Iran likely to turn off all cameras beyond Safeguards agreement

Chief of the Atomic Energy Organization of Iran (AEOI) announced on Thursday night that Iran has turned off a number of IAEA cameras which were monitoring Iran’s nuclear activities beyond the Safeguards agreement and plans to turn off the rest soon.

“We ended the activities of a number of these cameras and we will do the rest tonight and tomorrow,” Mohammad Eslami told the national TV.

The cameras that have been removed or are being removed were installed voluntarily. Their activity fell outside the scope of the Safeguards agreement of the International Atomic Energy Agency.

Iran embarked on removing such cameras in response to a resolution by the IAEA Board of Governors against Iran late on Wednesday.

The resolution, proposed by the United States and the European trio ‑ Germany, France and Britain ‑  was approved by the IAEA’s 35-nation board with 30 votes in favor, two against and three abstentions. Russia and China voted against the resolution and India, Libya and Pakistan abstained.

The resolution was drafted on the basis of a report by IAEA Director General Rafael Grossi in which it was claimed Iran had refused to provide answers to traces of uranium enrichment found at three undeclared sites. This is while Iran had provided answers to the IAEA about these alleged sites, which finally led to the conclusion of the 2015 nuclear agreement, officially called the Joint Comprehensive Plan of Action (JCPOA).

Questions about the alleged nuclear sites, which were referred to as possible military dimensions (PMD), were answered and the issue closed.

“You closed all these allegations and charges within the PMD…. And now you have come and say you want to return to the JCPOA. Okay, return to the JCPOA but why do you reopen the closed package which form the essence of the JCPOA?” Eslami asked.

Prior to the debate on Iran’s nuclear program at the IAEA board, Grossi had visited Tel Aviv for talks with Israeli officials, a move which put in serious question Grossi’s neutrality and professionalism by the Agency under his leadership.

Eslami went on to say that the IAEA, based on its articles 2 and 3, is tasked to transfer nuclear technology to NPT signatories for civilian uses but the reality is that the IAEA is “a pawn of the Zionists”.

It is widely believed that these alleged nuclear sites have been raised by Israel through bogus documents.

“It is regretful that an international institution is exploited in such a way by a fake regime and puts its credibility in question,” the AEOI chief lamented.

Israel, which has been launching an intensive campaign against Iran’s nuclear program for about two decades, has not signed the nuclear Non-Proliferation Treaty and according to the Stockholm International Peace Research Institute (SIPRI) has about 90 nuclear weapons. It also played a key role in provoking the Trump administration to quit the JCPOA, which was the product of 12 years of negotiations.

The nuclear chief went on to say that all the commitments made by Iran under the JCPOA was beyond the Safeguards agreement and were chiefly intended to create confidence about Tehran’s nuclear activities.

“Why has the Islamic Republic accepted to limit itself and be under more intensive surveillance and control by the Agency for a rather long term? It was just because it wanted to get rid of these accusations and build trust,” he explained.

However, Eslami added, this good intention which was shown in the negotiations and the JCPOA is not being considered at all by the IAEA, including its Director Grossi.

There is no will by Grossi to become convinced of Iran’s answers and this shows that he is a hostage to Israelis and that he has adopted a political behavior toward Iran.

 

EU members to buy gas from Egypt and Israel

The European Commission has proposed a deal to European Union (EU) member states with Egypt and Israel to boost imports of natural gas from the eastern Mediterranean. The draft memorandum of understanding, which is still subject to changes and needs approval from the governments involved.

It is part of the European Union's efforts to reduce fossil fuel imports from Russia following the war in Ukraine.

"The natural gas to be shipped to the European Union will originate either from Egypt, Israel or any other source in the East Mediterranean region, including EU member states in the region.

The EU has said publicly it intends to conclude a trilateral agreement with Egypt and Israel before the summer.

The draft deal establishes the principles for enhanced cooperation between the three partners but does not say how much gas the EU would import nor set any timelines for deliveries.

The document said shipments would include the use of liquefied natural gas (LNG) infrastructure in Egypt, noting the North African country's plan to become a regional hub for natural gas.

The memorandum of understanding would run for nine years from its signature, the document says, although that part is still in brackets, a sign that there is a higher chance it could be changed than other paragraphs.

Egypt already exports relatively small amounts of gas to the EU, and both countries are expecting to ramp up production and exports in the coming years.

Egypt exported 8.9 billion cubic meters (bcm) of LNG last year and 4.7 bcm in the first five months of 2022, according to Refinitiv Eikon data, though the majority goes to Asia.

Israel is on track in the next few years to double gas output to about 40 bcm a year as it expands projects and brings new fields online, industry officials say. Israel has said it hopes to reach a deal to supply gas to Europe and is also considering building a pipeline to export more gas to Egypt.

The EU imported 155 bcm of gas from Russia last year, accounting for about 40% of the bloc's overall consumption.

Under the draft agreement, Egypt would be able to purchase some of the gas being transported to the EU or other countries via Egyptian infrastructure, the document said, adding that Egypt could use it for its own consumption or for export.

The parties "will work collaboratively to set forth the appropriate ways and means for implementing the purpose of this memorandum of understanding in order to expedite the export of natural gas to the EU," the document said.

The deal does not introduce any binding legal or financial obligation on the signatories, the document said.

Under the plan, the EU could fund new infrastructure if it is in line with its commitment to discourage all further investments into fossil fuel infrastructure projects in third countries, unless they are fully consistent with an ambitious, clearly defined pathway towards climate neutrality.

Data proves performance of Imran Khan Government was outstanding

Today the financial wizkids of PDM government, headed by Shehbaz Sharif Sharif, presented Economic Survey of Pakistan. This annual document is released one day before the announcement of Federal Budget. The details for first nine months of FY22 show that the performance was far above the targets.

GDP growth rate was 5.97% against a target of 4.8%. This overall growth came on the back of 4.40% growth in Agriculture, 7.19% growth in Industries and 6.19% growth in Services — all three major sectors surpassed their targets of 3.5%, 6.5% and4.7% respectively.

I am amazed at the wit of Finance Minister Miftah Ismail. He said "achieving growth was not an issue for Pakistan; the real issue is achieving sustainable growth". "This year GDP growth is 5.97% ... but as usual the current account deficit has once again shown that we have a balance of payments issue," Ismail said.

He said, the country's growth story — having rebounded from the pandemic and maintaining a V-Shaped recovery by posting real GDP growth of 5.97% was dampened in the face of glaring macroeconomic imbalances, suggesting that this growth is unsustainable.

"Despite the encouraging export performance, the country’s imports have also risen significantly. The broad-based surge in global commodity prices, Covid-19 vaccine imports and demand-side pressures, all contributed to the rising imports," said the minister.

Resultantly, trade deficit grew by 55.5% and amounted to US$32.9 billion or 8.6pc of the GDP, which is "historically high".

Despite export receipts and workers’ remittances both reaching record-high levels, import payments registered a sizable, broad-based increase. As a result, the current account deficit widened considerably over last year.

These payment pressures manifested on the interbank PKR-US$ exchange rate, which depreciated by over 14% during Jul-Mar FY2022. Foreign exchange reserves held by Pakistan’s central bank also came under pressure, dropping US$5.9 billion to US$11.4 billion by end March 2022.

"The widening of the current account deficit together with a build-up in inflationary pressures in the backdrop of the geopolitical situation, especially the Russia-Ukraine conflict, created significant challenges for sustainable economic growth.

Russia still enjoys control over global food and fertilizer supplies

Economists and policymakers say Russia still enjoys hidden leverage on Ukraine and the global food supply. They worry that self-imposed export restrictions on fertilizer by Russia, the top global provider of the product, could further drive up the cost of food and damage global harvests in 2023 and beyond.

Russia’s invasion of Ukraine has been a factor in the 30% surge in international food prices and 10% rise in the US food prices over the last year, as supply chains continue to sputter in the wake of the coronavirus pandemic.

The price pressures exerted on agricultural markets by Ukrainian exports like wheat and sunflower oil have been so far mostly caused by issues with their transportation, with cargo ships stuck in blockaded ports that Russian authorities say need to be cleared of mines.

A shift in Russian fertilizer policy could go a step further, leading to problems with food production in addition to distribution.

“If the fertilizers don’t flow, then the world will produce less,” United Nations Food and Agriculture Organization (FAO) Chief Economist Máximo Torero said in an interview. “That’s why we’re saying that next year we could have a problem of food availability, and also of food access like what we have today.” Lower use of fertilizer results in lower crop yields regardless of supply chain issues, Torero said.   

“That’s what will create the problem of food availability, in addition to food access. That’s what worries us, that’s for us the most dramatic scenario. And that’s what we need to avoid,” he added.

Even without an export restriction, international companies have been hesitant to purchase fertilizers from heavily sanctioned Russia, which is the world’s top exporter of soil additives containing nitrogen, as well as those with phosphorus and potassium — all byproducts of the vast Russian energy industry.  

In 2019, Russia exported 5.5 billion kilograms of these fertilizers, more than double the amount of the second biggest exporter, the European Union, and nearly four times as much as third biggest exporter, Belgium, according to figures from the World Bank.

This commercial hesitancy caused the US to offer “comfort letters” last week to companies considering purchasing Russian grain and fertilizer. These notices assure buyers that they won’t face penalties for using unsanctioned products.

“Fertilizer has, as you know, has become a huge problem, and Russia is a large fertilizer exporter. They just need to open up their own markets and end this war, end the blockade that they are responsible for and allow food to flow,” US Ambassador to the UN Linda Thomas-Greenfield told the BBC last month.  

At a meeting of the UN Security Council in May on food security, Secretary of State Anthony Blinken stressed that “the sanctions imposed by the United States and many other countries deliberately include carveouts for food, for fertilizer, and seeds from Russia, and we’re working with countries every day to ensure that they understand that sanctions do not prevent the flow of these items.”  

Countries most reliant on nitrogen-based fertilizer exports from Russia and Russian-allied Belarus include Singapore, Mongolia and Panama, with the US receiving more than 20% of its imported fertilizers from the two countries, according to German market research firm Statista.  

Russia, for its part, sees a contradiction in the Western position of levying aggressive sanctions against the country while at the same time demanding commercial access to its agricultural commodities and energy byproducts.  

“The EU openly declared an all-out economic and trade war against our country — in full oblivion to Russia’s standing as a key global supplier of basic agricultural products (wheat, barley, sunflowers, mineral fertilizers and fodder crops), including to low-income countries, that are subject to risks of food shortages,” the Russian Foreign Ministry said in a statement. “Instead of making groundless allegations European leaders should rather turn their attention to redressing the systemic miscalculations in their own macroeconomic, monetary, trade, energy and agro-industrial policies.”  

“We are deeply concerned about a possible food crisis and are well aware of the importance of supplies of socially important commodities,” the foreign ministry added. “Russia expects to have a good wheat harvest this year, which will allow our country to offer 25 million tons of grain for export from August 01, 2022. Our capacity for exporting fertilizers from June to December 2022 will amount to at least 22 million tons (20% of global consumption over this period).”  

US lawmakers are less than keen to rely on Russian reassurances.  

Rep. Josh Harder  introduced legislation last month that would extend a government relief program for farmers dealing with rising input costs. 

The Department of Agriculture funding arrangement, known as the environmental quality incentives program, “provides agricultural producers and non-industrial forest managers with financial resources and one-on-one help to plan and implement improvements” that can lead to “healthier soil and better wildlife habitat, all while improving agricultural operations.”  

Harder’s bill would institute a temporary cost-sharing agreement of up to 100 percent between farmers who take up the program and the Agriculture Department.  

Farmers in the program who work “to develop and implement a nutrient management plan for their operation will be getting access to these payments,” Harder told the House Agriculture Committee in May.   

 “This is more critical than ever as we’ve seen the cost of everything go up around us, and we know how much it’s hurt our producers, especially when they’re trying to buy input like fertilizer,” he said. “So as fertilizer prices surge, folks need alternatives, and this is going to help address this. It’s also going to further conservation practices. It’s going to reduce fertilizer use, lower costs.”  

While Russia has denied that its invasion has contributed to a food crisis, the FAO blames the conflict in no uncertain terms.   

“It is clear that the war has resulted in a massive, and deteriorating, food security challenge,” the agency said in a March assessment. “It has already significantly disrupted livelihoods during the agricultural growing season, through physical access constraints and damage to homes, productive assets, agricultural land, roads and other civilian infrastructure.”

Israel upgrades Air Force to attack Iran

Taking refuge behind Iran’s continued development of nuclear capabilities; Israeli Air Force (IAF) has upgraded its F-35 stealth fighter jets to fly from Israel to the Islamic Republic without requiring mid-air refueling. 

The development is a boost to IAF capabilities and comes as the Israeli military has upped its preparations for a future strike against Iran’s nuclear capabilities. 

In addition, the IAF recently integrated a new one-ton bomb into the arsenal of weapons used by the F-35 (known in the IAF as the Adir) that can be carried inside the plane’s internal weapons compartment without jeopardizing its stealth radar signature.

The bomb – made by Rafael Advanced Weapons Systems - is said to be autonomous and protected against jamming and electronic warfare systems. The bomb was recently used in a series of IAF tests, the results of which were presented to Defense Minister Benny Gantz.

The IAF has held four large-scale drills simulating attacks against Iran over the last month. The first drill included confronting Iranian radar and detection systems, like those which protect its nuclear installations.

The second included simulating long-range combat flights – in this case to destinations in Europe. The other drills included defensive measures against cyber weapons and electronic warfare systems, means that could be used by Iran to undermine an Israeli military operation. 

News of the progress in military preparedness came just a day after Prime Minister Naftali Bennett told the Knesset Foreign Affairs and Defense Committee that Israel’s Iran strategy has changed in the last year, and it is acting against the head... and not just its arms, as we had in recent years.

During the recent military maneuvers, the IAF also drilled cooperation between fifth-generation fighter jets like the F-35 and fourth-generation jets like Israel’s older model F15 and F-16. The planes practiced sharing intelligence, missions and more.

“Iran’s surface-to-air missile systems and radars are crowded and they are not the only challenge,” a defense official said. “We need to be able to attack targets that are significant and the attack needs to be able to cause extensive damage. There are multiple targets in Iran at different ranges.”

 

 

Pakistan: Likely facets of Federal Budget FY23

Government of Pakistan (GoP) is scheduled to announce Federal Budget FY23 on June 10, 2022. Relations between International Monetary Fund (IMF) and Pakistan have not normalized despite change of Prime Minister. 

While it is anricipated that the upcoming budget will have measures that can ensure austerity and economic stability, the incumbent government is likely to opt for policies which can help the coalition remain in power over the next 18 months.

Budget outlay for FY23 is estimated at around Rs9.5 trillion as against budget of Rs8.5 trillion for FY22.

GoP is anticipated to set tax revenue collection target at Rs7.25 trillion for FY23, which will be 19% higher from the revised target of Rs6.1 trillion for FY22. It is likely to impose new taxation measures of about half a trillion in FY23 budget.

Current expenditure target is likely to be set at 12% of GDP for FY23 or Rs8 trillion which is around 11% YoY higher than what was budgeted for FY22.

Similarly, government is likely to set aside nearly Rs4 trillion for markup payment and Rs1.6 trillion for Defense expenditure.

Federal Public Sector Development (PSDP) is estimated at Rs800bn, as against Rs466 billion disbursed in 10MFY22 and revised budgeted of Rs603 billion for FY22.

Consolidated PSDP (Federal and Provincial) is anticipated at Rs1.4 trillion (1.8% of GDP) for FY23, as against Rs1.2 trillion for FY22.

A few taxation measures that are under consideration include: 1) increase in super tax for Banking sector and re-imposition of super tax on highly profitable companies, 2) increase in tax rate for individuals earning high salaries, 3) reduction in tax concessions and exemptions for various sectors, 4) increase in regulatory duties on luxury items, 5) luxury tax on immovable properties and vehicles,  and 6) increase in taxes for non-filers.

With the economic slowdown, tax revenue target of Rs7.25 trillion will be difficult to achieve for FY23. However, it will depend on the types and amounts of new taxes to be imposed in Budget FY23.

Upcoming budget is likely to be Neutral for Stock Market as we do not anticipate any change in Capital Gain Tax (CGT) rate of 12.5% and tax rate of 15% on dividend income. The budget is likely to be Neutral to Positive for sectors including Technology & Communication, Fertilizer, Insurance and Chemical Sectors. On other hand, it is likely to be Neutral to Negative for sectors including IPPs, Autos, Banks, Oil & Gas Exploration, Cement, Textile, OMCs, Tobacco, Steel and Pharmaceuticals.

Analysts believe that negatives relating to imposition of new taxes on listed companies are already priced in as valuations remain attractive. Market participants are keen to see the overall balance of payment situation and focus to remain on IMF and other foreign exchange inflows along with trend of international commodity prices. 

Pakistan market is currently trading at a discount. Analysts prefer sectors that offer high dividend yield, beneficiary of rising interest rates and currency depreciation.

 

Growing cooperation between Iran and Qatar

Iranian Energy Minister Ali Akbar Mehrabian arrived in the Qatari capital Doha on Sunday to hold talks with senior Qatari officials and attend the two country’s eighth Joint Economic Committee meeting.

A high-ranking delegation of Iranian government officials, including Sports Minister Hamid Sajjadi and head of Iran’s Trade Promotion Organization (TPO) Alireza Peyman-Pak accompanied Mehrabian during his visit.

As part of the scheduled meetings with Qatari officials, Mehrabian met with Qatari Minister of Energy Saad Sherida al-Kaabi on Monday to discuss areas of interest for cooperation.

In this meeting, the energy minister expressed Iran’s interest in further expansion of economic relations between the two countries. He noted that the cooperation capacities of the two countries are very appropriate and emphasized removing the existing obstacles.

Referring to the good relations between the two countries in various fields, Mehrabian said, “The Iranian government has emphasized the development of relations with neighboring countries, and accordingly, these relations are increasing every day.”

The Qatari side also emphasized the need for increased efforts to develop relations between the two countries and to pave the way for trade exchanges.

On the same day, the Iranian delegation also met with the country’s businessmen and traders residing in Qatar and discussed various issues.

Speaking in this meeting, Mehrabian announced the signing of a document for supporting the private sectors of Iran and Qatar with the aim of developing trade cooperation between the two countries.

“The level of relations with neighboring countries has grown significantly since the current government has taken office in Iran,” he said, stressing that the Qatari market is a green market ready for the presence of Iranian businessmen and traders.

“Iran’s trade relations with the neighboring countries have increased by over 450% in the past nine months, and the figure is 900% for the past three months,” the minister said.

Iranian business center launched in Qatar

Peyman-Pak for his part, announced the establishment of an Iranian business center in Qatar to support the country’s traders.

Peyman-Pak said that transportation and banking relations are of special importance for the development of trade between the two countries.

Also, the head of the Iran-Qatar Joint Chamber of Commerce referred to the role of the private sectors of the two countries in trade development and said, "In Iran-Qatar Joint Chamber of Commerce, we seek to provide a special model of public-private partnership in Qatar."

Later on Monday, Head of Iran Chamber of Commerce, Industries, Mines and Agriculture (ICCIMA) Gholam-Hossein Shafeie met with Chairman of Qatar Chamber of Commerce and Industry Sheikh Khalifa bin Jassim Al Thani and explored avenues of mutual cooperation.

In this meeting, Al Thani expressed satisfaction with the presence of the Iranian trade delegation in Qatar and noted that Qatar’s private sector is eager to cooperate with its Iranian counterparts.

“In the field of trade, we will act on the basis of the political relations between the two countries which are very good,” he said, stressing his country's readiness to solve the problems that Iranian businessmen may face in trade with Qatar.

Shafeie also described the political relations between the two countries as very positive and added, “We should try to develop trade relations between the two countries in line with the political relations. The development of economic relations will also lead to the stability of political ties, and Iran is very enthusiastic in this regard.”

The eighth meeting of the Iran-Qatar Joint Economic Committee is scheduled to be held on Tuesday in Doha.

Mehrabian and Qatar’s Minister of Commerce and Industry Sheikh Mohammed Bin Hamad Bin Qassim Al-Thani will co-chair the intergovernmental committee meeting.

Meetings between officials of the two countries have increased in recent months as Qatar prepares to host the World Cup 2022 in November and December. Iran has offered its full logistical support to help Qatar successfully organize the tournament.

Should Iran accept US offer to export crude oil?

According to a Bloomberg report United States is considering allowing Iran to export limited quantity of crude oil. This would be the second temporary suspension of sanction, after allowing Venezuela to export oil. This could be termed ‘the most selfish decision of the US administration’.

It is anticipated that this decision is being made to bring down global oil prices. However, some critics say it is only to avoid defeat in the upcoming elections. The US administration has millions of barrels of strategic reserves and prices could be brought down within hours of the announcement of release of oil from these reserve.

In all sincerity, Iran must not accept this offer until the US removes all the sanctions. If Iran could endure sanctions for more than four decades, even during COVID pandemic the US should also pay high price for initiating proxy war in Ukraine.

United States and European Union were perfectly aware of the consequences of imposing sanctions on Russia and stopping purchase of oil and gas. Still they kept on dumping lethal arms in Ukraine rather than facilitating ceasefire.

It is the most appropriate time to teach a lesson to United States that its atrocities can’t be continued for indefinite period. The US was successful in stopping oil supplies from Iran, Iraq, Libya and Venezuela, but stopping sale of Russian oil and gas was not just possible.

To conclude it may be said that United States has lost war in Ukraine despite sending tons of lethal arms and injecting trillions of dollars.

OPEC must also not increase output in July and August and let United States get a taste how sanctions bites a country, which has imposed sanctions on dozens of countries.

Getting food out of Ukraine a daunting task

European leaders are desperately trying to figure out how to get food grain out of Ukraine. Russia last week said it would open maritime corridors to unblock ports such as Odesa on the Black Sea if sanctions against the country were lifted.

Politicians are looking at everything from naval escorts to shifting whatever’s possible overland to the Baltic. Officials at ports, logistics companies and in the agriculture industry interviewed across the region say they are scouring maps for solutions like diverting road transport and reviving rail links such as the one connecting Galati.

The task is complicated by a dearth of truck drivers and the fact that the Soviets used a wider track gauge than the European standard. That has caused up to 30 days of delays at borders for existing routes, the EU said, as cargo needs to be transferred onto compatible rolling stock and customs infrastructure gets overwhelmed.

Ports in Romania and Poland, meanwhile, are backed up with traffic or already at capacity while there are shortages of specialized personnel to handle the surge in demand. Even with Ukrainian exports at a fraction of what they were, trade officials warn that bottlenecks will get worse as the rest of Europe starts harvesting its wheat next month.

“The scale of the problem is enormous,” Taras Kachka, Ukraine’s Deputy Minister of Economic Development, told a conference. “In the last 15 years, we developed our infrastructure in a way that it cannot be simply replaced by another destination, another port.”

Ukraine is a major wheat, corn and barley supplier and tops global sunflower-oil sales. Future crops will undoubtedly shrink due to the war, but it still has 20 million tons of backlogged grain from last year. 

Ukraine is expanding export capacity at its western border and simplifying trade arrangements with the EU. European Commission President Ursula von der Leyen said on May 24 the EU was working to get what’s stuck in Ukraine to global markets by opening “solidarity lanes” to European ports as well as financing different modes of transportation. Ukraine’s ambassador to Warsaw expects Poland to be the conduit for 80% of Ukrainian grain.

But people on the ground say that’s easier said than done when you look at the map, particularly the rail network.

In Slovakia, the main traffic operator transported 18,000 tons of corn from Ukraine last month across 12 trains, and private freight companies are also involved. The issue is that cargoes from Ukraine’s broad-gauge wagons need to be reloaded onto standard Europe size ones or the container section transferred onto different wheels. 

Poland has a 400-kilometer broad-gauge railway linking Ukraine with its industrial southwest region of Silesia. It’s been used mainly for steel products, and in recent weeks to carry refugees. State railway network operator PLK SA has started investing in boosting capacity, reversing its earlier focus on connections as far as China via Belarus.

In April, Poland and Ukraine also agreed to create a joint cargo company and simplify border rules. But with routes to Poland’s Baltic ports already busy and a shortage of wagons, there are doubts over whether Poland can boost volumes of Ukrainian grain much above 2 million tons a month anytime soon. That compares with the 5 to 6 million tons typically dispatched monthly via its Black Sea ports, said Roman Slaston, Director General of the Ukrainian Agribusiness Club industry group.

Romania is keen to upgrade Galati to ease congestion at Constanta on the Black Sea. Galati is connected by the broad-gauge railway that’s compatible with the Ukrainian system and may facilitate the quicker rerouting of grains. The government wants to fast-track the construction of the missing section of 4.6 kilometers and the work will take three months, Prime Minister Nicolae Ciuca said last month.

Yet it’s still unclear who will do it, according to TTS, which has spent two months testing logistic options via railway or trucks. The route involves three countries and three different railway operators. Romania’s transport minister said he hopes to find a company to build the missing portion of track this week and may visit Galati with his Ukrainian counterpart.

“Ukraine was exporting 20 million tons of metals per year and even more grains only on water, so to think that it would be possible to completely replace these capacities is a dream,” said Petru Stefanut, TTS’s CEO. “What we’re all trying to do, is to help them as much as we can. But we can’t compare what they had and what they’ve lost.”

TTS has managed to transport about 200,000 tons of grains and metals from Ukraine in the past two months, though Stefanut is confident more will come as routing via the Danube becomes more efficient.

Any increase in supplies is critical after the war in Ukraine sparked growing fears of a food crisis. At the World Economic Forum in Davos, Von der Leyen accused President Vladimir Putin of using “hunger and grain to wield power” as she decried Russia’s bombing of grain warehouses and blockading of Ukrainian ships filled with wheat in the Black Sea. About three-quarters of Ukrainian harvests are typically sold abroad, and it’s a key exporter to Africa, Asia and the Middle East as well as Europe.

Ukraine’s Agriculture Minister expects another 30 to 40 million tons of grain will need to be exported after harvests this summer and fall. While grain can be stored, farmers need to sell it to get funds for planting 2023 supplies, with winter-crops like wheat sown in just a few months.

Kees Huizinga, a Dutch farmer who lives in Ukraine and employs 400 people, used to be able to get a 25-ton truckload of his grain to Odesa terminals on the Black Sea and back within a day. Drivers are now spending a week in travel, queues and border checks — at triple the cost — to take deliveries on a new route, unloading just over the border in Romania. From there, it still needs to weave to its final destination. 

The EU has exempted grain imports from requiring veterinary or phytosanitary certificates to ease the transit. But in the three weeks to mid-May, Huizinga had only shipped out 150 tons. Normally, that would load in just a few hours. He worries that once Romania begins its own harvest soon, the logjams could worsen.

For now, the most realistic solution remains Romania, Constanta and the Sulina Canal that links the Black Sea with the Danube. The port’s customs agency has added staff to help handle the increase in shipments, with ships lining up to enter. The Romanian railway company has decluttered its port links and started improvement works, which may result in a 30% to 40% increase of transport capacity as soon as next year, port manager Florin Goidea said.

“We expect much larger quantities to arrive, this is only the beginning,” he said. “This summer will be very crowded. It won’t be easy for us, but we have to find the solutions.”

Spoils of Putin's war in Ukraine

I found reading the article titled “Spoils of Putin’s war” by Bloomberg on impacts of war in Ukraine on global economy interesting. While one may not necessarily endorse the content, there is a need to also explore the other side of the story.

Vladimir Putin may have failed to take Ukraine in a swift military strike, but his war has already been a success. The global economy is splintering, and the West’s conflicting imperatives—as well as those of the developing world—are slowly revealing themselves.

Putin has a long record of trying to sow discord, using misinformation to power sock puppets in the Brexit referendum and political campaigns of Donald Trump, among other examples. Though his latest gambit has backfired spectacularly in terms of weakening NATO, from the standpoint of economic division, the war on Ukraine may prove his crowning achievement. The fault lines are emerging.

There are at least four groups of diverging interests. In Ukraine and the Baltic states, defeating Russia is literally existential. But in Germany, France and Italy, the calculation is very different.

When it comes to imposing energy sanctions with teeth, Germany and Italy are dependent on Russia for roughly half of their natural gas imports and don’t have the infrastructure to implement a quick substitute. Berlin has even drawn up a three-phase plan if Russian gas is turned off, telling carmakers they may have to shut production lines to ensure families can heat their homes over winter. The Bundesbank has warned of recession if supplies are cut.

Italy has started rationing energy in public buildings. France is equally leery, knowing from the Gilet Jaunes (yellow vests) protests the kind of social unrest that can result from high fuel prices.

While Europe’s biggest powers say they plan to wean themselves off Russian imports, they need time. The renewed attempts to negotiate a ceasefire, even if it means asking Ukraine to cede even more territory to Russia, may be a solution, at least for the time being.

Across the English Channel and beyond the Atlantic, the economic consequences of the war (inflation notwithstanding) are looking less critical. The US is unwavering in its support for Ukraine’s resistance—not only to push Russia back to its borders but to send a clear message to China about its territorial ambitions in Taiwan.

But it helps that America’s economic considerations happen to align with its geopolitical goals. Supplying arms and munitions promises a bonanza for its powerful military industrial complex, while America’s relative self-sufficiency on energy and food insulates it from the worst repercussions of the war.

Moreover, there are longer-term financial benefits that may flow its way. As Republican Senator Pat Toomey of Pennsylvania said at the World Economic Forum in Davos last month, “Don’t take this the wrong way, but there is a huge economic opportunity. Europe is not going to be independent of natural gas. Why not burn American gas rather than Russian gas?”

In the UK, with little direct exposure to Russian gas and similarly aligned with President Joe Biden’s hard stance on Kremlin aggression, some business leaders think British industry can substitute for closed German factory lines. Not to mention that the UK is home to some of the biggest defense contractors in Europe.

While Europe wrings its hands and America and the UK see advantage, much of the rest of the world faces a grimmer prospect thanks to Putin’s war.

Russia is threatening a global food crisis by blockading the Black Sea, raising the prospect of a humanitarian catastrophe in the developing world and exposing the fragility of supply chains yet again after the initial protectionism of the pandemic. Export restrictions on food staples have been imposed by 19 countries.

Beata Javorcik, Chief Economist of the European Bank for Reconstruction and Development, estimates that 17% of the world’s traded calories are now landlocked. At Davos, she warned of riots and social upheaval as rocketing food prices bankrupt governments in the developing world.

Famines will indeed be blamed on Putin—but he is offering a simple way out: drop the sanctions. That’s arguably an impossible offer to an increasingly divided world.

 

Global oil markets under turmoil

During this past week, global oil markets faced plenty of turmoil. The European Union (EU) banned Russian oil, OPEC expressed intention to increase production, stockpiles declined in United States once again. At the end of the week, sentiment turned bullish with OPEC unable to calm the oil price rally.

China finally came out of its three-month lockdown nightmare, oil prices were moved by reports that Saudi Arabia and the UAE would seek to speed up the monthly increments of OPEC Plus. The oil group did in fact opt for about 650,000 barrel per day (bpd) increases in July and August.

It was anticipated that prices might genuinely come lower, closer to the US$110 mark. Unfortunately for oil bears, news of dropping US inventories, combined with the EU's decision to ban Russian oil imports, sent oil prices climbing once again. 

OPEC Plus members agreed to raise their overall production targets by 648,000 bpd in July and August, bringing the final unwinding of the oil group’s production cuts forward by one month on fears of ban on Russian oil.

The European Union finalized its prohibition of financing and financial assistance services for Russian oil cargoes, a measure that is set to come into effect after a wind-down period of six months, effectively banning EU entities from providing insurance to Russian trade. 

Iran cut gas supplies to Iraq a little more than one month after it had restarted them, with the decision stemming from the non-payment of arrears. Supplies were supposed to rise to 50 million cubic meters per day, as a result now Iraq faces widespread power shortages.

Russian Trade Ministry announced to limit the exports of noble gases, most notably neon, a key ingredient in making chips, aggravating a supply crunch that has already seen one of the world’s largest producers – Ukraine – disappear from the markets.

The government of Spain announced that it should be the EU that pays for any new natural gas interconnections between Spain and its European neighbors, with Madrid being completely independent of Russian energy supplies and taking in LNG instead.

Chevron CEO, Michael Wirth warned against banning fuel exports as a means of decreasing the price of oil products, saying that over the next few month product shortages will materialize, with Europe being the most likely candidate.

With Australia taken aback by a cold snap that sent heating demand spiking along with demand for natural gas, Canberra has called on the industry to help as gas prices have quadrupled and the government mandate to keep LNG at home could only be triggered from 2023.

Impact of ban on Russian oil on Asian markets

One of the long-term consequences of the Russia-Ukraine conflict and ongoing war for more than 100 days is the restructuring of export flows in the global oil market.

This will have direct consequences for Middle Eastern players, forcing them to choose whether to compete with Russia and each other or continue to coordinate their efforts.

In spite of the rumors that Russia might be suspended from the OPEC Plus deal, the current cooperation between Moscow and other oil producers may still survive and continue beyond September 2022, when the agreement on production cuts expires, although the chances of this happening are decreasing.

There are ongoing concerns about the stability of the oil market and keeping the cartel together is the only way to manage it. Even though its production capacity is declining, Russia remains an important player and one whose role in Asia, a key consumer market for Gulf oil producers, could potentially increase.

If there were questions during the earlier weeks of the conflict in Ukraine about whether the threat of sanctions and logistical bottlenecks would allow Moscow to redirect its oil exports from Europe to Asia, by now the answer is clear: yes, it can.

In the case of oil terminals in the west of Russia, the volume of oil supplies going to the East increased from 0.14 million barrels per day (mbpd) in January 2022 to 0.90 mbpd in April and 0.55 mbpd in May.

Putting aside its initial fears and hesitation, India turned out to be the main buyer of extra volumes of Russian oil. From almost zero in February, its imports rose to 0.9 mbpd in May; in previous years its average imports did not exceed 0.2 mbpd.

China quickly followed India’s example. Interest in additional supplies emerged not only from traditional buyers of Russian hydrocarbons among China’s independent oil refining companies (so-called teapots), but also from major Chinese players affiliated with the government, which had initially said they would not be interested in buying Russian oil due to the threat of sanctions.

However, as statistics show, after an initial decline in Russian oil exports to China in year 2022 from 1.7 mbpd in January to 1.4 mbpd in February, volumes began growing again, reaching 1.6 mbpd in April and almost 2mbpd in May.

In April and May of this year, Russian seaborn oil supplies to China reached their highest levels since March 2020, exceeding one mbpd, against an average of 0.8 mbpd in 2021. Moreover, demand for Russian oil is not limited to China and India, with Indonesia and Sri Lanka both showing an interest as well.

Several factors support the growth of Russian oil supplies to Asia. The most important one is the unprecedented discounts that Russian producers are offering their customers to compensate for the potential risks and costs of purchasing politically toxic oil. According to various estimates this discount may be as high as US$35 per barrel, which attracts profit-minded refiners that have already significantly boosted their margins and countries that are experiencing economic difficulties and cannot afford to purchase oil at the high official price.

Russia's partial loss of the petrochemical market may also benefit the oil trade: Russian oil may be in demand as a feedstock in those countries that have tried to replace Russia and increase their exports in the markets for fuel and other petrochemical products.

Thirdly, Moscow should be grateful to Tehran, which previously allowed Asian consumers to develop a number of techniques to circumvent sanctions to buy Iranian oil. These same techniques are now being used by Beijing and others to adjust their oil trade with Russia in light of the new realities.

At the same time, in terms of the oil volumes available, their quality, and in some cases their greater proximity, Russian hydrocarbons appear be more attractive for Asian consumers than Iranian ones.

Finally, Moscow is ready to pay the costs associated with the supply of oil to Asian markets and quickly learns from its mistakes. This extends not only to its willingness to provide discounts, but also to take on both the risks and costs associated with paying for ship insurance, owning its own tanker fleet, using low-tonnage carriers, as well as trading oil "from tanker to tanker." Ultimately, despite all of the associated costs, today's high oil prices allow Moscow to remain in profit.

However, there are also losers from the current market dynamics, including oil producers in the Gulf. Iran was the first to suffer. Russia challenged its position in the gray market for sanctioned oil. As already noted, Russian hydrocarbons have a number of undeniable advantages for China, including the fact that the restrictions on Russian oil are not as strict as those on Iranian oil.

It is difficult to judge Iran's losses, since there is no accurate accounting of how much of its oil bypasses sanctions. However, the Iranians’ pained reaction to the inflow of Russian oil certainly says something about how much income they have lost. Moreover, it is not just about oil but also petrochemical products. For example, Russian liquefied petroleum gas (LPG) has become a significant competitor to Iranian LPG in Turkey, Pakistan, and Afghanistan.

In the Indian market, Russian oil has challenged the positions of other Gulf producers, including the UAE, Saudi Arabia, and especially Iraq. By May 2022, all three countries had lost a substantial volume of supplies to Moscow.

Russian oil may also present a threat to Saudi interests in the Chinese market, although so far the volume of Saudi supplies to China has been growing steadily. However, according to some experts, Oman will be the main victim of the influx of Russian Urals oil to China.

All of these factors have forced the Gulf countries to reconsider their pricing policies. Thus, in April, Iraq was the first to cut its oil prices. In May, other Gulf producers followed suit. Interestingly, Russian prices turned out to be more influential than other factors affecting the market, such as the possibility of a gradual easing of quarantine restrictions in China that in theory should have pushed oil prices upward.

The bad news for the Gulf states is that this situation is becoming the new reality. Even though the situation may have been created artificially, when some countries, for political reasons and contrary to their economic interests, voluntarily refused to purchase Russian oil, its impact is all too real, creating supply shortages in some markets and potential surpluses in others.

There have been similar precedents before, but they were more localized in nature, as in the case of Venezuela or Iran, and the conditions were slightly different.

In case of Russia, the restrictions on oil purchases are being used against one of the main players in the market, affecting a significant amount of oil when there is already an existing undersupply. Moreover, this trend is obviously long term.

The European desire to avoid dependence on Russian oil is unlikely to change. Russia will also not be able to immediately redirect all of its oil to Asia and find buyers for it, as evidenced by the growing volume of Russian oil reserves accumulating in storage and on tankers. This means that, at least in the medium term, Moscow will have certain reserves of hydrocarbons that it can use to affect the market’s balance.

Russian oil will also be a wild card as part of it is now sold secretly, under other names, thus making it difficult to track. There are already rumors about schemes Russia is using to channel its oil exports to third countries through the Gulf states, Asia, and even the EU.

The war unleashed restructuring of oil market flows and created new sources of uncertainty that will last at least until the conflict ends and relations improve. That is not likely to happen soon and the market seems to be beginning to recognize the long-term nature of the current situation.

Gulf producers are no longer silent about their problems and are obviously unhappy that political factors have created a serious imbalance in oil exports flows — a point clearly articulated by UAE Oil Minister Suhail al-Mazroui in early May.

Gradually, everyone seems to have come to the same conclusion, Sanctioned Russian oil is becoming a new reality in Asian oil markets and it must be reckoned with. Some players, like Iran, are trying to find a way to co-exist with Russia, hoping to divide the market for "gray" oil.

Others, like Saudi Arabia and its partners, can presumably expect to work with Moscow within the framework of OPEC+, although some cartel members are in favor of greater competition with Moscow for oil markets. No one has doubt that Russia will remain an important player in the oil market, at least for the foreseeable future.

OPEC likely to boost production to 650,000 bpd

The three giant oil producers, Iraq, Saudi Arabia and United Arab Emirates seem to have bow downed before United States and agreed to increase daily output to meet the shortfall resulting from ban on Russian oil export.   

If this proposal is agreed to by the OPEC Plus ministers, it will come as a relief to the White House, which has been begging OPEC—especially Saudi Arabia—for additional oil output as the United States continues to battle high gasoline prices in the run-up to mid-term elections.

According to media reports, the Joint Ministerial Monitoring Committee (JMMC) of the Organization of the Petroleum Exporting Countries (OPEC) has recommended an increase in production by 648,000 barrels per day (bpd) —higher than what was originally agreed.

The proposed 648,000 bpd output increase would be for July and another 648,000 bpd increase in August, all members of the JMMC were in agreement.

Under the proposal, OPEC+ would bring forward the planned September hike and spread it across July and August, resulting in 648,000 bpd increase in each of those months. There would be no planned hike, then, in September.

Until Thursday, the overarching sentiment from the masses was that OPEC’s JMMC would rubber-stamp the 423,000 bpd output increase that was already baked into the agreement.

But reports began to filter in, led by the Wall Street Journal that OPEC was considering exempting Russia from the agreement. Those reports later morphed into rumors that OPEC might agree to increase production to make up for what would surely be Russia’s lost oil production in the wake of Western sanctions, including the EU’s Russian oil import ban that was agreed to earlier in the week.

The proposal for a 648,000 bpd increase was discussed as being an overall increase for the OPEC+ group, to be divided among its members equally. In reality, there are numerous OPEC+ members that cannot meet their current quotas and are highly unlikely to meet a new, even higher quota.

Such an increase would benefit Saudi Arabia, the UAE, and Iraq—all of which are thought to have excess spare oil production capacity—the ability to increase production

Developed Countries: Collection of Hypocrites

The first impression I got from the news “European Union (EU) leaders agree partial embargo on Russian oil imports” is that the developed countries are nothing but a collection hypocrites. They are supplying tons of lethal arms to Ukraine to fight their proxy war with Russia, but just can’t stop buying oil and gas from the country they term aggressor. 

On top of that they are paying Russia in its currency to keep their factories running. If they (developed countries) were sincere with the people of Ukraine, they should have stopped buying Russian energy products.

According to reports, European Union (EU) leaders on May 30, 2022 agreed to a partial ban on Russian oil imports that temporarily excludes pipeline deliveries, in a diplomatic escalation against Moscow for its invasion of Ukraine in late February this year.

"Tonight, the European Council agreed a sixth package of sanctions. Concretely, it will allow a ban on oil imports from Russia with a temporary exception for imports delivered by pipeline," European Council President Charles Michel said.

He added that 75% of Russian oil imports will be immediately affected, rising to 90% of Russian oil purchases by the end of the year.

The measure will exert "maximum pressure on Russia to end the war", and includes provisions to exclude Russia's largest bank Sberbank from the Swift international payment system and to ban three Russian broadcast providers, Michel said.

The partial oil embargo emerges after weeks of negotiations within the EU bloc and makes a critical concession to Hungary, which has previously opposed a full ban at the alleged cost to its national energy security.

Hungarian Prime Minister Viktor Orban on May 30, 2022 had pushed the EU coalition for further compromises.

"Leaving out the pipeline [from the embargo] is a good approach, but in the case of an accident with the pipeline through Ukraine we have to have the right to get Russian oil from other sources," Orban said.

The partial ban will further diminish Russia's dwindling export outlets. Several European buyers are already shunning Russian crude supplies as a result of self-sanctioning or the financial sanctions already in place. Russian production has already fallen by a sharp 870,000 barrels per day (bpd) from the previous month to 9.13 million bpd in April, Argus estimates.

The announcement of the EU sanctions, combined with easing Covid-19 restrictions in China, helped send Brent crude futures to a fresh two-month high above US$122/barrel in Asian trade. The front-month Ice July Brent contract rose as high as US$122.43 at 9.01:30 GMT, up by 0.8% from the close on May 30, 2022.