Sanctions against Russia a threat to US dollar dominance

The recent financial sanctions imposed on Russia for its invasion of Ukraine are likely to weaken the dominance of US petrodollar as the world currency, Gita Gopinath, First Deputy Managing Director, International Monetary Fund (IMF) told The Financial Times.

The sanctions may result in a more fragmented international monetary system, warned Gopinath.

She had previously said that the sanctions against Russia would not foreshadow the demise of US dollar as the world’s reserve currency and that the Ukraine crisis would slow growth, but would not cause a global recession.

The United States, European Union (EU) and Group of Seven nations have hit Russia with a bundle of heavy sanctions and blocked the country from using SWIFT, the global communications service that clears international financial transactions, virtually cutting it off from the global financial markets and international trade.

The United States also froze US$630 billion in assets held in international reserves by the Russian Central Bank.

The Russian government is retaliating by demanding payment in rubles or gold for purchases of energy and other important commodities.

“If they want to buy, let them pay either in hard currency and this is gold for us, or pay as it is convenient for us, this is the national currency,” said the head of Russia’s energy committee, Pavel Zavalny.

The United States and the Britain have imposed embargoes on Russian energy exports, but EU, which is more reliant on energy imports, is more reluctant to ban it. The new policy has hit EU the hardest, sending gas prices on the continent up by 30% on March 30.

Meanwhile, ruble has since risen to a three-week high past 95 against dollar after the Moscow Stock Exchange reopened after the initial round of sanctions.

Zavalny has suggested that buyers from countries friendly to Russia, such as China, could pay in their own fiat currencies or in Bitcoin.

Russia had been planning for years to reduce its dependence on petrodollar since the United States imposed sanctions in retaliation for its annexation of Crimea in 2014. The current crisis in Ukraine has only accelerated those plans.

Before the recent conflict, Russia still had roughly a fifth of its foreign reserves in dollar-denominated assets, mainly held overseas in Germany, France, Britain and Japan, which have since sided with the United States to isolate Moscow from the global financial system.

Gopinath said that Russia’s response to the sweeping sanctions could encourage the emergence of small currency blocs based on trade between separate groups of countries and would lead to further diversification of the reserve assets held by national central banks.

“Countries tend to accumulate reserves in the currencies with which they trade with the rest of the world, and in which they borrow from the rest of the world, so you might see some slow-moving trends towards other currencies playing a bigger role in reserve assets,” she said.

However, Gopinath doubts that the dominance of US dollar would likely be challenged in the medium term, as it is backed by strong and highly credible institutions and the fact that it is freely convertible.

“Dollar would remain the major global currency even in that landscape but fragmentation at a smaller level is certainly quite possible,” said Gopinath.

“We are already seeing that with some countries renegotiating the currency in which they get paid for trade.”

Gopinath did note that dollar’s share of international reserves had fallen from 70% to 60% over the past 20 years, with the emergence of other trading currencies.

About a quarter of the decline in dollar’s share is attributed to greater use of Chinese yuan, but less than 3% of global central bank reserves are denominated in that currency, according to the IMF.

The IMF deputy director said that the conflict is spurring the adoption of an international digital finance system, utilizing cryptocurrencies and central bank digital currencies.

“All of these will get even greater attention following the recent episodes, which draws us to the question of international regulation,” said Gopinath. “There is a gap to be filled there.”

The CCP had been preparing for the use of yuan as a global currency before the current crisis and was already ahead in adopting a central bank digital currency.

However, Gopinath said that yuan was unlikely to replace the dollar as the dominant reserve currency.

“That would require having full convertibility of the currency, having open capital markets and the institutions that can back them. That is the slow-moving process that takes time, and dollar’s dominance will stay for a while,” she said.

 

Russian troops hand over control of the Chernobyl nuclear power plant back to the Ukrainians

Russian troops handed control of the Chernobyl nuclear power plant back to the Ukrainians and began leaving the heavily contaminated site more than a month after taking it over, authorities said Thursday, as fighting raged on the outskirts of Kyiv and other fronts.

Ukraine’s state power company, Energoatom, said the pullout at Chernobyl came after soldiers received significant doses of radiation from digging trenches in the forest in the exclusion zone around the closed plant. But there was no independent confirmation of that.

The withdrawal took place amid growing indications the Kremlin is using talk of de-escalation in Ukraine as cover while regrouping, resupplying its forces and redeploying them for a stepped-up offensive in the eastern part of the country.

Ukrainian President Volodymyr Zelenskyy said Ukraine is seeing a buildup of Russian forces for new strikes on the Donbas, and we are preparing for that.

Russian forces seized the Chernobyl site in the opening stages of the February 24 invasion, raising fears that they would cause damage or disruption that could spread radiation. The workforce at the site oversees the safe storage of spent fuel rods and the concrete-entombed ruins of the reactor that exploded in 1986.

Edwin Lyman, a nuclear expert with the US-based Union of Concerned Scientists, said it seems unlikely a large number of troops would develop severe radiation illness, but it was impossible to know for sure without more details.

He said contaminated material was probably buried or covered with new topsoil during the cleanup of Chernobyl, and some soldiers may have been exposed to a hot spot of radiation while digging. Others may have assumed they were at risk too, he said.

Early this week, the Russians said they would significantly scale back military operations in areas around Kyiv and the northern city of Chernihiv to increase trust between the two sides and help negotiations along.

NATO Secretary-General Jens Stoltenberg said intelligence indicates Russia is not scaling back its military operations in Ukraine but is instead trying to regroup, resupply its forces and reinforce its offensive in the Donbas.

“Russia has repeatedly lied about its intentions,” Stoltenberg said. At the same time, he said, pressure is being kept up on Kyiv and other cities, and “we can expect additional offensive actions bringing even more suffering.”

The Donbas is the predominantly Russian-speaking industrial region where Moscow-backed separatists have been battling Ukrainian forces since 2014. In the past few days, the Kremlin, in a seeming shift in its war aims, said that its main goal now is gaining control of the Donbas, which consists of the Donetsk and Luhansk regions, including Mariupol.

The top rebel leader in Donetsk, Denis Pushilin, issued an order to set up a rival city government for Mariupol, according to Russian state news agencies, in a sign of Russian intent to hold and administer the city.

Russian President Vladimir Putin said that conditions weren’t yet ripe for a cease-fire and that he wasn’t ready for a meeting with Zelenskyy until negotiators do more work, Italian Premier Mario Draghi said after a telephone conversation with the Russian leader.

 

Biden administration considering largest ever release from emergency oil reserve

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

China holds multinational meeting to discuss Afghanistan situation

China is holding two multinational meetings in the ancient town of Tunxi to discuss the economic and humanitarian crisis facing Afghanistan, as Beijing makes a diplomatic push for the country’s stability and development under the Taliban.

Afghan acting foreign minister Amir Khan Muttaqi is attending the two-day meeting to be attended by foreign ministers of Afghanistan’s immediate neighbors – Russia, Pakistan, Iran, Tajikistan, Turkmenistan and Uzbekistan.

Diplomats from Indonesia and Qatar will send their representatives as guest attendees to the regional meeting to be hosted by Chinese Foreign Minister Wang Yi.

“The talks will echo positively with the third meeting of foreign ministers of the Afghan neighbouring countries, to further cement the consensus of all parties … to help Afghanistan achieve peace, stability and development at an early date,” Wang Wenbin, the Chinese foreign ministry spokesman, said.

A separate meeting of the “Extended Troika” will be held concurrently among special envoys for Afghanistan from China, the United States and Russia, China’s foreign ministry said.

“China, the United States, Russia and Pakistan are all countries with significant influence on the Afghan issue,” the foreign ministry spokesperson Wang said of the Troika meeting at a daily briefing on Tuesday.

Tom West, the US special representative for Afghanistan, will attend the meeting of the so-called Extended Troika, a US State Department spokesperson said.

The meetings are being held in Tunxi, an ancient town in Anhui province, possibly because of the relative ease of maintaining a bubble amid coronavirus lockdown in major cities.

Russian foreign minister Sergei Lavrov on Wednesday arrived in Tunxi for the talks with his Chinese counterpart but it is not confirmed if he will attend the Afghan meetings.

Lavrov has largely stayed in Russia since last month’s invasion of Ukraine but did travel to Turkey on Tuesday for talks with his counterpart from Kyiv.

The talk comes in the backdrop of Russia’s invasion of Ukraine and as Afghanistan suffers an economic and humanitarian crisis worsened by a financial aid cutoff and sanctions following the Taliban takeover as US-led troops withdrew in August.

Taliban, who fought the US forces for 20 years, returned to power in August 2021 after the collapse of West-backed government of President Ashraf Ghani.

The talks also come amid widespread condemnation of the Taliban’s U-turn last week on allowing girls to attend public high schools, which has sparked consternation among funders ahead of a key aid donors’ conference.

The school closure prompted US officials to cancel talks in Doha with the Taliban and a State Department warning that Washington saw the decision as “a potential turning point in our engagement” with the armed group.

The US believes that it shares with other Extended Troika members an interest in the Taliban making good on commitments to form an inclusive government, cooperate on counterterrorism and rebuild the Afghan economy, the State Department spokesperson said.

Diplomats and aid groups have warned that Taliban decision to keep the schools shut could make donors, already facing increased needs because of the Ukraine crisis, scale back their commitments.

On Wednesday, the World Bank put four projects in Afghanistan worth US$600 million on hold over the school ban.

Britain on Wednesday pledged an additional US$374 million for life-saving food and other aid in Afghanistan, a day ahead of an international conference seeking more than US$4 billion, even as concerns mount over Taliban rule.

The UN humanitarian appeal, the largest ever launched for a single country, is only 13 percent funded, UN spokesperson Jens Laerke said ahead of Thursday’s pledging conference.

Roughly 23 million people are experiencing acute hunger and 95 percent of Afghans are not eating enough, while 10 million children are in urgent need of aid to survive, according to the UN.

China has studiously avoided mentioning the limits on girls’ education and other human rights abuses, particularly those targeting women while keeping its Kabul embassy open.

Lately, Chinese Foreign Minister visited the Afghan capital Kabul, where he met the Acting Afghan Foreign Minister to discuss political and economic ties, including starting work in the mining sector and Afghanistan’s possible role in China’s Belt and Road infrastructure initiative, the Afghan foreign ministry said.

The surprise stop in Kabul came as the international community fumes over the Taliban administration’s broken promise a day earlier to open schools to girls beyond the sixth grade.

China, in line with the international community, has not recognized Afghanistan’s so-called “Islamic Emirate”, but has refrained from making harsh criticism against the group.

A month before the Taliban took power, Chinese Foreign Minister, had hosted a high-power delegation from the group on July 28, 2021, meeting in the Chinese port city of Tianjin. Wang referred to the group as pivotal force important to peace and reconstruction in Afghanistan.

On that and other occasions, the Chinese have pushed the Taliban for assurances it will not permit operations within its borders by members of China’s Turkic Muslim Uighur minority, which has faced repression from Beijing.

 

Dalian Shipbuilding Industry Company bagging ship building contracts

On March 30, 2022, Chinese financial service provider, CITC Financial Leasing placed an order at Dalian Shipbuilding Industry Company (DSIC) for the construction of 10 bulk carriers. 

The contract is for 65,000 dwt vessels with a new generation design independently developed by Shanghai Ship Research and Design Institute.

They will be equipped with energy-saving ducts and other devices. The nautical mile fuel consumption of the vessel will be significantly improved comparing with similar type of ships. The energy efficiency index is 25% lower than the Chinese domestic baseline.

Upon delivery, the vessels will be charted to a domestic shipping company, servicing for national energy resources transportation among domestic coastal areas and Yangtze River region.

It may be recalled that on March 14, 2022 DSIC had inked contracts with two European owners for the construction of up to six containerships. DISC has entered into shipbuilding contracts with Germany-based AL Maritime Holding and Greek owner Danaos for the construction of two 7,100 teu containerships and two plus two 7,100 teu containerships, respectively.

These vessels are designed by SDARI, with length of 255 meters and width of 42.8 meter, meeting the latest requirements of Tier III and EEDI phase III.

With the addition of the new deals, DSIC will have order on hand for the same type of 7,100 teu containerships reaching up to 10.

Peeping into not so remote history shows DSIC had won a contract to build two 7,500 cu m LNG powered CO2 carriers for Northern Lights, an Equinor, Shell and TotalEnergies joint venture.

The three parties are developing infrastructure to transport CO2 from industrial emitters by ship to a receiving terminal in Norway.

Independently developed by DISC, the vessels will be around 130 meters length, 21.2 meters width. The first of the vessels is expected to be delivered in the first quarter of 2024.

As well as LNG power, the vessels will also apply wind-assisted propulsion system and air lubrication to reduce carbon intensity by around 34% compared to conventional systems.

The vessels will be registered in Norway and classed by DNV.

Dalian Shipbuilding Industry Company

Dalian Shipbuilding Industry Company (DSIC) was formed in December 2005, as the result of a merger between Dalian Shipbuilding Industry Company and Dalian New Shipbuilding Industry Company, and is the largest shipbuilding company in China. It is owned by China Shipbuilding Industry Corporation, which is one of the two state-owned enterprises that came into being under the directive of the China State Council of 1999, the other being China State Shipbuilding Corporation.

While the former corporation is listed on the Shanghai Stock Exchange, the latter is not (yet) listed. Separately, the People's Liberation Army Navy owns military ship yards, such as in Lushun, Dalian, Liaoning.

DSIC located on two shipyards with a total of 3,400,000 square meters of land and 15,000 employees. Its revenue in 2006 exceeded CN￥10 trillion which puts itself as the No. 1 shipbuilding company in China, exceeding Shanghai Waigaoqiao Shipbuilding Industry Company.

 

Super powers should stop interfering in oil market dynamics, says UAE Energy Minister

Global oil supply and the market will not work if oil producers are maligned for years, only to be looked on a ‘superheroes’ when oil supply is lower than demand, according to Suhail al-Mazrouei, Energy Minister of OPEC’s heavy-weight the United Arab Emirates (UAE).  

“I think in COP 26 all the producers felt they were uninvited and unwanted but now we are again superheroes, it’s not going to work like that,” Reuters quoted al-Mazrouei as saying on Monday at the Global Energy Forum by the Atlantic Council in Dubai.

The oil and gas industry needs long-term planning and investments every year despite the global push for accelerating the use of renewable energy sources, the UAE minister added.

The country, currently OPEC’s third-largest producer after Saudi Arabia and Iraq, is sticking to its plan to raise its production capacity to 5 million barrels per day (bpd), but it is also committed to continue working with OPEC and OPEC+ Plus in the management of supply to the market, al-Mazrouei said.

“The UAE’s plan to raise production capacity does not mean that we will leave OPEC Plus or do something unilateral. We will work with this group to ensure that the market is stable,” he added.

During the Atlantic Council forum, al-Mazrouei reiterated the importance of OPEC in stabilizing global energy markets and argued that politics around sanctioned countries (such as Russia) must not interfere with the organization’s broader mission.

According to the UAE’s minister, producers cannot immediately boost supply significantly, also due to the production declines in recent years. At least 5-8 million barrels need to be replaced each year through investment, he added.

Al-Mazrouei also called on the financial and analytical institutions, such as the International Energy Agency, to adopt realistic perspectives on long-term investment in oil and gas and recognize the needs of global consumers who need affordable energy and commodities.

 

Prime Minister of Bangladesh criticizes sanctions on elite police unit by United States

In her first public comment on the issue, Prime Minister of Bangladesh lashed out Monday at the United States for ‘abominable’ sanctions against the Rapid Action Battalion (RAB) force over alleged human rights abuses, saying Washington imposed them without any fault or cause.

Sheikh Hasina’s remarks at an event marking the anniversary of RAB’s creation came a week before the Bangladeshi Foreign Minister was to hold high-level talks with the US officials in Washington.

Among a range of bilateral issues during meetings on April 4 and 6, the two sides are expected to discuss American sanctions placed on the security force in December 2021 over its alleged role in enforced disappearance and extrajudicial killings.

“Imposing sanctions on RAB and some of its officials, after all these successes is very much an abominable act,” Hasina said in a virtual message during a ceremony marking 18th anniversary of RAB’s founding, at its headquarters in Dhaka.

On December 10, 2021 the US Treasury Department issued sanctions against RAB and seven serving and former officials over allegations of grave violations of human rights. The move angered Bangladeshi government officials.

Former RAB Director General Benazir Ahmed – now Bangladesh’s Inspector General of Police – is among the sanctioned officials. He is barred from entering the United States.

Hasina made the comment days after the US Under Secretary for Political Affairs Victoria Nuland visited Bangladesh to discuss bilateral issues and ahead of a scheduled visit by Foreign Minister A.K. Abdul Momen to Washington.

Before leaving Dhaka, Nuland acknowledged that the human rights climate had improved in the South Asian country but said Bangladesh’s government needed to do more to hold RAB accountable for alleged rights abuses.

In her statement on Monday, Hasina also accused Washington of protecting and sheltering criminals, while ordering sanctions against Bangladesh where, she said, there is no crime.

“This is their character, so what else can I say about them? In their country they do not take any action against any member of their forces, law enforcement agencies, for their criminal activities”, she said.

The Prime Minister was referring to cases of police brutality and extrajudicial killings in the United States, including one where a Minneapolis police officer was convicted of killing George Floyd by kneeling on his neck during an arrest in May 2020.

Bangladesh, by comparison, is the only country where anyone from any law enforcement agency involved in any crime must be punished, the PM claimed.

Officers gather at the Shaheed Lt. Col. Azad Memorial Hall, the Rapid Action Battalion’s headquarters, to mark the elite police agency’s anniversary, March 28, 2022.

Hasina also questioned whether US authorities were bothered by Bangladesh’s successes against militants, drugs and terrorists including those responsible for carrying out a massacre of hostages during an overnight siege at the Holey Artisan Bakery café in July 2016 – the country’s worst-ever terror attack.

She also criticized American officials for sheltering a killer of her father, Bangladesh’s founding president.

“A criminal convicted in the killing of Bangabandhu Sheikh Mujibur Rahman is staying in the United States,” she said, referring to her father.

“We requested the US to send him back, but they gave protection in their country and sheltered the criminal while they imposed sanctions on some RAB officials without any fault or cause,” Hasina said.

In 2009, former Bangladesh Army officer Rashed Chowdhury was convicted and sentenced to death in absentia for his role in the coup that led to Sheikh Mujibur’s assassination in 1975. He fled to the US in 1996 when Hasina took power and was later granted asylum, according to media reports.

On Monday, officials at the US Embassy in Dhaka did not immediately respond to BenarNews requests for comment in response to Hasina’s criticism.

In Washington, a State Department spokesperson referred questions to the US Treasury, saying it was that agency which had placed RAB under sanctions framed by Executive Order 13818. Treasury officials, in turn, could not be immediately reached.