Rishi Sunak faces huge task as Prime Minister

Rishi Sunak became Britain's third prime minister in two months on Tuesday, tasked with tackling a mounting economic crisis, a warring political party and a deeply divided country in one of the greatest challenges to confront any new leader.

The 42-year-old former hedge fund boss was asked to form a government by King Charles, and will seek to bring an end to the infighting and feuding at Westminster that has horrified investors and alarmed international allies.

Sunak, one of the richest men in parliament, will have to find deep spending cuts to plug an estimated 40 billion pound ($45 billion) hole in the public finances due to an economic slowdown, higher borrowing costs and a six-month program of support for people's energy bills.

With his party's popularity in freefall, Sunak will also face growing calls for an election if he moves too far from the policy manifesto that elected the Conservative Party in 2019, when then leader Boris Johnson pledged to invest heavily in the country.

Economists and investors have said Sunak's appointment will calm markets, but they warn that he has few easy options when millions are battling a cost of living crunch.

"With a recession in 2023 now increasingly likely, and the next general election in only two years' time, Rishi Sunak can expect a challenging premiership," Eiko Sievert at the Scope ratings agency told Reuters.

Sunak has warned his colleagues they face an "existential crisis" if they do not help to steer the country through the surging inflation and record energy bills that are forcing many households and businesses to cut back spending.

"We now need stability and unity, and I will make it my utmost priority to bring our party and our country together," he said as he was elected by his lawmakers on Monday.

Sunak, Britain's youngest prime minister for more than 200 years and its first leader of colour, replaced Liz Truss who resigned after 44 days following a "mini budget" that sparked turmoil in financial markets.

With debt interest costs rising and the outlook for the economy deteriorating, he will now need to review all spending, including on politically sensitive areas such as health, education, defence, welfare and pensions.

Reflecting the near constant state of turmoil in British politics this year, politicians, journalists and photographers once again crammed into Downing Street on Tuesday to hear a departing speech from Truss.

Speaking seven weeks to the day after she arrived as prime minister, Truss did not apologize for her short tenure and said she knew Britain was set for brighter days.

During her time in office the pound hit a record low against the dollar, borrowing costs and mortgage rates surged, and the Bank of England was forced to intervene to protect pension funds from collapsing.

Sunak will now start forming his cabinet, with some Conservative lawmakers hoping he will include politicians from all wings of the party.

He is expected to retain Jeremy Hunt as finance minister after the former foreign and health secretary helped calm volatile bond markets by ripping up most of Truss's economic program.

Investors will also want to know if Sunak still plans to publish a new budget alongside borrowing and growth forecasts on October 31, 2022 which would help inform the Bank of England's interest rate decision on November 03, 2022.

Sunak, a Goldman Sachs analyst who only entered parliament in 2015, must unite his party, aware that voters are increasingly angry over the antics at Westminster as the economy heads for recession.

He was blamed by many in the party when he quit as finance minister in the summer, triggering a wider rebellion that brought down Johnson.

While many expressed relief that the party settled on a new leader quickly, a sense of distrust remains among some while others questioned whether struggling families would relate, or ever vote, for a multimillionaire.

"I think this decision sinks us as a party for the next election," one Conservative lawmaker told Reuters on condition of anonymity.

Historian and political biographer Anthony Seldon told Reuters that Sunak would also be constrained by the mistakes of his predecessor.

"There is no leeway on him being anything other than extraordinarily conservative and cautious," he said.

Many politicians and officials abroad, having watched as a country once seen as a pillar of economic and political stability descended into brutal infighting, welcomed Sunak's appointment.

Sunak becomes Britain's first prime minister of Indian origin.

 

Nord Stream owners in insurance limbo

With the mystery of the blasts that destroyed undersea gas pipelines between Russia and Germany unsolved, insurers and reinsurers of Nord Stream 1 are grappling with how to respond to hundreds of millions of dollars in potential claims.

Munich Re and syndicates within the Lloyd's of London market are among the major underwriters for Nord Stream 1. Industry sources with knowledge of the situation said, it was unclear whether they would renew its cover.

If the insurance is not renewed, the prospect of the pipeline bringing gas to Europe under the Baltic Sea ever being repaired and restarted becomes more remote.

Even before leaks were found, supplies via Nord Stream 1 had been halted as a result of a dispute over Western sanctions on Russia, while the newly-built Nord Stream 2 pipeline had not started commercial deliveries.

While a claim has not yet been made for the damage and disruption to the pipeline, two of the sources told Reuters, Nord Stream 1 underwriters may dispute any submitted on the grounds that the damage was an act of self-sabotage, or of war, neither of which are generally covered by insurance.

Amid speculation as to who was behind alleged sabotage that severed the pipelines at the centre of an energy crisis prompted by Russia's invasion of Ukraine, Danish police said on October 18, 2022 that the damage to Nord Stream 1 was caused by powerful blasts.

While damage itself would not necessarily affect the renewal of a property policy, insurers might ask for more premium, said Tim Shepherd, a litigation partner at Mayer Brown.

For the underwriters of the pipeline system, which Nord Stream's website says was built with 7.8 billion euros (US$7.6 billion) of investment, the stakes are high.

"Even if you are taking a small size (of cover), it is a big risk," one of the four industry sources said.

"The issue is going to be what happens if you can't prove it is a state sponsor (responsible for the blasts), you end up with a massive claim for damage," the source added.

Nord Stream 1 majority shareholder with a 51% stake is a subsidiary of Russian energy group Gazprom, which is subject to sanctions by the United States, Britain and Canada as well as some European Union restrictions.

Two of the sources said renewal of Nord Stream 1 cover by the Lloyd's syndicates would be challenging given the risk of tighter sanctions on Gazprom, which would prevent paying claims.

German energy groups Wintershall and E.ON, meanwhile, hold 15.5% each. Wintershall did not immediately respond to a request for comment.

An E.ON spokesperson said Nord Stream 1 operating company was responsible for operational issues, including insurance.

"Nord Stream AG remains in close contact with relevant authorities on the recent incident. Due to prevailing uncertainties, we as a shareholder continuously monitor developments and are in close contact with the other relevant stakeholders," the spokesperson said.

Gazprom and Swiss-based Nord Stream AG, did not respond to requests for comment, while French energy provider ENGIE, which has a 9% stake, declined to comment.

Dutch natural gas infrastructure company N.V. Nederlandse Gasunie, which also has a 9% stake, said it would assess the situation as soon as there was more clarity.

"The exact extent of the damage and possible follow-up actions can only be determined after inspection of the pipelines and that is not yet possible at this moment," Gasunie said.

"We are in close contact with our European partners and the relevant government authorities," it added.

Nord Stream's insurers will have to prove that its policy does not cover the damage caused by the blasts in order to avoid paying out on any claim, lawyers said.

Although property policies typically exclude malicious damage, policy holders often buy extra cover, which is likely in Nord Stream's case, legal and insurance sources said.

Russian President Vladimir Putin has said the United States and its allies blew up the pipelines, an allegation that has been dismissed by the White House. US President Joe Biden has said damage to Nord Stream was a deliberate act of sabotage.

The West has not directly pointed the finger at Moscow, which has denied any involvement.

French President Emmanuel Macron said earlier that Nordic leaders had told their European partners it was still impossible to say at this stage who was behind the damage.

If a Western state actor was found to be responsible, the damage might be designated as an act of terror, which one broking source said might be covered by insurance.

However, if investigations found Russia to have been involved, insurers could argue it was an act of "self-sabotage", given Gazprom is owned by the state.

"If there was a deliberate act by the policyholder, you are not going to have a covered claim," said David Pryce, managing partner at Fenchurch Law, which is not involved with the policy.

If there was any Russian involvement it could also mean the Nord Stream 1 damage being designated as an act of war, something that is typically excluded by insurance policies.

 

Ship survives drone attacks at Yemeni port

According to Seatrade Maritime News, Yemen’s Houthi militia has issued a warning to tankers loading at Yemeni oil terminals firing two armed drones at a Okeanis Eco Tankers VLCC as the vessel called for loading at the Al-Dabba oil terminal in Ash Shihr, Yemen. 

In a filing to the Oslo Stock Exchange, the Alafouzos-controlled company confirmed two “drone-driven explosions” in close proximity to its 300,000dwt newbuilding Nissos Kea on October 21, 2022.

The Greek owner of the Marshall Islands-flagged 2022-built tanker said it sustained no damage and no injuries to the crew in the attack which saw one drone explode ahead of it and another on its starboard side and came 14 minutes apart.

The Nissos Kea was scheduled to load 2 millio barrels of crude, but the vessel sailed from the loading port in international waters following the incident. “All necessary precautionary measures were duly taken beforehand and during the incident,” said Okeanis Eco Tankers.

The drone attack came two weeks after a cease-fire in the country’s civil war ended. Yemen’s Houthi militias said they were behind the attack, calling it a “warning strike.” to prevent pro-government forces from using terminals for oil exports. Meanwhile, the country’s Saudi-backed government said its forces had intercepted the drones.

The European Union (EU) said the flagrant menacing of international maritime commerce was unacceptable. “Houthi attacks on international shipping are an affront to core principles of the Law of the Sea, jeopardizing freedom of navigation through the region’s waterways and blocking access to Yemeni ports,” it added.

Cyprus-based, maritime security company Diaplous Group said: “The Company immediately emailed the Coast Guard to report the incident and request to stop. The coastguard warned that the vessel was in danger and prompted the master to abandon the operations at the terminal, to evacuate the area instantly and to inform accordingly when the vessel would be sailing in international waters.

Will Rishi Sunak be next Prime Minister of Britain?

Rishi Sunak looked set to become next Prime Minister of Britain after Boris Johnson withdrew from the contest on Sunday. Although he enjoys enough support to make the final ballot he realizes the country and the Conservative Party needed unity.

If chosen, Sunak would be the first prime minister of Indian origin in the United Kingdom.

Johnson had raced home from a holiday in the Caribbean to try and secure the backing of 100 lawmakers to enter Monday's contest to replace Liz Truss, the woman who succeeded him in September after he was forced to quit over a string of scandals.

He said he had secured the backing of 102 lawmakers and could have been "back in Downing Street", but that he had failed to persuade either Sunak, or the other contender Penny Mordaunt, to come together "in the national interest".

"I believe I have much to offer but I am afraid that this is simply not the right time," Johnson said late on Sunday.

The former prime minister had secured the public backing of just under 60 Conservative lawmakers by Sunday, well under half of the nearly 150 endorsements Sunak had received.

Johnson's statement likely paves the way for his arch rival, the 42-year-old former finance minister Sunak, to become prime minister, possibly as soon as Monday. If confirmed, he would replace Truss who was forced to resign after she launched an economic program that triggered turmoil on financial markets.

According to the rules, if only one candidate secures the backing of 100 Conservative lawmakers, they will be named prime minister on Monday.

If two candidates pass the threshold, they will go forward to a vote of the party membership, with the winner announced on Friday, just days before new finance minister Jeremy Hunt lays bare the state of the country's finances in a budget plan due to be released on October 31, 2022.

That had raised concerns that Johnson would return to Downing Street with the backing of the party members, and not a majority of lawmakers in parliament, leaving the party badly divided. Hunt declared his backing for Sunak late on Sunday.

Some Johnson supporters could switch to Mordaunt, who has presented herself as the unity candidate, but many immediately switched to Sunak. A source close to the Mordaunt campaign said the former defence minister would continue in the contest.

"She is the unifying candidate who is most likely to keep the wings of the Conservative Party together," the source said.

Johnson has loomed large over British politics ever since he became mayor of London in 2008 and went on to become the face of the Brexit vote in 2016. While he led the Conservative Party to a landslide election in 2019, he was forced out just three years later by a rebellion of his ministers.

Sunak said he hoped Johnson would continue to contribute to public life "at home and abroad".

One Sunak supporter, who asked not to be named, said his main reaction was relief because if Johnson had won the "party would have torn itself apart".

Another Conservative lawmaker Lucy Allan said on Twitter: "I backed Boris for PM, but I think he has done the right thing for the country."

Other Johnson backers immediately jumped ship.

Cabinet office minister Nadhim Zahawi, who minutes earlier had published an article on the Daily Telegraph website praising Johnson, said "a day is a long time in politics".

"Rishi is immensely talented, will command a strong majority in the parliamentary Conservative Party, and will have my full support and loyalty," he said.

Earlier, many of the Conservative lawmakers who normally back Johnson switched their support to Sunak, saying the country needed a period of stability after months of turmoil that has sparked headlines - and raised alarm - around the world.

Johnson is also still facing a privileges committee investigation into whether he misled parliament over Downing Street parties during COVID-19 lockdowns. He could be forced to resign or be suspended from office if found guilty.

Sunak first came to national attention when, aged 39, he became finance minister under Johnson just as the COVID-19 pandemic arrived in Britain, developing a furlough scheme to support millions of people through multiple lockdowns.

"I served as your chancellor, helping to steer our economy through the toughest of times," Sunak said in a statement on Sunday. "The challenges we face now are even greater. But the opportunities - if we make the right choice - are phenomenal."

His family migrated to Britain in the 1960s, a period when many people from Britain's former colonies arrived to help rebuild the country after the Second World War.

After graduating from Oxford University, he later went to Stanford University where he met his wife Akshata Murthy, whose father is Indian billionaire N. R. Narayana Murthy, founder of outsourcing giant Infosys Ltd.

 

Israel claims curbing Iran’s ability to transfer weapons to Syria

The Israeli military has destroyed about 90% of Iran's military infrastructure and attempts to entrench itself - with Hezbollah - in Syria, top officials in the defense establishment claimed over the weekend.

According to the officials, Israel has in recent years succeeded in almost completely curbing Iran's ability to transfer weapons to Syria, to manufacture weapons on the country's soil and to establish a base in it with pro-Iranian forces.

According to the sources, the plan of the former commander of the Iranian Quds Force, Qassem Soleimani, who was killed by the Americans in 2020, has failed due to the IDF’s continued air campaign against the forces in Syria.

The last alleged attack attributed to Israel in Syria was Friday when local media reported that the IDF attacked near the airport in Damascus after about a month of relative silence.

The sources said that despite the tension between Israel and Russia – which recently threatened Jerusalem not to transfer arms to Ukraine - the deconfliction mechanism to prevent Russian-Israeli friction in Syria is working as usual.

Periods without attacks, the sources said, are usually the result of an Iranian decision to suspend the smuggling of weapons to Syria, in order to try and find a new route to trick Israel.

The security officials emphasized that the IDF severely damaged Iran's smuggling routes from the sea, from the air and even from the land from Iran to Syria.

As a result of the attacks, the ability of the Syrian army to produce weapons and ammunition has also been damaged since the Iranians and Hezbollah used the same factories for the production of their weapons.

The focus of the attacks in recent years has also been to stop the smuggling of components for CERS – the Centre D’Etudes et de Recherches Scientifiques (CERS) in Masyaf that is used by Iran to produce advanced missiles and weapons for its proxies.

Along with this, the assessment in Israel is that Syrian President Bashar Assad has reduced the activity of Iran and Hezbollah in his country, with an emphasis on the Syrian Golan Heights and the south of the country.

According to sources in Israel, Assad has realized that in the coming years he will not be able to regain territories occupied by the Kurds, including the Turks, and instead focuses his power on trying to restore stability to the major cities with an emphasis on Damascus and the region including the coastline.

 

China: Reactions to 20th Communist Party Congress

Reuters has done a good job by compiling initial reactions on Xi Jinping securing a precedent-breaking third leadership term. However, if my readers find these tweaked, remember that the job was done by a western news agency.

China's Xi Jinping secured a precedent-breaking third leadership term on Sunday and introduced a new Politburo Standing Committee stacked with loyalists, cementing his place as the country's most powerful ruler since Mao Zedong. Following are the initial reactions from analysts and experts:

ALVIN TAN, HEAD OF ASIA FX STRATEGY, RBC CAPITAL MARKETS, SINGAPORE

“It does look like it’s dominated by Xi’s allies.”

“In terms of policymaking, it does mean that there is likely to be more deference to Xi Jinping’s own views about how to move the country and the economy forward... I can imagine that zero-COVID policy is likely more entrenched and there’s going to be further push on this issue of common prosperity and the like.”

DREW THOMPSON, VISITING SENIOR RESEARCH FELLOW AT NATIONAL UNIVERSITY OF SINGAPORE'S LEE KUAN YEW SCHOOL OF PUBLIC POLICY

"This is a leadership that will be focused on achieving Xi’s political goals, rather than pursuing their own agendas for what they think is best for the country. There is only one correct way to govern, and that is Xi’s way.

"Foreign investors and businesses have desperately searched for signs that liberals or 'reformers' will play a role in shaping the economy or bringing back an old economic order that prioritized foreign investment and liberalization of the economy. It is clear from the outcome of the 20th Party Congress that national security and the party’s political security will take precedence over economic growth."

RICHARD McGREGOR, SENIOR FELLOW FOR EAST ASIA, LOWY INSTITUTE, SYDNEY

"The result was a resounding victory for Xi, more decisive than many experienced observers had forecast. All of his rivals, potential and real, have been forced out of the Politburo Standing Committee and Xi loyalists took their place. The new Politburo is an emphatic statement of Xi’s dominance over the party.

"I think the congress has drawn a line between the past and the future in profound ways, both for Chinese domestic politics and the way in which its influence spills out into the rest of the world.

"Xi has dispensed with the old factional system, such as it was. He has crushed expectations that he would nurture a successor. He has ignored the informal age caps on officials serving in top positions."

CHRIS MILLER, PROFESSOR AT TUFTS UNIVERSITY, MASSACHUSETTS

“The party congress has reaffirmed Xi's decisive role in ruling the Communist Party, marking a continued shift away from collective leadership of party elites toward a personalized dictatorship. It also appears to have confirmed the downgrading of economic growth as a key party goal, relative to other agenda items such as zero-COVID and the party's political and ideological control. On tech, the key theme was self-sufficiency in science and technology, which is to be expected given the increasing decoupling of the US and Chinese tech sectors.”

GARY NG, SENIOR ECONOMIST, ASIA PACIFIC, NATIXIS, HONG KONG

“The new inner circle will extend and heighten the current policy stance, and generally it seems that most of the newly appointed officials seem to be Xi’s key allies. So I guess this is also a move of the further consolidation of power, or maybe in the future, of course, performance is important, but also loyalty is increasingly a key concern when picking officials.”

JA IAN CHONG, POLITICAL SCIENTIST, NATIONAL UNIVERSITY OF SINGAPORE

"It certainly seems to be a consolidation of Xi’s position. This means that policies will be more directly attached to Xi for good or ill. I guess that translates to more focus on party-state control over business, less dependence on imports even as the PRC (People's Republic of China) seeks to export. So probably more direct party-state direction of the economy. Investment will likely seek to meet those above goals, especially if they can bring in technology. So while there may be opportunities for investors, they have to look to both market forces and political preferences more. So more of what we have already been seeing.

"Probably no lifting of COVID-zero policy in the near future, and more assertiveness in foreign and security. Even more broadly, US-PRC friction will continue to grow."

DYLAN LOH, ASSISTANT PROFESSOR, NANYANG TECHNOLOGICAL UNIVERSITY

"It's quite clear that the Politburo have been stacked with Xi loyalists and that would mean he has a much freer rein and mandate in pursuing his domestic and foreign policies as collective leadership and decision making has been de-emphasized over coalescing around Xi and implementing his decisions. It seems that he has not elevated a potential successor for now, which gives him the flexibility for a fourth term. Regarding investment, I do not think China's policies will turn sharply because of this line up, I think by and large Xi's priorities have not changed."

"Wang Huning’s presence also indicates to me that the ideological bent of the party and Xi will continue and even deepen."

PEIQIAN LIU, CHINA ECONOMIST, NATWEST MARKETS, SINGAPORE

“It’s kind of in line and a surprise. What has been in line with expectations is really (that) President Xi is consolidating his power... And what’s been surprising is that there have been four people sort of retired from the Standing Committee – that’s more than our initial expectation of two.”

“It does look like Xi is having more say within the Politburo Standing Committee, and also with his ideology being written in the party’s charter, that’s a symbolization of him being more strategically important within the political committee.”

 

Saudi Arabia and China to work together to maintain oil market stability

Saudi and Chinese officials confirmed their willingness to work together to support stability in the international oil market. Prince Abdulaziz Bin Salman, Saudi Arabia’s Minister of Energy, held an online meeting with Zhang Jianhua, National Energy Administrator of the People's Republic of China.

During the video call, both sides confirmed that they would strengthen bilateral relations between the two countries in the field of energy.

They highlighted the significance of China and Saudi Arabia, as important global energy producers and consumers, regularly exchanging views.

The two sides confirmed their willingness to work together to support the stability of the international oil market, continue close communication, and strengthen cooperation to address emerging risks and challenges.

They also highlighted the importance of long-term and reliable oil supply to stabilize the global market that endures various uncertainties due to complex and changeable international situations, noting that the Kingdom continues to be China's most reliable partner and supplier of oil.

Discussions between the two sides covered cooperation and joint investments along the Belt and Road countries, as well as investments in integrated refining and petrochemical complexes in both countries and strengthening cooperation in the energy sector supply chain through establishing a regional hub for Chinese manufacturers to utilize the Kingdom's strategic location linking three continents.

The two sides agreed to cooperate within the framework of the Bilateral Cooperation Agreement in Peaceful Uses of Nuclear Energy between the Chinese and Saudi governments.

In addition, both ministers stressed the importance of cooperation in the field of electricity and renewables, and to collaborate in the field of clean hydrogen through research and development.