PSX benchmark index closes flat for 3Q2022

Pakistan Stock Exchange benchmark index for 3Q2022 declined 1% after falling 8% in 2Q2022. The index has now recovered 3% from its 2022 low of 39,831 touched on July 21, 2022.

This was on the back of revival of IMF program and expectations of increased foreign flows. To recall, the IMF Executive Board approved release of US$1.1 billion tranche under the Extended Fund Facility (EFF).

In US dollar terms, the index was down 11% in 3Q2022 due to currency depreciation. Lately, intense monsoon season and flash flooding severely impacted Agricultural crops and has caused damage to infrastructure which has raised concerns over Agricultural outlook and increase in imports.    

According to Bloomberg, Pakistan was neither amongst the top nor the worst performers during the quarter. Sri-Lankan market was up 33%, Argentina up 33%, Laos up 30% were the best performing markets during the quarter under review. As against this, Poland was down 27%, Ghana down 25%, and Hong Kong down 23% were the worst performing markets.

During 3Q2022, average daily traded volumes in the Cash and Ready market declined by 47%YoY, while it dropped by 12%QoQ to 218 million shares. The average daily traded value plunged 50%YoY and 4%QoQ to Rs7.0 billion.

The average daily traded volume in the Futures market also declined by 39%YoY and 14% QoQ to 91 million shares. The average traded value declined by 47%YoY, while up 6%QoQ to Rs3.6 billion.

Insurance sector was top seller during the quarter with net selling of US$40 million followed by Mutual Funds (US$25 million and Foreign Corporates (US$14 million). On other hand, Individuals (US$25 million), Companies (US$13 million), and Brokers (US$8 million).

Key sectors that underperformed market during the quarter included Cable & Electrical, Automobile Assemblers, and Tobacco. However, sectors that outperformed were Technology, Transport, and Cements.

Foreign inflows and debt relief

Pakistan foreign exchange reserves have remained under severe pressure recently and remain under 1.5 months of import cover. With Pakistan external financing requirements (debt repayment & current account deficit) of over US$32 billion, there are concerns whether Pakistan will be able to meet its financing needs or not.

However, with the recent floods and the damage it has caused to human lives and infrastructure, there are expectations for debt relief and flood assistance. UN Secretary-General Antonio Guterres recently suggested global financial institution to give Pakistan debt swaps where the relief on debt repayment is diverted towards addressing climate changes.

Asian Development Bank (ADB) also has recently stated that it is envisioning providing Pakistan financing of US$2 billion to help country fight from devastation of floods.

Along with this, demand for debt relief from Bi-lateral/Multi-lateral sources including debt relief from Paris Club is been made which could provide some respite to the depleting reserves of the country.

Pakistan has total outstanding debt of US$9.2 billion from Paris Club and a scheduled debt servicing of US$1.2 billion in FY23. Any debt relief or rescheduling of Paris Club debt and expected foreign flows from ADB, friendly countries and other multi-lateral agencies will remain the key in determining outlook of the market.

IMF stance on floods and relaxation

Given the severity of floods, Pakistan faces a big challenge in achieving stringent external account and fiscal account targets set with IMF for FY23. It will be interesting to see if IMF provides any relaxations in its next review scheduled in November. A few newspaper quoted that IMF has agreed to give relaxation on increase in taxes on petroleum products and Fuel Charges Adjustment on power tariffs till 3-months.         

Commodity Prices

 Outlook on Pakistan economy will also be dependent upon commodity price trend going forward. International Arab Light oil prices have been down by 15% during the quarter, the fears of global recession has led to expectations of further drop. Oil imports continue to constitute over 30% of Pakistan’s oil import bill as sustained reduction in crude oil and product prices could lower pressures on import bill and could also curb rising inflation.   

New Finance Minister 

Ishaq Dar has recently been appointed as Finance Minister replacing Miftah Ismail. Ishaq Dar recently stated that his focus would be on addressing issue of speculation in currency market as he termed Pak Rupee as undervalued. He also vowed to tame down inflation and interest rates.

Since Sep 23, 2022, Rupee has gained against US$ in anticipation of the steps he will take to bring down the exchange parity. Petrol/Diesel prices were also cut, though marginally for the next 15-days, beginning October 01, 2022.

 

Pakistan economy after the floods

When Pakistan received tranche of US$1.2 billion from International Monetary Fund (IMF), it was anticipated that PKR would find solid ground against the US$. However, against expectations, the currency continued depreciation.  While the country’s borrowing needs for the year are fully met, the outlook beyond FY23 remains uncertain.

As per the latest IMF document, Pakistan’s gross borrowing needs over the next 5 years are expected to top US$180 billion, meeting them or even rolling them over will be an uphill task. In the short term, the country’s borrowing needs may increase further as floods have washed away standing crops in Sindh and lower Punjab.

The country will need to import various food items to fulfill local demand and the import bill will be driven by food items. With exports likely to remain lackluster, the onus falls upon inward remittances and FDI to balance the gap between inflows and outflows.

However, the remittance inflow, which has picked up of late, has remained largely disappointing. The same can be said for RDA inflows which have also started to dry up over the past few months.

The need of the hour is to increase monthly remittances and RDA inflows while stamping out currency smuggling from the country.

Pakistan’s monthly current account deficit (CAD) for August 2022 nearly halved to US$0.7 billion, lowest since April 2022, despite hefty oil and food imports amid recent flood damages. Import curtailment gained support from administrative measures, reducing trade deficit to US$2.9 billion (a decline 4%MoM). Remittances also increased during the month to US$2.7 billion, cushioning trade deficit adequately. The month also saw a Balance of Payment surplus owing to US$1.2 billion received from IMF. Going forward, bilateral and multilateral loans and international aid for floods rehabilitation will likely provide external support.

Trade deficit has declined by a mere 4%MoM to US$2.9 billion, largely owing to administrative measures on restricting non-essential items and policy rate impact. However, food imports have increased to all-time high of US$1.0 billion up 34%MoM.

Petroleum imports have been recovered at US$1.9 billion, up 30%MoM) in August 2022. The month also saw trend reversal in PBS-SBP import difference, which has mostly remained short-lived historically.

Resumption of energy supplies amid normalized working days and lack of Eid holidays, led to the rebound in textile exports, up 18%MoM. This has led to overall exports growth of 23%MoM; helping trade deficit to remain under US$3.0 billion level. 

Remittances recovered during August 2022, increasing to US$2.7 billion, up 8% MoM and cushioning the trade gap. Higher inflows from United States and Saudi Arabia have elevated overall base. Looking ahead, analysts expect decent growth numbers in FY23 backed by increase in Pakistani worker registration in GCC countries.

As per Board of Emigration and Overseas Employment (BEOE), around 531,000 Pakistanis have expatriated during 8MFY22 as against 288,000 and 225,000 during FY21 and FY20, respectively. Most of the expatriations have occurred towards Middle East countries which continue to enjoy better macros in a high oil price environment.

The overall Balance of Payment (BoP) turned to positive and stood at US$440 million. This is largely owing to US$1.2 billion tranche received from IMF under EFF facility. But to support overall BoP and foreign exchange reserves, Pakistan needs further support from international organizations and friendly countries, the deliberations with these lenders have already started. Analysts believe, the stronger US$ has continued to impact PKR, besides the low foreign exchange liquidity in the country; pushed PKR to near to its all-time low of PKR240/USD.

 Pakistan has been severely impacted by the recent floods as it has led to massive damage to country’s physical infrastructure including damage to homes, roads, bridges etc.

As per National Disaster Management Authority (NDMA) a cumulative loss of 1.76 million houses (partially and fully damaged), 390 bridges and roads (distance of 12,718km) has already taken place till September 14, 2022.

Therefore, there is a need to explore cement sector outlook, especially after floods. A brokerage house made an attempt to estimate the impact. The manufacturers cumulatively represent 76% of the total industry size in terms of plant capacity.

The survey results show that 75% of the participants expect domestic cement dispatches to fall in the range from 0% to 10%YoY in FY23 as against 2MFY22 fall of 35%. Around 17% of the participants anticipate growth of 10% or above and 8% expect it to increase from 0% to 10%. 

This likely fall in local sales is better than initial expectation of a larger fall due to floods and economic slowdown.

Cement manufacturers anticipate cement demand to pickup next year as 83% of the participants expect demand to remain in the range of 0% to more than 10% in FY24 whereas 17% of the manufacturers believe it will increase from 10% to 20% as construction activity will pick up once relief measures complete and the water starts receding.

The survey results also show that rebuilding or reconstruction activity could at least take 3 to 6 months. 42% of the participants expect it to start after 1 to 3 months whereas 42% of the participants believe it will start after 3 to 6 months. On other hand, 17% of the participants anticipate that it will start after 6-9 months.

United States sacrificing Iranian nuclear deal for Israel election

Talks in Vienna over reviving a 2015 Iran nuclear deal appear to have entered a stage of inertia amid Israeli and American preparations for upcoming elections. 

Nearly a month has passed since Iran submitted its response to a US response to the final text submitted by the European Union coordinator for the Vienna talks to resuscitate the tattered 2015 nuclear deal, commonly known as the Joint Comprehensive Plan of Action (JCPOA).

Spokesman for the Iranian Ministry of Foreign Affairs Nasser Kanaani announced that Iran had submitted its views on America’s response to the draft of a possible agreement on the removal of sanctions.

“After receiving the US response, the Islamic Republic of Iran’s team of experts precisely reviewed it, and Iran’s responses were drafted and submitted to the coordinator on September 08 following evaluations at different levels,” the official said.

“The submitted text has a constructive approach with the goal of finalizing the negotiations,” the spokesman added.

The United States was quick to respond. It described the Iranian response as unconstructive. Since then, US officials have repeated this, accusing Iran of derailing the conclusion of the talks, a charge Iran denies. 

After a bout of Iran-bashing remarks, the US plunged into silence as to when it would respond to the Iranian response. In the meantime, press reports alleged that the conclusion of the talks could be delayed until after the November congressional elections in the US and Israel. 

It seems that the Vienna talks have gotten stuck in electoral politics in Tel Aviv and Washington. Legislative elections are due on November 01, 2022, in Israel. A week later, US mid-term elections will kick off. Israel has entered what can be called election fever. The Vienna talks seem to have fallen victim to that fever.

On Thursday, Mossad Director David Barnea concluded a security-diplomatic visit to Washington; the main objective was to dissuade the Biden administration from signing the JCPOA. 

“Mossad Director David Barnea, met various senior US officials, including Heads of CIA and FBI, National Security Advisor, Secretary Defense, Chairman Joint Chiefs of Staff, and additional senior administration officials at the State Department,” a statement by the Israeli Prime Minister’s office said. 

The statement added, “During the meetings, the Director of the Mossad presented sensitive intelligence materials, and emphasized that Israel will not be able to stand idly by while Iran continues to deceive the world.”

It was issued after a meeting between Barnea and Israeli Prime Minister Yair Lapid, who is facing fierce criticism from his political rivals, namely his predecessor Benjamin Netanyahu, over Israel’s policy toward the Vienna talks. 

Pundits believe that Lapid’s crusade against the JCPOA is primarily motivated by his desire to politically disarm his rivals in the approaching Knesset elections.

In a sense, pundits say, Lapid wants to derail the talks to convince Israeli voters that his campaign against Iran is no less fierce than Netanyahu's.

 

Putin proclaims Ukrainian annexation

Vladimir Putin proclaimed Russia's annexation of a swathe of Ukraine in a pomp-filled Kremlin ceremony, promising Moscow would triumph in its special military operation against Kyiv even as some of his troops faced potential defeat.

According to Refuters, The Russian President's proclamation of Russian rule over 15% of Ukraine - the biggest annexation in Europe since World War Two - has been firmly rejected by Western countries and even many of Russia's close allies.

It comes as Russian forces in one of the four regions being annexed face being encircled by Ukrainian troops after Putin ordered a massive mobilization drive to get hundreds of thousands of Russian men to the front.

In one of the toughest anti-American speeches he has delivered in more than two decades in power, Putin signalled he was ready to continue a battle for a greater historical Russia using whatever tools he had at his disposal and slammed the West as neo-colonial and Satanist.

"Truth is on our side. Russia is with us!" Putin told his country's political elite, who had gathered in one of the Kremlin's grandest halls to watch him signing documents annexing four Ukrainian regions.

He said the United States had set a precedent when it had dropped two atomic bombs on Japan in 1945, but stopped short of issuing new nuclear warnings against Ukraine himself, something he has done more than once in recent weeks.

The ceremony culminated in the 69-year-old leader chanting "Russia Russia!" as he clasped the hands of the four Russian-backed officials he wants to run the annexed regions, which Ukraine is fighting to win back.

Putin said Russia and the four regions would defeat Ukraine together.

"People living in Luhansk, Donetsk, Kherson region and Zaporizhzhia region are becoming our compatriots forever," said Putin, referring to the four Ukrainian regions which he said Russia was annexing.

"We will defend our land with all our strength and all our means," he said, calling on "the Kyiv regime to immediately cease hostilities and return to the negotiation table".

Ukrainian President Volodymr Zelenskiy, speaking in Kyiv after Putin, said he was ready for peace talks if and when Russia got a new president and announced that Ukraine was formally applying for fast-track membership of the NATO military alliance, something Moscow fiercely opposes.

US President Joe Biden condemned what he called Russia's fraudulent attempt to annex sovereign Ukrainian territory, which he said was a flagrant violation of international law and said new US sanctions would hurt those who provided political or economic support to the annexation drive.

US planning new sanctions on Iranian oil sales

The United States is planning to impose new sanctions on Iranian oil sales, according to a tweet by Bloomberg TV’s Annmarie Hordern.

“The sanctions will focus on entities facilitating the oil trade, and will be part of a broader plan to set up sanctions on the regime in the coming weeks,” Hordern said on Thursday afternoon.

For months now, a new nuclear deal with Iran has kept the market on edge and has been routinely touted as “imminent.” However, a deal has yet to be struck. In just the last couple of weeks, the hope of reaching a deal seemed less certain.

It was often expressed by market pundits that reaching a new nuclear deal with Iran could send oil prices plummeting, with Iran finding it easier to export more oil barrels without the current sanctions.

A new round of sanctions from the United States on Iranian oil exports— termed secondary sanctions on those helping to facilitate Iranian oil trade—would likely have the opposite effect on oil prices.

While the United States prepares to announce additional sanctions on Iranian oil sales—the announcement alone which would certainly send prices upwards to some degree—it is sending the clear message to the US oil and gas industry that gasoline prices are still too high.

On Wednesday evening, US Energy Secretary Jennifer Granholm said that motor gasoline prices should be 30 cents lower than the currently prevailing.

“Prices at the pump should be falling, not rising. Companies need to fix this,” Granholm said in a Tweet.

Russia to annex four more areas of Ukraine

Russian Vladimir Putin will hold a signing ceremony on Friday formally annexing four more areas of Ukraine after a referendum. Russian-backed officials had earlier claimed the five-day exercise secured almost total popular support.

Voting was held in Luhansk and Donetsk in the east and in Zaporizhzhia and Kherson in the south. The Russian president will make a major speech at the Kremlin.

A stage has already been set up in Moscow's Red Square, with billboards proclaiming the four regions as part of Russia. There were echoes of Russia's annexation of Crimea in 2014, which also followed a discredited referendum and was heralded by a presidential victory speech from a stage.

The Western media says no independent monitoring of the process took place and there were accounts of election officials going from door to door escorted by armed soldiers.

The United States said it will impose sanctions on Russia because of the referendums and EU member states are considering an eighth round of measures.

German Foreign Minister Annalena Baerbock said on Thursday that people in occupied regions of Ukraine had been taken from their homes and workplaces by threat and sometimes at gunpoint. "This is the opposite of free and fair elections. And this is the opposite of peace, it is a dictated peace," she said.

The exercise began across 15% of Ukraine last Friday with only a few days' notice. Russian state media argued that the use of armed guards was for security purposes but it was clear that it had the added effect of intimidating residents.

"You have to answer verbally and the soldier marks the answer on the sheet and keeps it," one woman in Enerhodar told the BBC.

Russia does not fully control any of the four regions it has decided to annex. Although most of Luhansk remains in Russian hands, Moscow only controls 60% of Donetsk.

Seven months after Russian forces invaded Ukraine from the north, east and south, war is still raging on the front lines in all four areas. The capital of the southern region of Zaporizhzhia is firmly under the control of Ukraine's government, and a counter-offensive is underway in Kherson.

What US Military Base schools teach?

United States troops serving overseas find that government schools are indoctrinating their children and teaching them to keep secrets from their parents.

According to a report from the Claremont Institute, classes from the Department of Defense Education Activity (DoDEA) teach children radical activism, gender ideology, and hiding gender questions from families.

The lesson plans aren’t about teachers helping children learn the basics; instead, they’re about teachers helping children hide facts from their parents.

“Maybe that student is not ‘out’ to other students in their gender identity,” seventh-grade humanities teacher Genevieve Chavez said in a video provided to Claremont by a whistleblower. “They may be out at school; but they may not be out at home.”

The video was part of a 2021 summit talk titled “Ally 101—Creating an Inclusive Classroom for LGBTQ+ Students.”

In the same talk, Chavez urged teachers to speak about new gender identities with young children.

 “You can talk about LGBTQ+ things in elementary school,” she says. “It’s actually the ideal time. Kids as young as 4 years old are already starting to develop a stable understanding of their gender identity. Elementary school is the perfect time because you can really show students the diversity of gender expression and gender activity.

Claremont notes in its report that many parents disagree with exposing children to gender confusion at an early age.

“Parents have long taken for granted that cultivating a stable sexual identity is a key to individual development. Our military schools think upsetting a stable identity is the key to education,” the report states.

The 2021 summit urged teachers to filter every aspect of school life through radical gender ideology, the report states.

Prom kings and prom queens should be homecoming court or royalty or partners of distinction, teachers should say their own pronouns to normalize it, and teachers can keep the preferred pronouns of students secret from parents, according to Lindsey Bagnaschi, who was teaching high school drama at Stuttgart High School in Germany, which serves local army bases.

It’s also a mistake to call a roomful of students ‘guys’ instead of ‘seventh-graders’,Chavez says.

This year, students rejected the idea of scrapping the old titles, the Claremont report states. But there’s always next year.

The DoDEA’s program also encourages students to activism, according to the Claremont report. The DoDEA’s Strategic Initiatives seek to provide equitable learning experiences for all students.”

To do so, the government suggests implementing “programs and supports to address achievement gaps between racial, ethnic, ability, and other identified groups” and provide “learning environments where students feel safe, secure, and supported by the entire learning community.”

The DoDEA also promises to “stand up and grow Diversity, Equity, and Inclusion (DEI) structures to lead and implement DEI across the organization so that all students, employees, and families feel welcomed, respected, engaged, and empowered.”

The Claremont Institute notes that none of the DoDEA’s focus areas emphasize math, engineering, or any other form of academic excellence, and never define terms like “Key Performance Indicators.”

According to the report, encouraging students to restructure schools to hide the gender binary will teach them to restructure society as adults.

 “If students are used to restructuring their school environment, they will become activists for restructuring the general culture once they leave school,” the report states. “Future citizens, sons and daughters of military personnel, will become much more like their teachers than like their parents.”

A DoDEA presentation on equity and access tells teachers to instruct students in having conversations about critical race theory, the Claremont report states.

Such a conversation is one that “explores the relationship between identity and power, that traces the structures that privilege some at the expense of others, that helps students think through the actions they can take to create a more just, more equitable, world,” according to the presentation.

Tracy Shelton, a literacy coach at Feltwell Elementary, which teaches the children of Americans serving at Air Force bases in Great Britain, recommended that children study books to learn how to be antiracist, the report states.

Racism and antiracism allow no neutral party, Shelton says.

“Racists, Shelton said, following the work of Ibram Kendi, are those who do not fight for racial equity, while antiracists put the fight for racial justice at the center of their lives,” the report states.

Even white people being silent are damaging, according to presentations quoted by the report.

“I was reading ‘Me and White Supremacy’,” says one teacher, and what it teaches “about white silence, and I realized the damage I was doing by my white silence,” the report states.

If teachers can’t get radical books onto reading lists, they can get them to children through independent reading time, book clubs, and literature circles, says Merilee Debus.

Debus is a professional practice improvement specialist at the DoDEA, according to her LinkedIn page.

“We still have a lot of room for getting the right book in their hands when they need it.”

Another teacher, Betty Roberts of Robinson Barracks Elementary School, which serves five military bases in Germany, recommends reading books without critical race theory using critical race theory interpretations, the report states.

She urged students to “take a look at their textbooks and [to] identify … the biases and how underrepresented groups are represented in these textbooks.”

The Claremont Institute ended its report with a call for action from public officials and Congress. But if they don’t act, military parents have one last nuclear option, the report concludes.

“It seems that members of the military who object to such education are no longer welcomed in the military. Perhaps they should just walk out of the military schools with their children or walk away from the military altogether,” the report states.

US claims downing Iranian drone in Iraq

The US forces on Wednesday claimed downing of an Iranian drone that officials said appeared poised to attack American troops in Iraq.

It was claimed that the downing came as the Iranian military started a drone bombing campaign targeting the bases of an Iranian-Kurdish opposition group in northern Iraq, attacks that have killed at least nine people and wounded 32 others, according to the Kurdish Regional Government’s Health Ministry. 

The bombings follow Iraqi and Iranian Kurds protesting in Iraq’s northern city of Erbil over the death of Mahsa Amini, the 22-year-old Kurdish woman who died in the custody of Iran’s morality police. 

“US Central Command condemns the Islamic Revolutionary Guard Corps’ unprovoked attack in Iraq’s Erbil Governorate this morning. Such indiscriminate attacks threaten innocent civilians and risk the hard-fought stability of the region,” command spokesman Joe Buccino said in a statement. 

In the midst of the bombing campaign, US forces brought down an Iranian Mojer-6 unmanned aerial vehicle “headed in the direction of Erbil as it appeared as a threat to CENTCOM forces in the area,” according to Buccino. 

He noted that no US forces were wounded or killed, no US equipment was damaged as a result of the strikes and that Central Command forces are assessing the situation. 

US and coalition troops are based in Iraq to advise and assist its military to counter ISIS militants and keep the terrorist group from resurging in the region. 

The US government has condemned the strikes, with national security adviser Jake Sullivan stating Wednesday that Washington stands with Iraq’s leaders in the Kurdistan region and Baghdad in condemning these attacks as an assault on the sovereignty of Iraq and its people.

“Iranian leaders continue to demonstrate flagrant disregard not only for the lives of their own people, but also for their neighbors and the core principles of sovereignty and territorial integrity enshrined in the UN Charter,” Sullivan said. “Iran cannot deflect blame from its internal problems and the legitimate grievances of its population with attacks across its borders.”

Iraq’s Foreign Ministry and the Kurdistan Regional Government have also condemned the attacks.

 

 

Saudi Arabia: Top 5 ship owners

Saudi Arabia is often classified as one of the largest oil producing country and it needs ships to deliver crude oil and/or POL products around the world. Many of our readers ask who Saudi Arabia’s biggest ship owners are.

When it comes to the answer by total fleet value it is little surprise to see Bahri coming out top, but looking at the largest number of vessels the ranking is somewhat different.

Ahead of the Saudi Maritime Congress which kicks off Kingdom’s top five owners are both by total value of their fleet and size in terms of numbers of vessels.

By value it is little surprise to see Bahri topping the list with its tanker fleet estimated to be worth US$2.28 billion.

Second in terms of value is MODU owner ADES International with a fleet worth US$947.62 million, with Bihar International with its fleet of LPG carriers, tankers and OSVs valued at $567.32 million.

In fourth and fifth spots are Arabian Drilling Co and Rawabi Holdings with fleets valued at US$503.08 million and US$445.13 million, respectively.

Ahead of the Saudi Maritime Congress which kicks off in Dammam we asked VesselsValue who the Kingdom’s top five owners are both by total value of their fleet and size in terms of numbers of vessels.

By value it is little surprise to see Bahri topping the list with its tanker fleet estimated to be worth US$2.28 billion. Second in terms of value is MODU owner ADES International with a fleet worth US$947.62 millio, with Bihar International with its fleet of LPG carriers, tankers and OSVs valued at US$567.32 million?

In fourth and fifth spots are Arabian Drilling Co and Rawabi Holdings with fleets valued at US$503.08 million and US$445.13 million, respectively.

However, if we look at the top 5 Saudi owners in terms of numbers of vessels in their fleet a rather different picture emerges.

Rawabi Holdings has the largest number of owned vessels with a fleet of 62 OSVs and offshore construction vessels (OCS). In second place is Zamil Offshore with an owned fleet of 50 OSVs and OCS. In third position is Bahri with an owned fleet of 44 tankers.

In fourth and fifth places are Hadi Hamad Al Hamman ADES International with an owned fleet of 38 and 30 vessels respectively.

Courtesy: Saudi Gazette

US mobilizing allies to reject Russian annexation effort

The United States and its allies are mobilizing the international community to reject Russian attempts to annex territory in Ukraine, in a move that Kyiv hopes will spur greater military support to deliver Moscow a decisive battlefield defeat.  

Hawkish supporters of Ukraine say now is the time for the US, Europe and NATO to increase the delivery of heavy artillery, tanks and war planes to Kyiv despite nuclear weapons threats by Russian President Vladimir Putin.  

Putin is under pressure in Russia because of the battlefield misfires and the chaotic rollout of his mobilization order for 300,000 troops. The Ukrainian military’s stunning counteroffensive in the northeast led Putin to move to mobilize more troops, which has received a negative reaction in Russia.  

William Taylor, a former US ambassador to Ukraine and vice president of the Russia and Europe program at the US Institute of Peace, said the news is helping the US effort.  

“My bet is that the [global] reaction would be to double down on support for the Ukrainians on the battlefield,” he said. “The Russians have a big manpower problem and now’s the time for the Ukrainians, reinforced by these weapons … to allow them to break through the Russian lines and push the Russians out.” 

Ukraine’s ambassador to the United Nations, Sergiy Kyslytsya, told CBS News on Monday that the international community needs to speed up the supply of weapons.  

He specifically called for the delivery of weapons to protect Ukraine’s airspace, adding that Russia is “impotent when it comes to the offensive on the ground” but that the missile threat needs to be eliminated.   

“I have never had any doubt that Ukraine will militarily defeat Russia on Ukrainian territory,” he said.   

The US and Britain have warned that what they call “sham” votes in four Ukrainian territories are an effort to annex Ukrainian territory while justifying the war to the Russian public.  

The British Ministry of Defense tweeted on Tuesday that Putin is likely to use an address to the Russian Parliament on Friday “to formally announce the accession of the occupied regions of Ukraine to the Russian Federation.”   

“Russia’s leaders almost certainly hope that any accession announcement will be seen as a vindication of the ‘special military operation’ and will consolidate patriotic support for the conflict,” the ministry tweeted.  

There have been multiple reports of opposition to Putin’s military mobilization order, with angry protests popping up in Russia’s far-flung territories, a shooting at an enlistment center in a Siberian city and reports of long queues of military-age men looking to flee the country.   

The U.K. on Monday announced sanctions against 92 Russian officials and entities it says are involved in carrying out the referendums.  

Secretary of State Antony Blinken said Tuesday that the US is readying sanctions if Russia moves forward on annexation.

“We are prepared and we will impose additional severe and swift costs on Russia for proceeding with the annexations,” he said during a press conference on Tuesday.  

“Ukraine has the absolute right to defend itself throughout its territory, including to take back the territory that has been illegally seized, one way or another, by Russia,” he added. “The weapons that we and many other countries are providing have been used very effectively to do just that.” 

Israel, which has maintained strategic ties with Moscow despite its invasion of Ukraine, released a statement Tuesday rejecting any results from the referendums.  

Taylor said the international community needs to follow up statements of anger with stronger military support.  

“All these expressions of outrage, of rejection, sanctions — that’s important to do, and it does send a message, but what’s really going to send a message, what really needs to happen, is the Ukrainians need to be able to push [the Russians] out of those places where they’re doing these referendum, pushing them out of these four provinces,” he said.  

The US has so far provided Ukraine with US$15 billion in security assistance, and lawmakers on Tuesday earmarked an additional $12.3 billion for Ukraine, included in draft text funding the government through December.   

But Ukrainian officials are frustrated that European powers with significant military reserves — Germany, France and Italy, specifically — have not matched commitments by the US, Britain and even the Baltic states, which are proportional to their size and military budgets.  

An analysis by the Kiel Institute for World Economy put the US as the number one donor for arms and equipment to Ukraine — citing about US$24 billion in commitments between January and August 03 — compared to pledges from Germany that equal about US$1.2 billion.  

France has committed less than $800 million in military assistance, and Italy around US$200 million, according to the tracker though it has counted US$2.4 billion in military commitments from European Union institutions.

Frustrations appear to be roiling in Berlin, where opposition lawmakers are demanding German Chancellor Olaf Scholz immediately send German tanks and armored vehicles to Ukraine. 

Politico Europe reported heated and inflammatory debate within Germany’s Bundestag last week over the need to increase, and quickly, military supplies to Ukraine.   

“If, in the light of mass graves in Bucha and Izyum, we are serious in saying: ‘Never again! Germany must ensure that something never happens again’ — then we have to go a decisive step further here,” parliamentarian Johann Wadephul, Deputy Chairman of the CDU/CSU parliamentary group, reportedly said. 

Russia likely to propose major output cut

Things are still looking bearish for crude, with WTI still trading below the US$80/barrel mark, but a number of bullish catalysts could offer support.

Hurricane Ian, was touted to become the next menace of oil production and refining in the US Gulf of Mexico. As of Tuesday morning, two oil majors have decided to shut oil platforms in anticipation, and the hurricane is now expected to make landfall in Florida.

Hence, oil market bulls see OPEC Plus as their ultimate line of defense against a meager macroeconomic background and a strengthening dollar, with all eyes on Russia, which is likely to propose a major production cut at the next meeting on October 05, 2022.

Russia is likely to propose at the next meeting that the group cut one million barrels per day from the group's collective output, Reuter’s sources familiar with Russian thinking shared on Tuesday.

The news comes just a day after comments made at Monday's APPEC's oil conference that suggested global oil stocks are set to rise next year amid weak demand and a strong dollar—and that OPEC would have to cut output if they wanted to keep prices from falling further.

The cartel would have to make oil cuts between 500,000 and one million bpd to keep Brent above US$90/barrel, Gary Ross, chief executive of Black Gold Investors, said at the meeting on Monday.

Now Russia itself could recommend a million bpd cut—and as one of the two largest members of the OPEC plus group, the county's recommendations hold weight.

The next meeting will be held on October 05, which will determine the output targets for November. It is also in November when the current batch of US SPR releases, which have helped to prop up low oil inventories, will cease.

OPEC Plus production cut for October by 100,000 bpd at the previous meeting, demonstrating its willingness—to respond to the changing oil markets in an expeditious manner.

Brent crude was trading up US$1.47 on Tuesday (+1.75%) to US$85.53/barrel, with mysterious and major leaks detected on Nordstream 1 and 2 pipelines that put the likelihood of gas flows resuming to Europe yet this year extremely low.

Some industry analysts have suggested that OPEC Plus could move to defend US$90/barrel.

 

Iran says US attempting to use unrest to weaken country

Iran faced more international criticism on Monday over the death of a woman in police custody that triggered nationwide protests after Tehran accused the United States of using the unrest to try to destabilize the country.

Iran has cracked down on the biggest demonstrations since 2019, sparked by the death of 22-year-old Kurdish woman Mahsa Amini on September 16 this year after she was detained by morality police enforcing the Islamic Republic's strict restrictions on women's dress. The case has drawn widespread condemnation.

The measures have not stopped Iranians from calling for the fall of Supreme Leader Ayatollah Ali Khamenei and the rest of the clerical establishment.

Canada will impose sanctions on those responsible for the death of Amini, including Iran's morality police unit and its leadership, Canadian Prime Minister Justin Trudeau said on Monday.

"We've seen Iran disregarding human rights time and time again, now we see it with the death of Mahsa Amini and the crackdown on protests," Trudeau told reporters in Ottawa.

Activist Twitter account 1500tasvir posted videos it said showed street protests late on Monday in different parts of Tehran, and footage where residents could be heard shouting "Death to Khamenei" from their homes. Reuters could not verify the videos.

Human rights group Hengaw posted a video which it said showed protesters cheering in Sanandaj, capital of Kurdistan province, as women took off their headscarves to protest forced hijab. In a later video, heavy shooting could be heard as streets appeared to be filled with tear gas.

Another video posted on social media purported to show security forces opening fire late on Monday during protests in Sardasht, a town with a large Kurdish population. Reuters could not verify the videos.

Iran said the United States was supporting rioters and seeking to destabilize the Islamic Republic.

"Washington is always trying to weaken Iran's stability and security although it has been unsuccessful," Iran's Foreign Ministry spokesperson Nasser Kanaani said in a statement.

On his Instagram page, Kanaani accused the leaders of the United States and some European countries of abusing a tragic incident in support of "rioters" and ignoring "the presence of millions of people in the streets and squares of the country in support of the system".

Also on Monday, Germany summoned the Iranian ambassador in Berlin to urge Tehran to stop its crackdown and allow peaceful protests. Asked about the possibility of further sanctions on Tehran in response to the violence, a German foreign ministry spokesperson had earlier said, "We will consider all options" with other European Union states. 

Last week, the United States imposed sanctions on Iran's morality police over allegations of abuse of Iranian women, saying it held the unit responsible for the death of Amini.

On Sunday, Iran summoned the British and Norwegian ambassadors over what it called interference and hostile media coverage of the unrest.

The anti-government protests are the largest to sweep Iran since demonstrations over fuel prices in 2019, when Reuters reported 1,500 people were killed in a crackdown on protesters - the bloodiest bout of internal unrest in the Islamic Republic's history.

Although the demonstrations over Amini's death are a major challenge to the government, analysts see no immediate threat to Iran's leaders because the elite security forces have stamped out protests in the past.

Iran has blamed armed Iranian Kurdish dissidents of involvement in the unrest, particularly in the northwest where most of Iran's up to 10 million Kurds live.

Iran's Revolutionary Guards launched an artillery and drone attack on Iranian militant opposition bases in the Kurdish region of northern Iraq, the second such attack in two days, state media said.

 

 

United States brokering Israel-Lebanon deal

The Biden administration is on the verge of a significant breakthrough in Middle East relations as it quietly pursues an agreement between Israel and Lebanon on territorial maritime borders.

The negotiations appear to be closing in on the finish line amid intensive negotiations between US, Israeli and Lebanese officials that took place last week on the sidelines of the United Nations General Assembly in New York. 

The administration has taken pains to downplay the significance of the potential agreement — concerned that anything that appears to look like normalization between Israel and Lebanon would set off a catastrophic fight with Hezbollah, which has an estimated 150,000 missiles positioned on Israel’s northern border.

But if successful, an agreement between Lebanon and Israel — with Beirut implicitly recognizing Israel’s legitimacy while the two sides are at war — would mark a tremendous victory for the Biden administration’s use of diplomacy to advance Middle East stability. 

“It would be a very significant win for the Biden administration, and frankly it would be a significant win for regional stability and de-escalation of tensions,” said Mona Yacoubian, a senior adviser in the Middle East and North Africa Center at the US Institute of Peace. 

The negotiations are being led by ​​Amos Hochstein, Special Presidential Coordinator for International Energy. He launched mediations between Israel and Lebanon in mid-October, following up on talks that were initiated during the former Trump administration in 2020. 

The talks have gained little attention, in part because of greater world crises such as the Russian invasion of Ukraine. But this also reflects an effort on the part of the administration to maintain a low profile. 

“I think this is being managed quite well on the part of the administration and Amos Hochstein in particular,” Yacoubian said.

“He’s really been very diligent in his shuttle diplomacy. I think he’s demonstrating, really, and he’s embodying what the hard work of diplomacy looks like and, if there is a deal, what it can yield.” 

The agreement is expected to draw a border between Israel and Lebanon in the eastern Mediterranean Sea and demarcate claims that both Beirut and Jerusalem identify as their exclusive economic zone. It would sort out how the two nations could benefit from exploration of the Karish natural gas field.

Lebanese officials are signaling major progress in reaching a deal. Lebanese Prime Minister-designate Najib Mikati said during his speech at the General Assembly that “we have achieved tangible progress which we hope will reach its aspired conclusions soon.”

Part of the progress is a consensus between Israel and Lebanon on the benefits of resolving the maritime boundary. Israel wants to avoid conflict with Lebanon and generally advance its relations in the region, and Lebanon is in dire need of any economic benefit that would come from being able to explore gas extraction in this part of the Mediterranean Sea. 

While the agreement on the maritime boundary is unlikely to yield immediate economic benefits for Lebanon, which is viewed as being in a crisis economic state, it is viewed as a positive development. 

Energean, the Greek-British energy company that holds a license to develop the Karish gas field, said in a September press release, “It remains on track to deliver first gas from the Karish development project within weeks.”

The development of the fields could help European countries wean themselves off Russian natural gas.

“As Europeans seek substitutes for Russian energy sources, the eastern Mediterranean is becoming increasingly important in that regard,” Yacoubian said. 

Hezbollah that controls southern Lebanon and holds immense power in the country, has over the last few weeks increased the number of its threatening statements against Israel over the border negotiations and gas extraction. 

Hezbollah leader Hasan Nasrallah said last week, “We are following up on the negotiations and all our eyes are on Karish and our missiles are locked on Karish.” He warned Israel against extracting gas in the absence of an agreement with Lebanon. 

“The red line to us is that there should not be extraction from Karish,” he said, in televised remarks reported by the Naharnet news site. 

A spokesperson for Israeli Prime Minister Yair Lapid responded in a statement that gas extraction is not connected to the US-mediated negotiations. 

“Israel believes that it is both possible and necessary to reach an agreement on a maritime line between Lebanon and Israel. … The production of gas from the Karish rig is not connected to these negotiations, and the production of gas from the rig will commence without delay, as soon as it is possible,” the statement read.

In a briefing with reporters on Wednesday in New York, Lapid said, “Israel is strong and knows how to defend itself” if an agreement is not reached with Lebanon addressing Israel’s “security, diplomatic and economic needs,” Axios reported. 

Yacoubian, of the Institute of Peace, said that Nasrallah’s threats appear to be “theater.” 

“It’s a lot of saber rattling, but that might be because it’s a prelude to a negotiated agreement,” she said. 

“In other words, saber rattling as a way of Hezbollah establishing itself as an actor working towards Lebanon’s benefit — so that when this deal comes, they shape their role in that way, that it was partly their pressure, their strong line on defending Lebanon’s interests that helped get Lebanon a deal.”

Hawkish regional watchers believe Nasrallah’s threats are laying the groundwork for an outbreak of conflict. Israel views Hezbollah as one of its greatest security threats and an arm of Iran’s greater ambitions to attack the Jewish state.

“The Iranians, in their stomach, are trying to take revenge against Israel,” said Eitan Dangot, President of the Association of Oil and Gas Exploration Industries in Israel and former Chief of the Israel Home Front Command. 

“Hezbollah is not working for the defense of Lebanon; Iran is giving it the green light to open its missile storage on Israel.”

Hezbollah’s determined threats against Israel are a point the Israel Defense Forces constantly reinforce to the world. The IDF has destroyed, but preserved, at least half a dozen Hezbollah tunnels dug under Israel’s northern border.

They regularly bring international visitors to tour the tunnels, marching them 80 meters, or more than 260 feet, underground to view the sophisticated engineering needed to burrow through solid bedrock and demonstrate what they say is Hezbollah’s determination to wage war on Israel.

US Ambassador to the United Nations Linda Thomas-Greenfield visited the tunnels in November, and the IDF tweeted a photo of a delegation of ambassadors and diplomats visiting the tunnels in March.  

‏”Seeing the tunnel with your own eyes changes your perception completely. Only then can you truly understand the lengths Hezbollah goes to in order to harm Israeli civilians,” Lt. Col. Richard Hecht, IDF International spokesperson, told The Hill.