Oil prices driving Russian equities

Oil continues to hover near multi year highs with the recent surprise inventory draw numbers only adding to the bullish posture of the market. Although, the Biden administration has made several attempts to jawbone the price of oil lower, first by appealing to OPEC to increase production and then hinting that it may release some stockpiles from the SPR reserve

Most of the analysts believe that crude and the whole hydrocarbon complex will at very minimum remain steadily bid for the foreseeable future.

• Global demand for oil favors oil rich RSX ETF
• Russian equities are in a tug of war between inflation and commodity spike
• Yield harvesting RSX offers a low risk way to play the trend

Global demand for oil is almost at pre-pandemic levels of 100 million barrel per day and the re-opening of major business travel routes should boost demand further. In Europe, with natural gas prices already at very high levels, any deep freeze conditions this winter could exacerbate the already elevated price levels.

All of this bodes well for Russia which stands as one of the pre-eminent hydrocarbon exporters in the world and whose oil and gas complex has already locked in massive gains on the production due to the 80% rally in crude.

The easiest and most natural way to play this theme is through the RSX ETF which provides a broad exposure to the Russian oil and gas industry and trades more than 3 million shares each day. The stock has responded well to the rising price of oil gaining 15% since the summer. Although, this is a respectable move it is rather muted in nature given the outsized gains in the underlying commodities. 

The reason for the modest gains in Russian equities has more to do with underlying turbulence in the Russian economy which has tempered the buoyant recovery in hydrocarbon demand. Russia continues to suffer from the scourge of COVID registering an average of 1000 deaths per day this month. More importantly the country is facing serious inflation pressures as it continues to import a vast array of goods that are now subject to supply chain constraints from many Asian producers.

The Russian central bank has already raised the benchmark rate to 7.5%, one of the highest amongst the EM - and has threatened to hike another 100bps in December if inflationary pressures do not abate. All of that has created tight credit conditions for the Russian economy and has compressed P/E spreads for equities.

The push and pull between higher commodity prices and elevated inflation has clearly curbed some of the upward momentum in the RSX nevertheless the ETF may be an excellent instrument for a low risk yield stripping play.

At current levels the RSX provides a very respectable 2.75% yield and given the fact that most of the Russian oil majors are seeing 14-18% Free Cash Flow yields at current commodity spot prices chances are good that many of the Russian companies in the ETF will raise their dividend payouts over the course of the next year. Meanwhile the RSX offers listed options on the instrument and investors could sell near or at the money calls on a bi monthly basis to enhance their return. 

As long as the price of oil remains within the $70-$90 range for 2022 the value of RSX is likely to remain stationary at worst and appreciate at best. Investors therefore could harvest dividend yield and option premium in a relatively low risk trade with possibility of double digit annual returns.

 

Overcrowding of warships in South China Sea

Senior Chinese diplomats have called on the United States not to show off its power over the South China Sea and warned of the risk of a misfire in the disputed waters with increasing presence of naval vessels.

Speaking to a South China Sea forum in Sanya, on the Southern Chinese island province of Hainan, via video link, Chinese Foreign Minister Wang Yi blamed an unspecified country for seeking to show off its power and maritime dominance.

“We must adhere to multilateralism and jointly maintain maritime order. The ocean is not a zero-sum game of competition, and no one should use the ocean as a tool to impose unilateral power,” Wang said.

“We oppose that certain countries, for the purpose of safeguarding maritime hegemony, flaunt their forces and form cliques at sea, and continue to infringe on the legitimate and lawful rights and interests of other countries.”

China and the US have been stepping up their military presence in the disputed waters, with increasing risks of an accidental clash. Concerns have escalated as the US has teamed up with its allies, including Britain and France, to send naval vessels to the South China Sea. Diplomatic observers have warned the consequences would be more serious if there was a clash between nuclear submarines.

Last month, the USS Carl Vinson carrier strike group and the British carrier HMS Queen Elizabeth conducted a series of exercises in the South China Sea. It was the USS Carl Vinson’s ninth visit to the area this year.

The South China Sea is heavily contested between China, the Philippines, Vietnam, Malaysia, Brunei and Taiwan. The US is not a claimant, but accuses Beijing of stoking military tensions and restricting freedom of navigation there, and has said its presence is needed to provide security backup to its Asian allies.

“China calls on the United States to actively consider joining the convention and take concrete actions to participate in the defence of the international maritime rule of law,” he said.

Gloria Macapagal Arroyo, former president of the Philippines, said the tensions and troubles in the South China Sea were posing “grave threats” to stability, and Southeast Asian nations were seriously concerned.

“Imagine what an exchange of fire between warships of the People’s Liberation Army and the US Seventh Fleet would do to stock, currency and commodity markets worldwide,” she asked the forum.

“The world hopes that such an unwelcome event remains pure imagination. But there are reasons to worry. For the first time in years, if not ever, aircraft carrier groups of China and America deployed in the South China Sea at the same time; so did French and British warships. Earlier this year, the presence of hundreds of Chinese vessels near Whitsun Reef led to Philippine diplomatic protests and the exchange of unfriendly words between Manila and Beijing.”

Arroyo said the South China Sea disputes had previously been managed by the expansion of economic and diplomatic ties among the nations involved, and with a balance of power.

“Now, the balance of power approach is increasingly being taken with the growing presence of American and allied forces in the South China Sea, which will get even more formidable with the Aukus, to which the PLA may feel the need to respond,” she said, referring to the deal struck with the US and Britain to help Australia acquire a nuclear submarine fleet.

A Pentagon report last week said China’s navy had expanded to 355 ships and submarines by 2020. It said the Chinese navy had placed a high priority on modernizing its submarine forces, operating six nuclear-powered ballistic missile submarines (SSBNs), six nuclear-powered attack submarines (SSNs), and 46 diesel-powered attack submarines (SSs).

But Wu Jianghao, assistant Chinese foreign minister, said China had engaged in discussions with other South China Sea claimants on joint exploration of its resources and a code of conduct.

“We must oppose maritime hegemony, division and confrontation, and build the ocean into a territory where all parties expand cooperation, rather than a zero-sum arena,” he told the forum.

 

United States succumb to Israel pressure

Biden administration abstained, but did not reject a General Assembly resolution affirming the right of return for Palestinian refugees to sovereign Israel. In doing so, it broke with the voting pattern on Israel set by former US President Donald Trump in which all such texts received an automatic "no" vote.

Obama administration, however, had traditionally abstained from this particular text, which comes annually before the UN General Assembly (UNGA).

"This year, the United States returns to a position of abstention on the text 'Assistance to Palestine Refugees,'” American Deputy Ambassador Richard Mills told the UNGA's Fourth Committee late Tuesday afternoon.

He spoke as the committee gave initial approval to six anti-Israel and pro-Palestinian draft resolutions that will come up later this year at the UNGA plenum for a final vote.

Three of those texts affirmed the work of the UN Relief and Works Agency (UNRWA), which services 5.7 million Palestinian refugees in Syria, Lebanon, Jordan, Gaza, the West Bank and east Jerusalem.

All three of those resolutions call for the right of return for Palestinian refugees to sovereign Israel or for their receipt of compensation for the property they lost when they fled their homes.

Out of the three, the resolution titled "assistance to Palestinian refugees" is considered to be the most benign. 

Canada similarly abstained on the text called assistance to the Palestinian people, while Australia supported it. The US and Canada joined Israel in rejecting the other two resolutions on UNRWA. Australia abstained on one of those and rejected the other.

The European Union supported all three UNRWA texts. Only Israel totally opposed the text "assistance to Palestinian refugees" which passed 160-1, with nine abstentions.

The other countries that abstained on the "assistance to Palestinian refugees" resolution were Cameron, Marshall Islands, Micronesia, Nauru, Palau, Papa New Guinea and Uruguay.

The Trump administration had opposed UNRWA and cut US funding to the organization. Both the Trump administration and Israel have charged that textbooks used in the agency's schools are antisemitic and incite against Israel. 

They opposed the UNRWA policy of applying refugee status to the descendants of Palestinians who fled their homes in 1948; a move which they explain creates an ever-increasing population of refugees.

Prior to Tuesday's vote, an Israeli representative spoke out against UNRWA at the UNGA Fourth Committee meeting.

"We cannot stand idly by when a UN humanitarian agency promotes a political agenda under the guise of true assistance," the Israel representative said.

"UNRWA must be accountable for the hateful indoctrination of children in its classrooms. It must put an end to the spreading of antisemitic lies by its employees and it must show a genuine commitment to transparency and accountability," the Israeli representative said.

She added that UNRWAA resources and infrastructure must not be hijacked by Hamas in conducting acts of terror," she added.  

Israel has also opposed the right of return for Palestinians to sovereign Israel, a move which it argues would destroy the country's identity as the ethnic-national homeland for the Jewish people. It has explained that in the essence of a two-state resolution to the conflict, Palestinians would have a right of return solely to a Palestinian State, much like Jews would have a right of return solely to Israel.

The Biden administration, however, has restored US funding and support for UNRWA.

"As many members know, under President Biden, the United States announced it would restore its financial support to UNRWA, which we do believe is a vital lifeline to millions of Palestinians across the region," Mills told the UNGA. 

"Since April, the US government has provided more than US$318 million to UNRWA in Fiscal Year 2021, including critical support for education, health and social services benefiting millions of Palestinian refugees registered with UNRWA," he said.

The US, he said, has noted that some changes were made to the text of the resolutions on the agency "that reflect our priorities in line with strengthening UNRWA," adding that "the United States will continue to work with UNRWA; work to strengthen the Agency’s accountability, its transparency, and its consistency with UN principles."

Mills called on UN member states to support the agency financially, noting that many of those who voted in favor of the three UNRWA resolutions were not willing to spend money on the organization.

"I would also like to take a moment to point out the overwhelming support from member states for these resolutions voted here today, compared with the relatively few member states that financially support UNRWA," he said. 

"In light of the Agency’s urgent shortfall, the United States urges member states to support UNRWA’s services for Palestinian refugees not only in word but in action – and to do so on an expedited basis," Mills said.

The resolutions were voted on in advance of a donor pledging conference for UNRWA scheduled to take place in Belgium on November 16.

Shrinking global spare oil production capacity

Spare crude oil production capacity has shrunk significantly due to under-investment, the head of Saudi Aramco said, warning that the potential rebound in jet travel and continued power plant demand for liquid fuels could create a worryingly tight market in 2022. 

"Unfortunately, there is not enough investment in the sector to increase supplies and maintain that spare capacity," Aramco President and CEO Amin Nasser said at the Nikkei Global Management Forum.

He estimated that global oil demand would surpass pre-pandemic levels of some 100 million bpd next year. Jet fuel demand remains about 3 million-4 million bpd below where it was before the pandemic, and a recovery in air travel would quickly consume the world's spare production capacity, he said.

The current high oil prices reflect the healthy economic recovery, as well as energy switching in the power sector from gas to liquid fuels, which could potentially add 1.5 million bpd of oil demand this winter, Nasser said.

Spare capacity can act as the market's buffer against unexpected disruptions to supply, such as hurricanes, political unrest and security incidents.

With many international oil companies seeking to downsize their oil portfolios and some producing countries struggling to revive upstream investment, Saudi Aramco stands to benefit and gain in market share, as it embarks on raising its crude production capacity from 12 million bpd to a world-leading 13 million bpd by 2027. The company is already the world's largest exporter of crude.

The slower pace of the energy transition in many developing countries means oil will remain a major fuel source for several decades, Nasser said.

"Between now until 2050, there are going to be an estimated 2 billion more energy users in the world and population growth would be led by developing countries, where energy transition will be much slower," Nasser said. "Hence, I expect oil and gas demand will be healthy for many decades to come."

Nasser highlighted that there are different needs for less developed countries as consumers in developed countries may be able to afford expensive energy solutions, but the same would not apply for consumers in developing countries.

"The world needs green and clean energy policy that is more inclusive," he said.

Oil and gas would remain Saudi Aramco's key businesses for a long time, though efforts to reduce carbon footprint will be executed with its combination of strategies including carbon capture, gas to hydrogen, liquid to chemical and more, Nasser said. Saudi Aramco recently set a target of bringing its carbon emissions down to net zero from its operations by 2050.

"Aramco's upstream emissions are perhaps one of the lowest in the industry. ... We have done a lot and put in a lot of investments in reduction of GHG emissions and we are confident with our strategy," he said.

Can Israel and Iran be friends ever?

Till yesterday, Israel was brainwashing Arabs by propagating “Iran is a bigger threat as compared to Israel”. Today I was amused to read an article in The Jerusalem Post saying, “The strong and rich relationship between Iran and Israel goes back to ancient times, to the era of King Cyrus.” 

The article ends with the words, “Both nations, the Iranians in particular, have never been so aware as they are today of the positive and beneficial consequences of their close relationship and historic friendship, but there are still many who must be made aware of it.”

Iran and Israel can boast a unique and exceptional socio-historic and cultural relationship going back over 2,500 years and many Iranians and Israelis believe that this very rich common background is capable of changing the face of the Middle East in the first decades of the 21st century, and also of changing the political atmosphere in the future to the benefit of both nations.

The burning desire for peace among many in the Middle East is threatened by groups of terrorists doing their utmost to undermine peace. Iran as a key country can play an important role, but under which leadership? Sooner or later the Shi’ite clergy and their evil ideas will be swept away by a younger generation of Iranians. The foundations for the strong intercultural bridge between Iran and Israel must be laid as soon as possible because change in Iran is very close.

The strong and rich relationship between Iran and Israel goes back to ancient times, to the era of King Cyrus, who allowed the Jews to return home to build the Temple. There are several warm references in the Bible with respect to Cyrus and the Iranians (in Isaiah, Daniel and Chronicles). Many distinguished Iranian scholars assert that only the Iranian-Jewish communities cared for and cherished the pre-Islamic Iranian culture and language.

After the Arab-Islamic invasion (638 AD) the situation changed, but there were several outstanding examples like the Jewish army commanders Rashid-al-Din Fazl-Allah and Saad al Dowleh and Shams al Dowleh (1231-1336) and many others. Prior to the Pahlavi dynasty (1925-1979) the relationship between the Iranian and the Jewish communities was not so good, but a real transformation took place during this period.

Official and formal diplomatic ties between the two countries began in 1950 and ushered in a fruitful period of cooperation and development. In January 1979 the new rulers kicked out the Angel of Freedom, whereas 40 million young Iranians wanted to bring her back to the country.

The more the regime intensifies its anti-Western and anti-Israel propaganda so the Iranian people are becoming more pro-Western and pro-Israel. They are deeply convinced that whatever they hear from the regime’s representatives they just interpret as the opposite.

Consequently, pro-Western ideas and respect and admiration for Israel are growing daily in the hearts of the people. Their daily actions, communications with external mass media, written material by journalists or student slogans, speak for themselves.

Many Iranians are opening their eyes and minds and criticizing the regime. They are proud to be the friend of the only democracy in the Middle East and they want to clearly and openly declare their deep relationship with the twin sister in the area, a relationship based on the history of the two nations.

What Iran can offer Israel?

Iran, as one of the largest countries in the Middle East, with a population of 75 million, has the potential to be one of the best friends of Israel in the world. Such a bilateral friendship could greatly benefit both sides, and together with the warm relations with Turkey and Central Asian countries, it would certainly transform the current ugly political situation in the region.

In the future, Iran can be responsive to many of Israel’s desires and needs, such as oil and many other mineral resources. Iran’s prominent position in OPEC and other international bodies will of course make it a serious supporter of Israeli foreign policy.

The future Iranian generation’s appetite for peace is stronger than for war. In a calm atmosphere without any regional tension, Iran will certainly open its gates to Israeli expertise in the oil field and other technical areas to benefit from its know-how and cooperation.

What Israel can offer Iran?

Global cooperation and a harmonious relationship between Iran and Israel will transform the market on both sides. The beneficiaries of such a transformation will not only be big businesses and corporations, but also ordinary people in both countries. Statistics and research will show how commercial development (technology imported from Israel to Iran) will rapidly change the face of Iranian society.

The markets in Iran are especially thirsting for new high technology. Jewish businessmen and companies in the West will also be encouraged to do their share in meeting Iran’s technological needs.

Teams of Israeli experts will come to Iran to help the local people manufacture, renovate and rebuild all of Iran’s rotting and ruined machinery. There is a tremendous variety of needs to be addressed, from education, banking, military and security to commercial, industry, agriculture and farming, from food to medicine, research, university and sport.

Iranians still enthusiastically recall the city of Ghazvin in the north of Iran completely demolished by an earthquake in 1963 and rebuilt by Israeli experts, and such experience will help people on both sides. The powerful standing of Israel in the international mass media will help the Iranian people to cleanse the harshly negative reputation gained during the Islamic Revolution years.

The relationship with Israel will also provide new avenues for marketing Iranian oil, and Israeli technicians will be most welcome to help solve the great problems in Iran such as gas and water pipelines, telephone communication, electricity, dams, roads, transport and numerous other neglected or undeveloped projects.

Bilateral cooperation between Iran and Israel

It is the author’s sincere view, based on his personal, social and academic experience, that those who wish for a secure future for both nations in a prosperous and peaceful Middle East have no option but to welcome and foster close ties between the two nations. Such a desire is not an empty hope but could be a practical path leading to a brighter world.

Iranians will welcome and be proud of a strong relationship with Israel, the only democracy in the Middle East and one of the world leaders in hi-tech, medical advancement and agricultural production. Conversely, to have a strong friend and ally in the region with the richest oil and mineral resources and an open-handed government and open-minded population will represent a great opportunity for Israel.

Such an ambition is easily expandable to the Central Asian countries, as well as Turkey and India. Why India?

Parsees in India are the Iranians who left Iran 14 centuries ago after the Arab-Muslim invasion of Iran. They are now among the most aristocratic and upper class of Indian society and administration. A large group of Iranian intellectuals (both inside and outside the country) are working to enable the Parsees in exile to return to their old home just as the Jewish communities after 2,000 years came back home from the Diaspora.

For the past two centuries, Westerners have been the avant-garde of liberty and social freedom, but at the same time, they are also the slaves of their benefits. Iran has no option but to have a global relationship with the West.

A strong relationship with Israel will benefit Iran in two ways: on the one hand, Israel is a clear symbol of the West with high ability, and on the other hand, is full of warm Eastern mentality. In addition, Israel has a deep historical and cultural affiliation with Iran.

To cement this future wide-ranging relationship we propose:

1. A new bilateral legal system in both countries, based on solidarity, ancient historical friendship and a productive global relationship (political, economic, social, cultural, military, security), and answering the requirements of the 21st century.

2. Developing university-standard visits and research, educational exchanges, bilateral scholarships at different levels, according to the priorities and requirements of both countries.

3. Increased collaboration in journalism and the mass media, including regularly organized meetings.

4. Bilateral development of artistic, sport, tourism and other social events. The holding of seminars, conferences and exhibitions in the spheres of culture, industry and agriculture and inventions can yield better knowledge about each other.

5. Development of marketing on both sides for commerce and trade in the private and public sectors. Minimizing the bureaucratic complications and maximizing the facilities in customs, taxes, insurance and transport.

6. Consolidating cooperation between Iran and Israel in the areas of police, army and security, including mutual research and exchanges in this area.

Who attacked Iraqi Prime Minister?

Reports of a recent drone attack on the home of Iraqi Prime Minister Mustafa Al-Kadhimi have caused a major escalation in the region. There is an increased use of drones as a strategic weapon, with the goal of intimidating the Iraqi Prime Minister just days after security forces clashed with pro-Iranian protesters.

It is apprehended that the attack was carried out by pro-Iranian militias as probably there exist no other culprits in Iraq who have drones that could or would attack the Iraqi Prime Minister.

While ISIS has used drones in the past, it’s not clear why they would suddenly emerge now to target the Iraqi leader and that leaves Iran-backed groups firmly in the frame.

While official reports have not yet specified which group was behind the attack and no one has yet taken responsibility for it, the trend of such attacks in the region points to Iranian-linked groups.

A drone was used to attack a US garrison at Tanf in Syria in October. In July, a drone was used to attack a commercial tanker in the Gulf of Oman, killing two crew members. In both instances, the US and other countries have pointed the finger at Iran.

In May, a drone was launched from Iraq, or possibly from Syria, targeting Israel during the 11-day war with Hamas. It is believed that Iran was also behind this attack.

For years, Iran has been building more sophisticated drones for surveillance and kamikaze-style attacks. The drones have become better at navigation and pre-programmed flight paths, or even real-time intelligence gathering. The fact they have targeted a moving ship is a clear indication of this.

An attack on the residence of Kadhimi is also a likely message by pro-Iran groups in Iraq that the Prime Minister is not immune.  

Iraqi armed forces announced the start of investigations to discover the location of the launch of the booby-trapped drone that targeted Kadhimi. Images showed the damage to the home, but it is unclear if drone fragments had been found that would link the design to any single country or entity.  

One of the reasons pro-Iran groups — including Hezbollah, Hamas and the Houthis in Yemen — use drones, is that it is difficult to trace their launch site and to know who is behind them once they are launched.

Israel has, in the past, accused Iran of creating a drone training center. Drones from Iran and technology from Iran has been a key to aiding Houthi efforts to attack Saudi Arabia.

Since January, the pro-Iran militias in Iraq have increasingly used drones to target US forces. This has occurred even in Erbil where the pro-Iran militias used a drone in the spring of 2021 to target what US media called, at the time, a CIA hangar at Erbil airport. Pro-Iran groups have done parades with drones.  

But, the kind of drone used to attack the Iraqi Prime Minister may be smaller than some of the kamikaze drones, which tend to be larger than a human. Locating parts of the equipment will be important, but Iraq’s security services may be reticent to conclude that Iran or any of its proxy groups were behind the attack.

Because in previous incidents where Iraq’s prime minister has acted against pro-Iranian groups engaged in illegal attacks, they succeeded in freeing their jailed members as a result.

Now, the groups, most linked to the Fatah party in parliament and the paramilitary Hashd al-Shaabi, have been conducting a sit-in to demand the overturn of recent election results. This kind of election protest is designed to raise tensions and pressure the prime minister.  

The problem being faced by the Iraqi government is that the militias are often tied to official paramilitary forces because former Iraqi Prime Minister, Haider Abadi, pushed to give the militias a legitimate role.

The militias were given increased power in 2014, based on some existing pro-Iran units, to fight ISIS but after the war on ISIS ended, the militias refused to go home and Abadi, who was backed by the US, empowered the militias.

US accuses OPEC Plus jeopardizing global economic recovery

The White House has said OPEC Plus is risking imperiling the global economic recovery by refusing to speed up oil production increases and warned the United States was prepared to use "all tools" necessary to lower fuel prices.

The move came after Saudi Arabia-led Opec and its allies such as Russia rejected US calls to help tame rising oil prices, insisting they would stick with a plan of only gradually increasing output, even as demand roars back from the depths of the pandemic.

"Opec+ seems unwilling to use the capacity and power it has now at this critical moment of global recovery for countries around the world," said a spokesperson for Biden's National Security Council.

"Our view is that the global recovery should not be imperilled by a mismatch between supply and demand."

Oil prices are close to seven-year highs despite economic activity not yet fully recovering to pre-pandemic levels and higher energy costs stoking concerns about inflation. Brent crude oil prices slipped about 2 per cent after the meeting towards $80 a barrel.

US President Joe Biden has blamed Russian and Saudi oil supply restraint for a surge in US petrol prices, which have risen 60 per cent in the past 12 months.

Jennifer Granholm, the US energy secretary, told the Financial Times last month that a release of oil from the country's strategic stockpiles was among "tools" the Biden administration could deploy to cool crude prices that have more than doubled in the past year.

Saudi Arabia defended its stance on Thursday saying the producer group was acting as a "responsible regulator" by only gradually increasing oil output by 400,000 barrels a day (bpd) each month.

"What we have seen over the past few months again and again and again is that energy markets must be regulated otherwise things will go astray," Prince Abdulaziz bin Salman, Saudi energy minister, said in an extended press conference.

The group sought to present a united front to the US, with energy ministers from Mexico to the UAE lining up to support the decision.

Opec+ said in a statement it wanted to "provide clarity to the market at times when other parts of the energy complex outside the boundaries of oil markets are experiencing extreme volatility and instability".

Abdulaziz repeatedly referenced gas and coal markets, the prices of which have risen faster than oil this year, to justify the group's actions but the explanation failed to satisfy the White House.

Saudi Arabia has long been one of Washington's most important Middle Eastern allies but tensions are increasing with the Biden Administration.

Biden has refused to speak with Crown Prince Mohammed bin Salman, the heir to King Salman and day-to-day ruler of the country. The US released a declassified intelligence report in March that said the Crown Prince authorised the murder of Washington Post journalist Jamal Khashoggi.

Abdulaziz is the half brother of the Crown Prince and is seen as frustrated by the push by western countries to cut their reliance on fossil fuels while also asking the kingdom to raise oil production.

"The relationship between Saudi Arabia and the US is at risk of being strained as the latter is going full-bore to tackle climate change," said Christyan Malek, head of oil and gas research at JPMorgan.

"But Saudi Arabia in this context needs to fund its own energy transition. And it's looking for an oil price and a relationship which is conducive for that."

The White House has also said it is monitoring Russia's actions in natural gas markets, as prices in Europe and Asia have soared fivefold this year. Some lawmakers in Europe and the US have blamed Moscow for exacerbating the gas price surge by restricting supplies to Western Europe.

Bob McNally, head of Rapidan Energy Group and a former adviser to the George W Bush White House, said the decision by Opec+ could prompt a response from consumer countries.

"Given the complete rebuff by Opec+ and President Biden's clear threats to respond, odds of a US if not an International Energy Agency strategic stock release are rising fast along with other retaliatory options," he said.

Under the current plan, Opec+ will add 400,000 bpd every month until the end of 2022, restoring oil supply removed last year after the US cajoled Saudi Arabia and Russia to make record deep cuts to prop up an industry devastated by the pandemic.

Saudi bid to become regional business hub

Reportedly, Saudi Arabia has issued licenses to 44 international entities to set up regional headquarters in the capital Riyadh, as the kingdom seeks to project an image of change to lure foreign capital and talent.

Multinationals in sectors including technology, food and beverages, consulting and construction are among the entities eligible to set up headquarters. They include South Korea's Samsung, Deloitte, Unilever, Baker Hughes and Siemens.

Crown Prince Mohammed bin Salman is spearheading a campaign to make Saudi Arabia a regional business hub. State news agency SPA cited Fahd al-Rasheed, President of the Royal Commission for Riyadh City, as saying the moves would add 67 billion riyals (US$18 billion) to the Saudi economy and create around 30,000 jobs by 2030.

The country has set out a Vision 2030 program ‑ a neoliberal reform agenda aimed at reducing the Kingdom's economic dependence on oil.

Saudi Arabia also needs to reassure foreign investors nervous about putting money into the kingdom due to reputational risks stemming from purported human rights violations at home and in Yemen, and the sour taste left by the murder in 2018 of Saudi journalist Jamal Khashoggi in Istanbul.

The world's top oil exporter and largest Arab economy is also setting a deadline, saying in February it would give foreign entities until the end of 2023 to set up shop in Riyadh or risk losing out on government contracts.

Saudi Minister of Investment Khalid al-Falih told Nikkei Asia that it was not a case of merely competing with the UAE for foreign direct investment.

"We believe all capitals of the Middle East will continue to grow and thrive with the growth of Saudi Arabia. With the achievements of Vision 2030 [and] with the growth of Riyadh, it will create a spillover effect into the region," al-Falih said in the interview.

"Riyadh's economic quality will transform into higher growth sectors such as technology, health care, logistics, advanced manufacturing, food processing [and] financial centers ... centered in Riyadh to serve the broader region."

Al-Falih said his country was working to improve lifestyles for foreigners based in Riyadh.

"We are only starting the climb. This is an escalator we are riding to improve liveability in Riyadh," he said. "We are on a continuous, never-ending journey to improve our liveability [and] ... investment environment. Boosting skills for our talent and improving our competitiveness for the Saudi economy."

Saudi Arabia investment minister Khalid al-Falih speaks to Nikkei Asia in an interview in Riyadh. (Photo by Saudi Ministry of Investment)

But Ryan Bohl, a senior geopolitical risk analyst for intelligence firm Middle East at Stratfor, said it is unlikely that Riyadh will be able to quickly make improvements in legal and banking services, social issues, entertainment and education.

"Riyadh will take years to create the natural pulls needed to get these Asian and International institutions to shift over to Riyadh," he said. "There is a real chance Saudi Arabia weakens these provisions before the deadline, which would reduce the challenge to Dubai's model."

"But even if they don't, the Emirati government might decide to either provide compensation for those that endure Saudi penalties -- create new policies that liberalize the UAE's labor market further to make it an easier place to live and work than Saudi."

During the recent Riyadh Future Initiative Investment Summit, dubbed "Davos in the Desert," international investors were reluctant to speak openly about moving their Dubai headquarters to Riyadh.

"The Gulf region is growing fast enough to sustain offices in multiple jurisdictions," Tarek Fadlallah, CEO of Japanese Nomura Asset Management (Dubai), told Nikkei.

Anthony Habis, head of the Middle East and North Africa for BNY Mellon, said the U.S. investment bank was expanding its presence in Saudi Arabia with its local entity and strategic partnerships. "We are proud to have a Saudi CEO and local team based in Riyadh, and we share in the Saudi Vision 2030 of building capital markets."

Hazem Ben-Gacem, co-CEO of Investcorp Bahrain, lauded Riyadh's recent progress. "Crown Prince Mohammed bin Salman has done an exceptional job to challenge the status quo, not just in terms of structural and fiscal reforms but also on the social front."

Chinese artificial intelligence company Sensetime said it will be growing its presence in Saudi Arabia, but did not comment further.

The assassination of Khashoggi prompted numerous investors, including the CEOs of BlackRock and JPMorgan Chase, to pull out of an investment event in Riyadh in 2018.

A senior consultant who spoke to Nikkei on condition of anonymity said that "reputational risks are still a concern for some international and Asian investors." The person added, however, that while some investors "will be excited by the prospect and level of business activity in Riyadh, others will have social considerations."

Revival of Pakistan Bangladesh relations

Prime Minister of Bangladesh Sheikh Hasina reiterated her government’s desire for stronger trade ties and economic collaboration with Pakistan. She was talking to Pak­istan’s High Commissioner to Bangladesh Imran Ahmed Siddiqui during their meeting in Dhaka.

Pakistan’s Foreign Office, in a statement issued said the two sides agreed to promote bilateral relations. This was the second meeting between Hasina and Siddiqui in less than a year.

The meeting came amid warming of ties between the two countries after remaining in deep freeze for over a decade.

It is important to note that the meeting took place at a time when both countries have begun to prepare for Hasina’s first ever visit to Pakistan.

Bangladeshi Prime Minister has recently conveyed in writing to Pakistan her acceptance of Prime Minister Imran Khan’s invitation, which was extended in July 2020. No dates have been set as yet for the trip. Hasina has also invited Khan to visit Bangladesh.

Pakistani side has proposed to Bangladesh to prepare a road map for Hasina’s trip so that it is fruitful. Moreover, Islamabad is seeking revival of bilateral mechanisms like the foreign secretaries’ dialogue, which has not been held for nearly 13 years.

Pakistan-Bangladesh relationship, took a nosedive after Hasina started her second tenure as prime minister in 2009 when she resumed 1971 ‘war crimes’ trial.

Pakistan has always considered the bitter 1971 dismemberment of the country as a closed chapter in view of the tripartite agreement signed in April 1974 for the repatriation of war prisoners.

Relations started improving last year. The developments in the Pakistan-Bangladesh ties came in the backdrop of Delhi-Dhaka ties turning lukewarm following the enactment of controversial Citizenship Amendment Act by India last year. Moreover, growing Chinese influence in Dhaka has also brought Pakistan and Bangladesh closer.

Ambassador Siddiqui conveyed Prime Minister Khan’s message of goodwill and friendship to Hasina and the people of Bangladesh. He also presented a photo album of the late Prime Minister Sheikh Mujibur Rahman’s visit to Pakistan in 1974 to attend the OIC Summit; videos of his engagements in Pakistan during the summit; a photograph of Sheikh Mujibur Rahman’s portrait in Lahore Museum, as well as Bangla version of a coffee table book “Alla’ma bil Qalam” containing calligraphy-art rendered by Pakistani artists.

Prime Minister Hasina thanked the high commissioner for the gifts and reciprocated the greetings and good wishes by Prime Minister Khan.

Asia paying five times more than US consumers for natural gas

It is a phenomenon rarely seen in commodity markets, natural gas prices are skyrocketing across the world, Europe and Asia and consumers are paying up to nearly six times more for natural gas as compared to the US consumers. This is being attributed to a lack of the US liquefaction capacity.

On Tuesday in New York, front month contracts for Henry Hub gas futures closed above US$5.88 per million BTUs, more than doubling in the year to date. The fuel topped US$6.46 on October 6, marking the highest level since 2014. On top of climbing air conditioning demand in the summer, production in some places is still at a standstill due to hurricane damage.

Even though prices are higher, US natural gas prices lag sharply behind global bench marks. In Europe, the index price for the fuel soared six-fold over a year to the equivalent of around US$170 a barrel when using crude oil terms. Upward pressures include stagnant supplies from Russia that led to a shortage of inventory.

For Asia, liquefied natural gas spot prices are at the equivalent of roughly US$200 a barrel, quintuple from a year earlier. Meanwhile, US natural gas wallows at the equivalent of about US$35 a barrel.

The US can thank its limited LNG export volume due to capacity constraints for the relatively small rise in prices, insulating its market from the impact of European and Asian demand.

The combined capacity of US gas liquefaction plants stands at 10.8 billion cubic feet per day, according to the US Energy Information Administration. Although this metric has tripled over the past three years, the LNG only accounts for about 10% of the US total natural gas output.

The fracking boom in the US transformed the country into a net LNG exporter in 2016. Exports of the fuel in the first seven months of the year grew 50% on the year to more than 2 trillion cubic feet.

However, July's exports were equivalent to 90% of liquefaction capacity. Many experts believe that liquefaction plants, where the gas is processed into liquid for transport, are operating essentially at full capacity when taking repairs and maintenance into consideration.

"It will be difficult to increase exports from this level," said Toshiyuki Makabe, Managing Director of commodities sales at Goldman Sachs.

Whenever gaps develop in international commodity prices, arbitrage trading that profits off the differences works to correct the margins. Because of those activities, nonferrous metal prices on the London Metal Exchange track closely with those on the Shanghai Futures Exchange.

Because of the limits to US LNG exports, international arbitrage trading is not operating at full swing. Liquefaction capacity is projected to grow by more than 20% by the end of 2022, according to US research firm Wood Mackenzie. The expansion will include newly operating facilities by the end of this year, but that is not expected to greatly expand the pace of exports.

“The US natural gas is being isolated from the global market, and price formation is reflecting domestic supply and demand," said Yutaka Shirakawa at Japan Oil, Gas and Metals National Corp.

Given that the US can satisfy its own natural gas consumption solely by domestic production, "market prices are less prone to volatility compared to other regions," said Hiroshi Hashimoto, senior analyst at the Institute of Energy Economics, Japan.

Rising energy prices within the US have led to higher electricity and gas bills for households. But the impact is not as severe as it is in Europe, which is facing the risk of inventory being depleted, or China, which is experiencing power shortages.

Finding legitimacy of freezing Iranian funds

The United States has long used sanctions to obstruct Iran’s access to its foreign exchange reserves. The Obama administration (2009-2017) used sanctions to pressure Iran to curtail its nuclear program and come to the negotiating table.

Through, a series of regulations and designations, Washington made clear that foreign companies and financial institutions that provided material support to the Iranian financial system – even by simply processing Iran-related transactions – could find themselves similarly designated and therefore cut off from the US financial system

Foreign banks that hold Iranian foreign exchange reserves responded to these sanctions by freezing Iran’s access to their reserves. Iranian requests to make transfers or payments have often been refused, even when transactions are technically permissible under exemptions intended to protect humanitarian trade.

Limiting Iran’s access to the reserves weakened Iranian currency, made the economy more vulnerable to a balance of payments crisis, and made it harder for the Iranian government and Iranian companies to do business abroad.

In 2014, Iran gained access to a small portion of its reserves after it reached an interim nuclear deal the world’s six major powers – Britain, China, France, Germany, Russia, and the United States. Iran was allowed to repatriate paltry US$4.2 billion in oil revenues held abroad.

In 2015, the same countries reached a final agreement, known as the Joint Comprehensive Plan of Action (JCPOA), in which Iran agreed to significantly curb its nuclear program in exchange for sanctions relief. As a result, Tehran regained access to more than US$100 billion in assets abroad.

In 2018, however, President Donald Trump withdrew from the JCPOA and reimposed wide-ranging US sanctions – effectively freezing Iran’s assets abroad again.

Iran’s total foreign exchange reserves amounted to US$115.4 billion at the end of the 2020 financial year, which ended on April 30, according to the International Monetary Fund (IMF). But as of October 2021, only US$12.2 billion was readily available and controlled by the monetary authorities after the re-introduction of financial sanctions, according to IMF estimate.

Most of Iran’s foreign exchange reserves have accrued in countries buying crude oil from Iran. Determining where exactly Iran maintains the reserves is difficult because the government treats information regarding the location and value of these reserves as a matter of national security.

Media reports, suggest that significant reserves are held in South Korea and Japan (historically major customers of Iranian oil) and Iraq (a country that buys electricity from Iran). Iran’s central bank also maintains accounts in several other countries, including China, Germany, India, Turkey, and the United Arab Emirates. Since the reimposition of US sanctions in 2018, Iranian economic diplomacy has focused in large part on bilateral negotiations with these countries to seek the release of funds.

Iran’s inability to access the reserves is more a function of the hesitance of financial institutions to process any Iran-related transactions – including humanitarian trade – without a green light from the US Administration. (Under U.S. law, humanitarian goods are not subject to sanctions, but some foreign companies and banks have been reluctant to do business with Iran for fear of violation of the US sanctions.) Faced with this predicament, Iran has pressured the South Korean, Japanese, and Iraqi governments to seek approvals from the United States.

For years, critics of the JCPOA have warned that unfreezing some or all of Iran’s foreign exchange reserves could be a windfall for the government. A key concern is that Tehran could use the billions of dollars to fund militant proxies and other malign activities. 

Historically, Iran has not drawn down large sums from its reserves. Part of the reason why Iran has accrued significant foreign exchange reserves is that, like most countries, it is happy to let its reserves grow. In 2002, Iran had around US$21 billion of foreign exchange reserves. By 2015, total reserves had risen to US$128 billion. In 2016, Iran regained access to its assets abroad as part of the JCPOA. By 2017, reserves had only fallen to US$112 billion. 

Even if the outflow of funds from the reserves were limited, the economic impacts of unfreezing could be significant. The accessibility of reserves serves to stabilize the value of Iranian currency and restore a degree of economic resilience in the face of crises.

Had Iran access to its reserves during the COVID-19 pandemic, it would have been better able to weather the economic impacts. Easier access to reserves would have helped Iran pay for imported medicine and medical equipment, especially Personal Protective Equipment (PPE) and devices such as ventilators that were in short supply in the first phase of the pandemic. Payment challenges put Iran at the back of the line for these goods, despite it being one of the first countries hit by the pandemic.

In March 2020, Iran applied for an emergency financing package from the IMF worth US$5 billion because its reserves were not readily accessible. Iran technically qualified for such a loan, drawn from a pool of financing earmarked for economies facing balance of payments crises. In the end, the loan did not come through because of the opposition by the US and technical challenges posed by US secondary sanctions.

Tehran maintains that it needs the reserves at least in part for humanitarian reasons, to pay for COVID-19 vaccines and medical supplies and to pay dues to the United Nations.

Iran has also called on the Biden administration to unfreeze some of its reserves as a goodwill gesture. In September 2021, Foreign Minister Hossein Amir Abdollahian urged the US to release at least US$10 billion before resuming talks on restoring the JCPOA.

“The Americans tried to contact us through different channels in New York (at the U.N. General Assembly) and I told the mediators if America's intentions are serious then a serious indication was needed,” Abdollahian later explained in a televised interview.

The United States, however, refused to offer concessions to bring Iran back to the negotiating table. From April to June 2021, Iran and the world’s six major powers held six rounds of talks. Diplomacy stalled in June during Iran’s presidential campaign and the political transition as Ebrahim Raisi took office and appointed his cabinet in August. On October 27, Iran’s new lead negotiator announced that nuclear talks would resume by the end of November.

Notably, Iran has complained that the US is obstructing the release of around US$7 billion of reserves reportedly held at two South Korean banks, the Industrial Bank of Korea and Woori Bank. In October 2021, Foreign Minister Abdollahian warned that Iran’s central bank could sue the South Korean banks if they didn’t release the funds. “US pressure (on Seoul) is a fact, but we cannot continue... to turn a blind eye to this question,” he said. 

Beyond the need for humanitarian aid, Iran is seeking access to the funds for two main reasons. First, at a political level, unfreezing the reserves is perhaps the clearest way that Iranian officials can indicate to domestic audiences that sanctions relief has been implemented. Just as critics of the JCPOA view the release of billions of dollars of reserves as a threat, Iranian officials point to those large numbers as a boon.

Second, Iran cannot operate normally in the global economy without the ability to use its foreign exchange reserves and to make transfers between currencies. For example, Iran runs trade surpluses with some countries and deficits with others. Effective reserve management requires converting reserves earned in countries where Iran runs a surplus, into the currency of those countries in which it is necessary to make up for a deficit.

Israel war mania

Israel will do what is necessary to protect itself against the Iranian existential threat, Israeli Prime Minister Naftali Bennett said on Thursday. His utterings came at a time when world powers are getting ready to hold talks in Vienna with Tehran on the renewal of the 2015 nuclear deal.

“We will not tire, we will be relentless, when we are talking about the very existence of the Jewish state, we will do what we need to do,” Bennett said in a virtual address to a United States-based virtual conference by the group ‘United against a Nuclear Iran’.

“Iran poses a strategic threat to the world and an existential threat to Israel, and they ought not to be allowed to get away with it.

“If Iran goes nuclear, you will get Turkey, Egypt, Saudi Arabia, the whole Middle East will go nuclear. We have to keep up our pressure on Iran, and we have to stay united in our efforts to do so,” Bennett said.

Former US Ambassador to the UN Nikki Haley, who served under the Trump administration, said she believed the Iran deal, also known as the Joint Comprehensive Plan of Action, was outdated. 

She accused Biden administration of abandoning US Middle East allies on Iran and in specific of sending Saudi Arabia into the arms of Tehran. 

"We should never go and give concessions to Iran and play on their terms," but there should be a conversation with the Arab countries and Israel, Haley said.

"Israel now is contemplating how to deal with Iran without us, that is an unbelievable scenario, and they are not wrong to do that. If I was advising Israel I would say do not count on the Biden administration to help you with Iran, because they are not going to be there," she said.

Republicans and Democrats alike want to stop a nuclear Iran, but the Biden administration lacks bi-partisan support for the revival of the 2015 deal, said Haley. Like Israel, she does not believe the 2015 deal would stop Iran from becoming a nuclear power.

Iranian President Ebrahim Raisi, who is under personal US sanctions over allegations of human rights abuses in his past as a judge, said on Thursday that Iran seeks the “lifting of all US sanctions and neutralization of sanctions,” as he issued an uncompromising tone ahead of the Vienna discussions.

“The negotiations we are considering are result-oriented ones. We will not leave the negotiating table... but we will not retreat from the interests of our nation in any way,” Iranian state TV quoted Raisi as saying.

Under the 2015 deal between Iran and six world powers, Tehran curbed its uranium enrichment program, a possible pathway to nuclear arms, in return for the lifting of US, UN and European Union sanctions.

But former US president Donald Trump quit the deal in 2018 and reimposed harsh sanctions on Iran’s oil and financial sectors that have crippled its economy, prompting Tehran to breach limits set by the pact on its nuclear work.

In spite of six rounds of indirect talks, Tehran and Washington still disagree on which steps need to be taken and when with key issues being what nuclear limits Tehran will accept and what sanctions Washington will remove.

Separately, the chief commander of Iran’s elite Islamic Revolutionary Guard Corps, Hossein Salami, said US pressure on Iran had failed.

“The Americans have used all means, policies and strategies to surrender the Iranian nation... but the Islamic Republic has become stronger,” Salami said in a televised speech to mark the siege of the US embassy in Tehran after the 1979 Islamic revolution.

Mansour Abbas: Most unpredictable politician of Israel

In Israel people know well what a politician will say, except Ra’am leader Mansour Abbas. It is difficult to predict what he will do, whom he is going to join forces with or what he is going to say – which makes him among the most refreshing figures on the Israeli political scene today.

Abbas, who scrambled the political deck earlier this year by bolting from the Arab Joint List and ran Ra’am as an independent party, surprised everyone by displaying a willingness to be a part of any government in order to have an impact and get badly needed funds for the country’s Arab sector.

Following the elections in March, he delivered a watershed speech in Nazareth declaring a willingness to work with all parts of the Israeli political spectrum.

What made that speech so different and noteworthy was that he did not stick to the predictable script. He didn’t slam Israel – as other Arab MKs do reflexively – for racism, oppression, apartheid and the occupation. Instead, his message was one of conciliation, of working together so everyone benefits.

He surprised even more when he signed the coalition agreement in June, marking the first time that an Arab party would be a part of the Jewish state’s governing coalition, not just any Arab party, but an Islamist party.

Abbas surprised again this week when he pledged to United Torah Judaism’s Moshe Gafni to move NIS 100 million of the billions the Arab sector is slated to get in the new budget to the haredi parties to assist their communities.

Abbas is taking money earmarked for the Arab sector and passing it on to the ultra-Orthodox, why? According to Abbas, he was moved by a speech Gafni gave in the Knesset saying that Israel will never accept those not in the mainstream – neither the Arabs nor haredim – and that the country’s weaker elements need to stick together.

Others say it was nothing but a shrewd political move. Abbas likes life in the governing coalition – any governing coalition – so when this government ceases to exist, possibly to be replaced by a right-wing Likud-led government, he wants to ensure that he has allies on the Right who can help him join that coalition as well.

Either way, something is refreshing and even magnanimous about the gesture, something sorely lacking these days when it often seems as if the opposition and coalition parties view one another as mortal enemies.

The gesture did not prove contagious. No sooner did Abbas make the offer, that Religious Zionist Party head Bezalel Smotrich urged the haredi parties – his allies in the opposition – to turn it down, saying it is all part of a nefarious Muslim plan to present themselves as the patrons of the Jews.

And former finance minister Israel Katz (Likud) responded by saying during a Kan Bet interview that Abbas is to the Islamic Movement in Israel what Ismail Haniyeh is to Hamas, thereby trying to link Abbas and Ra’am in the minds of the listeners to Hamas and terror.

When Katz was then asked, if that was indeed the case, why Netanyahu tried to woo that same Abbas into a government he hoped to form earlier in the year, Katz hemmed and hawed and had no real answer.

Here was a senior Likud official blasting Abbas and trying to delegitimize him and his party, when just a few months ago his own party’s head was trying to lure that same leader and party into his coalition. As unpredictable as Abbas is, this was the exact opposite: unabashed cynicism and hypocrisy that was completely unsurprising.

Will BoE and US Fed be on the same page?

The US Federal Reserve has made it official that starting later this month, it will reduce their monthly bond purchases by US$15 billion ($10 billion Treasuries, $5 billion mortgage backed securities). By June 2022, the bond buying program should come to an end. 

The Fed explains that pandemic stimulus can start to be unwound as “substantial further progress in the economy has (been) made toward the Committee’s goals since December 2021.” They left interest rates unchanged, which was expected and continued to use the word “transitory” to describe inflation.  

While some investors believed they would drop this language, it did not seem to matter as once the dust settled, USD ended the day virtually unchanged (slightly lower) from its pre-FOMC levels against other the major currencies. Stocks and bond yields ended higher which should benefit JPY crosses.

Looking ahead to Friday’s non-farm payrolls (NFP) report, economists expect a significant recovery in job growth during the month of October.  A large part of this has to do with the slowdown in September, when non-farm payrolls rose by only 194,000. That number is expected to more than double this week with a consensus forecast of 450,000. 

According to ADP, private sector payroll growth was very strong last month but even though service sector activity hit a record high in October, the shortage of workers drove the employment index lower. As one of the most important leading indicators for non-farm payrolls, this suggests that while more jobs are expected in October, the increase may fall short of the market’s lofty forecast. 

Will BoE hike rate today?

While the countdown to Friday’s NFP report has started, analysts have shifted focus to the monetary policy announcement by the Bank of England (BoE) on Thursday. In many ways, the BoE rate decision should have a greater impact on GBP than FOMC did on the USD because the UK central bank is close to raising interest rates.

As the second major central bank to reduce asset purchases, the BoE has been leading the pack in unwinding pandemic support and with inflation surging, a small contingent of investors believe they could hike as quickly as Thursday. The market is pricing in a 60% chance of 15bp hike which means a full quarter point move is unlikely. However the central bank has done a smaller adjustment before so we can’t rule out that possibility completely.

BoE Governor Bailey and monetary policy committee member Saunders have suggested that an immediate hike may be needed but other policymakers want to see further improvements in labor market activity or evidence that inflation is less transitory before making the move.

With the Reserve Bank of New Zealand raising rates, Bank of Canada announcing ending to Quantitative Easing and the Fed beginning to reduce asset purchases, there is a decent chance for a rate hike by the BoE. It may not be a full quarter point, but it could be 15bp increase. 

The immediate tightening should be wildly positive for the greenback as it is not really anticipated. However, if they forgo a rate hike in November, then a hike in December becomes very likely.

In this scenario, analysts expect no change to be accompanied by hawkish comments which could be initially negative but ultimately positive for GBP. Either way, barring an unexpected surprise analysts see GBP strengthening post BoE announcement, particularly against EUR.