Tuesday, 17 January 2023

Economic costs of Ukraine war

The Ukraine war is one of the most important challenges in the world of politics, especially between Russia and the West. The war began in February 2014 with a speech by Russian President and continues until now.

Putin told the Russian people that he was conducting a “special military operation” to “denazify” Ukraine and prevent NATO from expanding to Russia’s borders.

Many in the West see the war, which they consider the most disruptive conflict in Europe since 1945, as a war of choice by Putin, but he says that NATO’s 2008 decision in favor of eventual Ukrainian membership brought an existential threat to Russia’s borders.

This article aims at exploring the reasons for the war, its process, and the costs.

Russia declared one of the reasons for starting the war to help the Russians living in the two republics of Donetsk and Luhansk, two separatist regions of eastern Ukraine in Donbas. Russia repeatedly stated that the two regions have a Russian majority and should either become autonomous or join Russia. The Kremlin declared racism against the Russians the reason for the war.

After the annexation of Crimea, Russians established self-rule governments in these two provinces. They were only able to take over parts of the two provinces of Donetsk and Luhansk, a struggle started to conquer the two provinces.

Ukrainian government forces also engaged in a military conflict against the separatists. As a result, more than 14,000 people were killed and a many were displaced.

In 2015, with the mediation of France and Germany, an agreement was signed between Russia and Ukraine, which became known as the Minsk Agreement. The main goal of the deal was to end the conflict between the Ukrainian army and Russian-backed separatists in Donbass. According to the agreement, in exchange for regaining control of its borders with Russia, Ukraine gave these two regions autonomy in many areas, which was supported by the United States and its allies.

The agreement was annulled by the war, and once again Donbass became the core of the crisis between Russia and Ukraine and Putin said in his speech before the start of the war, the people's republics of Donbass have asked Russia for help.

As stated, one of the most important reasons for the start of Russia's war against Ukraine was Kyiv's decision to join NATO; in another word, to expand the military coalition to Russia's borders and threaten the country.

In his speech, Putin said, “I will begin with what I said in my address on February 21, 2022. I spoke about our biggest concerns and worries, and about the fundamental threats that irresponsible Western politicians created for Russia consistently, rudely, and unceremoniously from year to year. I am referring to the eastward expansion of NATO, which is moving its military infrastructure ever closer to the Russian border. It is a fact that over the past 30 years, we have been patiently trying to come to an agreement with the leading NATO countries regarding the principles of equal and indivisible security in Europe. In response to our proposals, we invariably faced either cynical deception and lies or attempts at pressure and blackmail, while the North Atlantic alliance continued to expand despite our protests and concerns. Its military machine is moving and, as I said, is approaching our very border.

Some sources say that another reason for the start of the war was Kyiv's threat to resume its nuclear program, and to prove it, they point finger at the statements of Dmitry Medvedev, the former president and prime minister of Russia and the current deputy of the Security Council of this country.

Ukraine’s threats to resume its nuclear program were largely the reason for Moscow’s special military operation, Medvedev said on Nov, 07, 2022.

One of the reasons for conducting the special military operation was the threats by Ukrainian leaders that hinted resumption of the nuclear program, which Kyiv relinquished under the Budapest Memorandum of 1994, Medvedev wrote in a message on the country’s VK social network, according to TASS.

“What do we see in contrast next to our own borders? Poor puppets from an inferior state, now weeping bitterly about the decision taken under the Budapest Memorandum of 1994 to withdraw the nuclear arsenal located on their territory and inherited from the USSR,” Medvedev said, following statements describing South Africa’s accession process to the Nonproliferation Treaty.

Later, Medvedev said that Ukrainians always perceived Kyiv’s accession to the international treaty as a forced step decided under harsh pressure from Washington, adding that this was the case even though Ukraine did not have the means to support the might (nuclear weapons) that had fallen to it by chance.

He further said Ukrainian leaders, from former President Leonid Kravchuk to current President Volodymyr Zelenskyy, have expressed that they would be happy to use it (nuclear weapons) against us (Russia) and their own citizens (Ukrainians).
Whatever the reason for this war, it cost a lot for the parties, especially the European Union, which was highly dependent on Russian energy.

This cost can be examined in two dimensions:

The war in Ukraine, which is called the most destructive in Europe after World War II, has cost a lot to the parties involved.

Ukraine imports most of the weapons it needs. Although the country does not pay for the purchase of these weapons, its supporters - Europe, the US, and NATO - who are forced and committed to supplying Ukraine with weapons, bear the most costs.

Although the exact costs of these countries cannot be assessed, the cases announced by them show that Europe and the United States have incurred a lot of costs, some of which are as follows:

Short-Term Military Support (US$17 billion): This includes the transfer of weapons, both US weapons and those purchased from allies, training of Ukrainian military personnel, and intelligence sharing.

Long-Term Military Support (US$10.4 billion): This consists of money that Ukraine can use to buy new weapons, mostly from the United States but also elsewhere.

US Military Operations (US$9.6 billion): In the spring, the United States sent about 18,000 troops to Europe to strengthen defenses and deter Russia. These deployments cost money above what was planned in the DOD budget.

DOD General Support (US$1.2 billion): This covers a wide variety of activities, some only tangentially related to Ukraine, to prepare DOD for future conflicts.

Indirect costs can also be referred to human costs, war refugees and the EU energy debate.

Europe, as a place on the front line of Ukrainian immigrants, suffered from two aspects. First, Ukrainian refugees directly entered Europe. Second, there was the issue of gas and energy crisis.

Nearly 8 million refugees fleeing Ukraine have been recorded across Europe, while an estimated 8 million have been displaced within the country by late May 2022. Approximately one-quarter of the country's total population had left their homes in Ukraine by March 20, 2022.

Another impact of the Ukraine war was on the European benchmark natural gas prices.

The countries of the European Union, as importers of Russian gas, were deprived of energy due to their positions, and the energy challenge has turned into a super crisis for several months.

The benchmark price spiked to 227 euros after Russia invaded Ukraine on February 24, 2022, and to around 350 euros in late August. As of January 03, 2023, the benchmark price is about 74 euros.

Of course, the same cases are also true for Russia; the country has also suffered a lot of financial losses in addition to the loss of lives.

The sanctions of the European Union and the United States against this country, especially in the field of energy, are one of these losses.

 

Over 90 nations demand Israel lift sanctions on Palestinians

Israel must withdraw the sanctions it levied against the Palestinian Authority (PA) for seeking assistance from the world court, over 90 nations have declared in a signed statement.

“We express our deep concern regarding the Israeli government’s decision to impose punitive measures against the Palestinian people, leadership and civil society following the request by the General Assembly of an advisory opinion by the International Court of Justice,” the nations said in the statement they signed.

They referenced the UN General Assembly vote to ask the ICJ to issue an advisory opinion on whether Israel’s occupation of the West Bank was legal. The ICJ opinion will also cover Gaza, which is under Hamas control and east Jerusalem, to which Israel applied sovereignty in 1967.

The UN resolution passed with the support of 87 nations out of the 193-member General Assembly, 16 countries voted against it and 53 abstained.

But some of those countries which opposed the vote or abstained argued that it is wrong for Israel to punish the PA over the vote.

Among those that signed the text were 24 out of the 27 European Union nations. The only three EU countries that refrained from signing were Austria, Croatia and Hungary. Even countries that are enormously supportive of Israel in international forums such as the Czech Republic and Germany signed that statement.

“Regardless of each country’s position on the resolution, we rejected punitive measures in response to a request for an advisory opinion by the ICJ and more broadly in response to a General Assembly resolution and call for their immediate reversal,” the statement said.

“As member states of the UN, we reconfirm our unwavering support for the ICJ and international law as the cornerstone of our international order, as well as well as our commitment to multilateralism,” it added. 

UN Secretary-General Antonio Guterres also expressed his concerns over the sanctions imposed by Prime Minister Benjamin Netanyahu’s new government which came into power at the end of last month, just as the UNGA vote was held. 

One of its first steps was to deduct from the tax fees it collects on behalf of the PA a sum equal to the amount of money the PA spends on monthly stipends to terrorists and their families.

It also removed NIS 139 million from those fees and gave them to Israeli victims of Palestinian terror. Other steps included halting all Palestinian development in Area C of the West Bank, which is under IDF military and civilian control and the denial of PA VIP cards.

Israel Ambassador to the United Nations Gilad Erdan dismissed the groundswell of global sentiment against the PA sanctions, explaining that the request for an ICJ advisory opinion was an act of political terrorism against the Jewish state.

“This is a meaningless declarative statement and every country that signed it only added fuel to the fire of Palestinian incitement and terror, and removed any chance of reconciliation.”



 

Saudi Arab trying to find path to dialogue with Iran

Saudi Foreign Minister Prince Faisal bin Farhan Al Saud said the kingdom was trying to find a path to dialogue with Iran as the best way to resolve differences.

He said a decision by Saudi Arabia and other Gulf states to focus on their economies and development was a strong signal to Iran and others in the region that there is a pathway beyond traditional arguments and disputes towards joint prosperity.

The Middle East's leading Sunni Muslim and Shi'ite powers, Saudi Arabia and Iran have for years vied for influence in a rivalry that has played out across the region in events such as the conflicts in Yemen and Syria and in Lebanon.

Riyadh and Tehran cut ties in 2016 but officials from the two countries have held five rounds of direct talks hosted by Iraq since last year, the last of which was in April, without achieving any diplomatic breakthroughs.

Gulf Arab states are concerned about Iran's nuclear and ballistic missile programs and network of regional proxies, but want to contain tensions as they focus on economic priorities.

The Saudi foreign minister, speaking at a panel at the World Economic Forum in Davos, also said there was a need to find a route to ending the Russia-Ukraine conflict, otherwise global uncertainty would continue.

"This is complex question, but we will have to talk about how we find a pathway to ending the conflict," he said.

Prince Faisal said attention on the Middle East was also needed, citing Syria as well as regional concerns over provocative policies by Israel's new government headed by Benjamin Netanyahu in an alliance with ultra-nationalists.

Netanyahu has pledged to pursue formal Israeli ties with Riyadh to build on normalization pacts signed with the United Arab Emirates and Bahrain in 2020 under his leadership.

Gulf powerhouse Saudi Arabia blessed the US-brokered pacts but stopped short of formally recognizing Israel in the absence of a resolution to Palestinian statehood goals.

 

Made in Iran exhibition opens in Karachi

The Director General of the mining and trade industry of Sistan and Baluchistan province, southeast of Iran, considers the holding of an exclusive exhibition of Iran in Pakistan as an effective step for synergy between the business communities of the two countries.

The "Made in Iran" Exhibition is the third largest exhibition event, which was organized focusing on Sistan and Baluchistan province and obtaining the license of the Iran Trade Development Organization and the follow-ups of the Iranian Consulate General in Karachi and the remarkable reception of the Pakistani business community on Monday in this port city.

According to Iran Press News Agency, at the opening ceremony of Iran's exclusive exhibition in Karachi, Iraj Hassanpour, the Director-General of the Mining and Trade Industry who is also the secretary of the committee of the Sistan and Baluchistan border trade organization and non-oil export development council, said, "Holding an Iranian exclusive exhibition is considered an effective step for synergy between the business community of Iran and Pakistan."

He added, "The exhibition was held following the recent move by the Islamic Republic of Iran in removing the ban from the list of goods related to the preferential trade agreement between Tehran and Islamabad."

Hassanpour stated, "About 50 companies with more than 60 booths as vast as over a thousand meters from different provinces of Iran in industrial fields and commercial services, including plastic and polymer materials, food industry, steel industry, copper, power plant and construction services, turbine and textile machinery and construction industry are present."

The increase in exhibition events shows the strong determination of the two neighboring countries so that the current trade balance between Iran and Pakistan can increase from about US$1.8 billion to US$5 billion, because the bilateral trade capacity is estimated to be more than US$14 billion per year.

According to this report, trade development organizations of Iran and Pakistan are going to sign a cooperation agreement on the sidelines of Iran's exclusive exhibition in Karachi.

 

Monday, 16 January 2023

Gold prices inching towards record highs

Gold prices are expected to rise towards record highs, above US$2,000 an ounce in year 2023, albeit with a little turbulence, as the United States slows the pace of rate hikes and eventually stops increasing them, according to industry analysts, reports Reuters.

Spot prices of the precious metal have shot above US$1,900 an ounce, surging by about 18% since early November 2022 as inflationary pressures recede and markets anticipate less aggressive monetary policy from the US Federal Reserve.

Fast-rising interest rates hammered gold prices last year, plunging as low as US$1,613.60 in September 2022 from a high of US$2,069.89 in March 2022 - just shy of a record peak in 2020.

Higher rates lifted returns on bonds, making non-yielding gold less desirable for financial investors, and pushed the greenback to its strongest in 20 years, making US$-priced gold costlier for many buyers.

The weakening greenback and bond yields will become macro tailwinds for the yellow metal, pushing gold above US$2,000/oz in the coming months, said analysts at Bank of America.

With less pressure from the US$ and bonds, investors are likely to buy bullion as a hedge against inflation and economic turbulence, said WisdomTree analyst Nitesh Shah, adding that prices could easily move above US$2,100 an ounce by year-end.

Gold is traditionally seen as a safe place to store wealth. "The risk of central banks overdoing it and pushing their economies into recession is high," said Shah.

Speculators who in November 2022 were betting gold prices would fall have amassed a net long position in COMEX futures of 8.3 million ounces of gold, worth US$16 billion, helping push up prices.

Analysts expect central banks to continue stockpiling gold after buying more metal in the first nine months of 2022 than in any year in half a century, according to the World Gold Council.

Retail demand for gold bars and coins should also remain strong, boosted by a revival of economic growth in China, the biggest consumer market, said analysts at ANZ.

But gold may have gone too far too fast in the short term and needs to correct lower, analysts said.

"Should prices fall from current levels to the US$1,870 to US$1,900 an ounce range, we expect the (upward) trend to reverse," the bank said, adding that if gold falls below US$1,800, it could slip to US$1,730.

 

Pakistan: Falling workers’ remittances

Inward workers’ remittances in Pakistan, an important source of foreign exchange for the country has been witnessing a declining trend in recent months. Inflows declined to US$2.0 billion in December 2022 (down 19%YoY). 

Since the appointment of New Finance Minister, Ishaq Dar on September 28, 2022, who has been very vocal that Pak Rupee (PKR) is undervalued, not only the spread between the interbank and open market rate has increased but it has also given birth to a new rate in the curb market due to short supply of greenback. Since Dar’s appointment, remittances are now down 16%YoY in October-December 2022 quarter to US$6.4 billion.

In FY22, workers’ remittances were reported at US$31 billion which is 8% of GDP one of the highest in the region. Remittances along with exports of US$32 billion in FY22 remained a major source of foreign exchange inflows for Pakistan; this fall in remittances is a key concern.

According to one of Pakistan’s leading brokerage house, Topline Securities, the decline in remittances is mainly due to the rising spread between US$ interbank rate and open market/black market rates seen in recent months.

One of the main reasons for US$ shortage is that now exchange companies are required to surrender 100% of inward remittances in interbank market as per latest SBP regulation.

Interbank rate is the official rate banks use for trading with other banks and for import & exports. This is currently hovering around PKR228 against US$ and went as low as Rs240 before Ishaq Dar announced an inquiry against Banks on currency speculation and initiated administrative measures to control official currency rate.

Currencies in the open market with local exchange companies are available only on presentation of travel documents and subject to buying limits.

Due to restriction on exchange companies black market is growing where no documentation is required. US$ is currently available at PKR260 to PKR265 in black market which is up to 20% premium to the interbank rate.     

 

Sunday, 15 January 2023

All set for Davos party


There’s a hangover happening in Davos even though the party hasn’t yet started. The World Economic Forum’s annual winter shindig in the Swiss mountain resort, which kicks off on Monday, marks a return for glitzy parties and high-minded debates following a three-year hiatus.

A record number of business leaders are set to make the trip, and the passage of commercial, private and government aircraft through Zurich’s airport suggests overall attendees are at pre-Covid-19 levels. Yet the direction for the future – and those who will lead it – is more clouded than ever.

Corporate and financial chieftains who skipped last May’s low-key Davos gathering are back. JPMorgan boss Jamie Dimon, a regular at the conference, will be joined by Wall Street leaders including David Solomon of Goldman Sachs and Morgan Stanley’s James Gorman. Chevron Chief Executive Mike Wirth and BP’s Bernard Looney will represent resurgent oil majors. All in all, the WEF expects to welcome some 2,700 leaders from 130 countries, including 370 public figures.

Yet the apparent return to business as usual only serves to highlight the changes that have taken place since the last full gathering of the Davos elite. The global pandemic and Russia’s invasion of Ukraine have added more friction to the already creaking globalised world that Davos epitomized.

Meanwhile, the political leaders responsible for shaping the new order are mostly staying at home. US President Joe Biden is not making the trip – unlike his predecessor. Though, a smattering of US Congress members are expected to come they are hardly well-known international figures. China’s most senior representative is Vice-Premier Liu He. British Prime Minister Rishi Sunak, grappling with a slowing economy and striking public sector workers, is also staying home.

A stroll down the Davos Promenade, the town’s main drag where countries and corporations temporarily take over storefronts, underscores the shift. Poland and Indonesia have a prominent presence, but other national delegations have quieter messages on display. Saudi Arabia has a few conspicuous banners touting NEOM, its futuristic economic zone. The United Arab Emirates is touting tolerance.

The cryptocurrency firms that were at previous gatherings are mostly muted, replaced by companies promoting technologies like the blockchain. The Medical Psychedelics House has been replaced by the India Inclusivity Lounge. Established technology companies like Workday, Salesforce, Cisco, Qualcomm and Meta Platforms dominate the street scene. Perhaps the most striking new tenant is Manchester United, the English Premier League club which is seeking a buyer.

The shift is reflective of a world that has become introspective and less joined-up. As big companies diversify supply chains, governments and regions are competing hard for business. Biden’s Inflation Reduction Act is dangling subsidies for American manufacturing, encouraging governors like J.B. Pritzker of Illinois to lure investment to their state. The WEF and its founder Klaus Schwab acknowledged some of this by renaming the conference “Cooperation in a Fragmented World”.

Still, those returning to Davos for the first time in three years may feel like the cocktail is a little less potent.

Courtesy: Reuters