Russia-Ukraine conflict paves way for free trade agreements among EU members

Russia’s war with Ukraine is giving member countries of the European Union fresh incentives to speed up work on free-trade agreements. At least nine nations including Germany and Spain are planning to send a letter to the EU seeking to speed the delayed talks, according to a Bloomberg report.

The signatories want faster negotiations with New Zealand, Australia, India and Indonesia, while speeding the implementation of accords agreed with Chile, Mexico and the Mercosur bloc of countries, which include Argentina, Brazil, Uruguay and Paraguay.  

The letter also says that the process to negotiate, sign and implement trade deals is too long, and points out that the massive Regional Comprehensive Economic Partnership was signed in late 2020 and will enter into force this year for most members.

In Brussels, a slow-moving trade bureaucracy has often been displaced and made irrelevant by quicker political developments.

For example, in 2016 a transatlantic trade deal negotiated during the Obama administration tanked after Donald Trump’s election reversed the trajectory of US-EU trade liberalization efforts.

Then in late 2020 the EU announced the conclusion of its seven-year investment negotiations with China, only to see it promptly belly flop after Brussels clashed with Beijing over its alleged human-rights abuses in Xinjiang.

Trade agreements take time to complete and sometimes span the length of entire careers, which makes it understandably frustrating to see years of hard work go down the drain.

Now Russia’s invasion is hastening a fundamental rewiring of the global economy that is reinforcing existing trade ties among geopolitical allies and incentivizing new ones. It’ll play out in the months ahead through business decisions about supply chains and government deal-making.

“In a post-invasion world, it has become increasingly untenable to isolate trade from universal values such as respect for international law and human rights,” European Central Bank President Christine Lagarde said in a speech last month.

Shifts are occurring from dependence to diversification, from efficiency to security, and from globalization to regionalization, she said.

In Russia, businesses and the government may already be substituting imports from Europe with imports from Asia, according to Vincent Stamer, head of the Kiel Trade Indicator.

The Russian port of Novorossiysk in the Black Sea has recently seen a significant increase in the number of container ships arriving, whereas the port of St. Petersburg, which is involved in European trade, continues to record declines, Stamer said in a post Thursday.

“This could be a first indication of trade diversion” and “makes it all the more important to create economic incentives for countries such as India to move closer to Europe rather than Russia,” he added.

 

Biden administration considering largest ever release from emergency oil reserve

The sanctions on Russia and its demand to get paid in ruble have started impacting United States and members of European Union. The latest move to release oil from strategic reserves is the third attempt to reign in prices as OPEC Plus sticks to its plan on increasing output.

The Biden administration is considering releasing up to 180 million barrels of oil over several months from the Strategic Petroleum Reserve (SPR). The move would mark the third time the United States has tapped its strategic reserves in the past six months, and would be the largest release in the near 50-year history of the strategic reserves.

It is evident that the releases have not managed to lower prices as world demand has nearly reached pre-pandemic levels while supply has tightened globally.

Oil prices have surged since Russia invaded Ukraine in late February and the United States and allies responded with hefty sanctions on Russia, the second-largest exporter of crude worldwide.

Brent crude, the world benchmark, rose to about US$139/barrel earlier this month, highest since 2008, and was near US$110/barrel in Asian trading on Thursday.

Russia is one of the world’s top producers of oil, contributing about 10% to the global market (Russia exports 4 to 5 million bpd). But sanctions and buyer reluctance to buy Russian oil could remove about 3 million barrels per day (bpd) of Russian oil from the market starting in April, the International Energy Agency (IEA) has said.

The news comes just before the Organization of the Petroleum Exporting Countries and its allies, an oil producer group known as OPEC Plus that includes Saudi Arabia and Russia, meets to discuss reducing supply curbs.

The United States, Britain and others have previously urged OPEC Plus to quickly boost output. However, the group is not expected to deviate from its plan to keep boosting output gradually when it meets Thursday.

The United States currently holds 568.3 million barrels as SPR, its lowest since May 2002, according to the US Energy Department.

The United States is considered a net petroleum exporter by the IEA. But that status could change to net importer this year and then return to exporter again as output has been slow to recover from the COVID-19 pandemic.

It was not immediately clear whether a 180 million barrel draw would consist of exchanges from the reserve that would have to be replaced by oil companies at a later date, outright sales, or a combination of the two.

US Energy Secretary Jennifer Granholm said last week while on a trip to Europe that the United States and its allies in the IEA were discussing a further coordinated release from storage.

The IEA has called an emergency meeting for Friday to discuss oil supply, a spokesperson for Australian Energy Minister Angus Taylor said.

IEA member states agreed earlier in March to release over 60 million barrels of oil reserves, with 30 million barrels coming from the US-SPR.

US crude futures fell by US$4.70 to US$103.12/barrel and Brent futures declined by US$4.45, or 3.9% to US$109 a barrel on news of the potential release.

The White House said Biden will deliver remarks at 1730 GMT on his administration’s actions to reduce the impact of Putin’s price hike on energy prices and lower gas prices at the pump for American families. It did not give additional details.

High gasoline prices are a political liability for Biden and his Democratic Party as they seek to retain control of Congress in November elections.

The Biden administration is considering temporarily removing restrictions on summer sales of higher-ethanol gasoline blends as a way to lower fuel costs for US consumers, three sources familiar with the matter told Reuters.

Adding more ethanol to gasoline blends could potentially reduce prices at US gas pumps because ethanol, which is made from corn, is currently cheaper than straight gasoline.