to its view that world oil demand would rise by 4.15 million barrels per day (bpd) in 2022 and increased its forecast of global demand for its crude.

But OPEC, which just a month ago had raised the possibility of a more rapid demand increase in 2022, said the war in Ukraine and continued concerns about COVID-19 would have a negative short-term impact on global growth.

"Looking ahead, challenges to the global economy – especially regarding the slowdown of economic growth, rising inflation and the ongoing geopolitical turmoil will impact oil demand in various regions," OPEC said in its report.

"While the year started on relatively solid underlying footing, the latest events in Eastern Europe may derail the recovery," OPEC said in its commentary on the world economy.

World oil consumption is expected to surpass the 100 million bpd mark in the third quarter, in line with OPEC's forecast last month. OPEC nudged up its forecast of the year's total oil use by about 100,000 bpd to 100.90 million bpd.

On an annual basis, OPEC said the world last used more than 100 million bpd of oil in 2019.

Oil prices extended their earlier decline after the report was issued, trading further below US$99/barrel on the perception of easing supply risks.

The report also showed higher output from OPEC as the group and allied non-members, known as OPEC+, gradually unwind record output cuts put in place in 2020.

OPEC+ has aimed to raise output by 400,000 bpd a month, with about 254,000 bpd of that due from 10 participating OPEC members, but production has been increasing by less than this as some producers struggle to pump more.

Still, the report showed OPEC output in February bucked that trend and rose by 440,000 bpd to 28.47 million bpd, driven by higher supply from top exporter Saudi Arabia and a recovery from outages in Libya.

The growth forecast for overall non-OPEC supply in 2022 was left unchanged, as was that for production of US tight oil, another term for shale.

OPEC said it expects the world to need 29 million bpd from its members in 2022, up 100,000 bpd from last month and theoretically allowing further increases in output.