Venezuela: Iran to revamp largest refining complex

State firms from Iran and Venezuela will start in the coming weeks a 100-day revamp of the South American nation's largest refining complex to restore its crude distillation capacity, reports Reuters.

The effort by state oil firm Petroleos de Venezuela (PDVSA) and the state-owned National Iranian Oil Refining and Distribution Company (NIORDC) to boost fuel output at the Paraguana Refining Center marks a step toward ending Venezuela's reliance on US refinery technology.

Venezuela, which has the world's largest crude reserves, has struggled in recent years to produce enough gasoline and diesel due to refinery outages, a lack of investment and US sanctions that create obstacles for imports.

Long lines at gasoline stations have been common since 2020.

Tehran has strengthened ties with Caracas in recent years, providing crude and condensate as well as parts and feedstock for Venezuela's aging 1.3 million barrel per day oil (bpd) refining network.

A unit of NIORDC signed a 110-million-euro contract with PDVSA in May to repair Venezuela's smallest refinery, the 146,000-bpd El Palito in the center of the country, a project that is currently underway.

The companies are now expected to sign in the coming weeks a 460-million-euro contract to revamp the 955,000-bpd Paraguana refinery complex on the coast of western Venezuela.

Iran's Foreign Minister Hossein Amirabdollahian arrived in Caracas on Friday and met Venezuela's oil minister Tareck El Aissami, according to tweets from the Iranian embassy in Caracas and Venezuela's oil ministry.

The Paraguana revamp project will allow NIORDC to hire contractors and outsource work to repair five of the complex's nine distillation units, which do the primary refining of crude oil.

Paraguana - composed of the Amuay and Cardon refineries - operated at 25% of capacity this month even after the restart of Amuay's catalytic cracker, a key unit for gasoline.

Iran will be in charge of parts procurement, installation and inspection before handling the refinery's operations back to PDVSA.

The planned distillation unit overhaul will combine Chinese and Iranian parts and equipment in refineries originally built with US technology. The integration of the new and old components will not be easy, they added.

If the revamp succeeds, a larger overhaul could follow in 2024 and 2025, according to the sources.

"If the distillation plants do not work, the refinery does not work," said Caracas-based energy expert Nelson Hernandez. "The whole facilities need to pass through a revamp or a major maintenance program."

A project to restore the complex's dilapidated power supply is also planned as part of the revamp.

Crude supply to the Amuay and Cardon refineries could be modified to increase motor fuel output, as NIORDC did at El Palito, where Iranian oil was added to the refinery's feedstock.

Iran's technicians also are considering adding upgraded crude from the Petromonagas project, a PDVSA joint venture with a Russian state oil company.

"They are aiming to eliminate lines for gasoline. That is what they want, to stabilize domestic supply," another source said of Venezuela's Socialist government.

The Iran-flagged cargo vessel Golsan arrived in Venezuela this month carrying equipment, Refinitiv Eikon data showed. The ship made a first stop at La Guaira port, near Caracas, and proceeded to PDVSA's Jose port, near the Puerto la Cruz refinery in eastern Venezuela.

Iranian technicians have inspected Venezuela's refineries several times in the last year to prepare for the arrival of at least 400 Iranian workers who will work alongside between 1,000 and 1,500 local staff and contractors.

Venezuelan officials have been assigned the task of finding temporary housing and vehicles for the workers, including the possibility of building a camp close to Paraguana.

A firm date for the Iranian workers' arrival has not yet been communicated to Paraguana's staff.

During the El Palito revamp, PDVSA sent home hundreds of Venezuelan workers to make way for the Iranian technicians, which triggered protests. A separate group of contractors claiming they have not been paid for work at Paraguana since 2021 also have protested recently.

"We've been criticized, told we are bad or inexperienced professionals," said one Venezuelan worker from Paraguana who asked not to be named for fear of retaliation. "We've been forced to produce in the most difficult conditions. Yet, we have delivered."

 

India: Refiners pay traders in dirhams for Russian oil

Indian refiners have begun paying for most of their Russian oil purchased via Dubai-based traders in United Arab Emirates dirhams instead of US. Dollars, reports Reuters.

While Western sanctions against Moscow are not recognized by India, and purchases of Russian oil may in any case not violate them, banks and financial institutions are cautious about clearing payments so as not to unwittingly fall foul of the many measures imposed against Russia following its invasion of Ukraine.

Indian refiners and traders are concerned they may not be able to continue to settle trades in dollars, especially if the price of Russian crude rises above a cap imposed by the Group of Seven nations and Australia in December.

That has led traders to seek alternative methods of payment, which could also aid Russia's efforts to de-dollarize its economy in response to the Western sanctions.

Previous attempts by Indian refiners to pay traders for Russian crude in dirhams through Dubai banks failed, forcing them to switch back to the US currency.

But India's top bank, the State Bank of India (SBI), is now clearing these dirham payments, the sources told Reuters, providing details of transactions that have not previously been reported.

The G7 price cap prohibits any Western company, such as the insurance and shipping service providers that underpin much of global trade, from involvement in trading Russian crude if the purchase price is above $60 a barrel at the loading point in Russia. That remains the case even if the oil is bound for countries such as China and India which do not recognize the cap.

The shift to dirham payments was also triggered by the SBI asking refiners looking to make dollar payments for Russian crude to provide a breakdown of the costs of the oil, freight and insurance, allowing it to vet trade and avoid violating the cap.

"The SBI is very conservative in its approach," one of the sources said, even though India does not follow the price cap mechanism and Western insurance and shipping are not used for delivery.

Indian refiners typically buy Russian crude from traders at a price that includes delivery to India.

An invoice for such a deal seen by Reuters showed traders asking for an average crude price including freight for Urals crude. The document calculated the price of the cargo in dollars and dirhams.

The four sources said Indian refiners are buying Russian oil on a delivered basis to mitigate any risks arising during shipping, and so far the calculated cost at the point of loading has been below the price cap.

Indian refiners mostly buy Russian crude from Dubai-based traders including Everest Energy and Litasco, a unit of Russian oil major Lukoil.

India's oil secretary Pankaj Jain last month said Indian companies were not facing any problems in paying for Russian oil as the latest actions by the West do not impact the trade settlement mechanism.

 

Is IMF responsible for all the miseries being faced by Pakistan?

I am amused as well as dismayed after reading statement of Shehbaz Sharif regarding ongoing Pakistan-IMF negotiations.  He was quoted by Dawn saying, IMF was giving a very tough time to Finance Minister Ishaq Dar and his team.

It will not be wrong to say that not only the ruling elites fail to pay attention to what the IMF is saying, but also fail to understand the gravity of the situation.

At times, the utterings of the members of incumbent government tantamount to maligning IMF for being responsible for all the miseries being faced by Pakistan.

The general perception being created by the ruling junta that IMF is giving tough time to Pakistan is totally incorrect. To be honest, the negotiating team has failed in coming up with its ‘home grown plan’ to overcome the present malice.

As a result, IMF has shared its plan, to which the incumbent is more than willing, so that it could put all the blame for Pakistan’s the miseries on the IMF.

I have often said that overcoming current account deficit and budget deficit is far easier than overcoming the trust deficit being faced by the present government of Pakistan.

It seems that the present government is in a hurry to get the IMF tranche released so that it could continue its extravaganzas.

It is being feared that the present government is consenting to all the IMF conditions without having the slightest realization that debt servicing will not be possible for the next government.

 

United States: Ilhan Omar expelled from House committee

According to Reuters, US House of Representatives Republicans on Thursday ousted Democrat Ilhan Omar from a high-profile committee over remarks widely condemned as antisemitic, two years after Democrats removed two Republicans from committee assignments.

The deeply divided House voted 218-211 along party lines to remove Omar from the Foreign Affairs Committee with Republicans citing the 2019 remarks for which she later apologized. One Republican voted present.

Omar, who arrived in the United States as a refugee from Somalia, is the only African-born member of Congress and one of the only Muslim women in the House. She was in line to be the top Democrat on the foreign affairs panel's Africa subcommittee.

Shortly after the vote, House Democratic Leader Hakeem Jeffries made a countermove, announcing that he intends to appoint Omar to a seat on the Budget Committee where she will defend Democratic values against right-wing extremism.

Republicans, who won a narrow House majority in November 2022 election after years in the minority, said they wanted Omar, a third-term House member, off Foreign Affairs for statements that included a 2019 tweet which read, "It's all about the Benjamins baby," suggesting that Israel's supporters in US politics were motivated by money rather than principle.

Benjamin Franklin, whose signature on the 1776 Declaration of Independence and 1787 US Constitution earned him the reputation as a founding father, is portrayed on the US$100 bill.

During debate, Republican Mike Lawler said, "Words matter, rhetoric matters. It leads to harm. The congresswoman is being held accountable for her words and her actions."

Omar and other Democrats said that any such remarks were made years ago and that Omar had deleted the posts and apologized at the time.

Moments before the House expelled her from the committee, a defiant Omar said, "My leadership and voice will not be diminished if I am not on this committee ... my voice will get louder and stronger."

Omar has said in the past that US forces and those of other countries should be held to the same standards of accountability when their actions hurt or kill civilians.

The ouster, led by House Speaker Kevin McCarthy, was viewed by Democrats as revenge for their voting in 2021 to remove Republicans Marjorie Taylor Greene and Paul Gosar from their committee assignments after incendiary remarks.

In 2021, Greene had compared COVID-19 mask requirements and vaccinations to the Nazi Holocaust that killed 6 million Jews. She eventually apologized. Before her 2020 election to Congress, she voiced unfounded conspiracy theories, including an antisemitic claim suggesting a space laser possibly was used to deliberately start a California wildfire.

Gosar had posted a video on social media showing him appearing to kill another House member, Democratic Representative Alexandria Ocasio-Cortez.

Omar and Ocasio-Cortez initially comprised half of a group of progressive House Democrats elected in 2018 who became known as "The Squad" and included Ayanna Pressley and Rashida Tlaib. The movement has since grown.

McCarthy has given committee assignments to both Greene and Gosar as well as George Santos, a newly elected representative who has admitted to fabricating much of his resume, although Santos has temporarily stepped away from those assignments while working to clear up questions about his ethics.

Before the vote, Jeffries told reporters that Democrats had condemned Omar's "Benjamins" remark.

"There has been accountability. Ilhan Omar has apologized. She has indicated she'll learn from her mistakes" and was "building bridges" with the Jewish community. "This isn't about accountability. It's about political revenge."

McCarthy previously rejected assignments of Democrats Adam Schiff and Eric Swalwell to the House Permanent Select Committee on Intelligence. Both played major roles in the impeachments of Republican former President Donald Trump.

 

Russia and Iran in Energy Market: Competition or Cooperation

Many observers believe Moscow is behind every significant international development or organization, be that the results of the US Presidential elections or the decisions of the European Parliament.

That is rooted in lack of systemic understanding of international relations and sovereign motivation of its actors. A similar approach is taken with regard to Iran’s policy in the Middle East. Where a Shiite individual or movement makes a step, Iran’s opponents see footprints leading to Tehran. Neither of the two capitals has both motivation and capabilities to control such developments abroad, so before ascribing any role to Moscow or Tehran, one should better study how things work in reality, rather than according to their imaginary schemes, even if such schemes make sense to the public.

One of these approaches, which is rather similar to the conspiracy theory, is to blame Russia of taking deliberate actions to strain the relations between Iran and Europe, and subsequently, targeting Iran in the energy market as a potential actor to replace Russia in Europe's energy supply.

The global developments that have turned up in the last few years have caused Iran-Russia relations to enter a new, comprehensive and rather strategic phase. Despite the unprecedented violations and sanctions imposed on Iran by Western countries, the evidences of new cooperation between Iran and Russia show that the recent alliances are on the path of comprehensive development.

Cooperation in the field of advanced technologies, unprecedented trade volume up to US$4 billion in 2022, bilateral military collaboration, gas memorandum between Iran and Russia's Gazprom and also, Russia's support for Iran's membership in the Shanghai Cooperation Organization shows the remarkable expansion of strategic relations in recent years, especially after the intensification of Western sanctions on both countries.

In a completely simplistic judgment, some analysts believe in Russia's pre-planned strategy to completely eliminate Iran from global equations, especially by preventing the restoration of this country's relations with the European Union in the field of energy exports as an alternative to the sanctioned Russia in this market. In order to justify their claim, they pointed to the military cooperation between Iran and Russia, which became an excuse to intensify the sanctions of the European Union against Iran, as well as diminishing the possibility of revitalizing the JCPOA, and they consider it as a scheme by Russia.

Spreading such pessimistic views lead to questions that can invalidate such views to some extent. Considering the disconnection between Russia and European countries in the field of energy trade, how can Iran supply the amount of energy needed by Europe as an alternative to Russia in terms of production infrastructure, production volume, export capacity, as well as logistical ability?

A detailed examination of Iran's production and export capacities and capabilities in the field of energy such as oil, gas and even petrochemical products can well answer the above question and negate the mentioned point of view.

According to the gas crisis of Europe during the last year, many supposed that Iran would be the best option to compensate for the shortage of gas in Europe. Declaration of such a proposal showed that some analysts were not informed about the production capacity and conditions of facilities and infrastructure of Iran's gas fields.

According to statistics, the average gas consumption in the country is 250 billion cubic meters per year, and the total gas production in 2021 was about 269 billion cubic meters. Moreover, Iran's total gas exports to Iraq and Turkey are 17 billion cubic meters annually. Therefore, if we consider consumption and export to Turkey and Iraq, the amount of production is almost equal to both consumption and exports. Therefore, considering gas export, Iran will need a large investment for development of production infrastructure, that the recent agreement between Iran and the Russian company Gazprom is concluded with the anticipation of the infrastructure expansion, which is a manifestation of Russia's willingness to strategic cooperation with Iran even in the field of energy.

Others point to Europe's greater need for Iranian oil than gas, and this will be the best opportunity for Iran to take advantage of the current situation by supplying oil to European Union countries.

Although this expectation seems reasonable to some extent, it should be noted that in the current situation Europe's immediate demand for oil is lower than gas. One should acknowledge that oil transportation is easier than gas, and Europe's supply sources, such as Saudi Arabia have more variety of products. Moreover, it should also be taken into consideration that even with restoration of the JCPOA and the beginning process of exporting oil to Europe, in the current conditions Iran's oil will not have a notable impact on the reduction of Europe's oil demands.

Considering the production of 4 million barrels of oil per day and also in light of domestic consumption, Iran's export capacity is expected to be 2.0 to 2.5 million barrels per day. Referring to the number of barrels that will be exported to South Korea, Japan, China and India, therefore ultimately one cannot imagine a significant amount for export to Europe. Although one should admit that this number of barrels will make no difference to Russia and the long-term prospects of this country in international relations.

According to the mentioned points, it implies that some criticisms toward the enlargement of Iran and Russia's relation are completely thoughtless and stem from the lack of correct and systematic understanding of international relations, and undoubtedly, some of them are rooted in some historical narratives in the relations between the two countries.

The analysis of any international policies should be based on the principles of international relations and realities, not on excitement and personal interests to a particular side or even conspiracy theories.

The relations between Iran and Russia have been progressing towards comprehensive development in recent years, and its effects can be seen in the internal and external developments of both countries.

One of these fields is energy trade, where both countries have had valuable cooperation to increase each other's production and export capabilities.

Nevertheless, the Russia's strategy in destruction of relations between Iran and Europe with the aim of maintaining the monopoly of energy exports is completely simplistic as well as short-sightedness of the depth of Iran-Russia relations in recent years.

Courtesy: Tehran Times

 

 

Bangladesh: IMF Approves US$4.7 Billion Assistance

The International Monetary Fund’s US$4.7 billion loan program won’t be a miracle worker for the Bangladesh economy. The program would hold the economy back from falling off the cliff from the whiplash of the pandemic and the Ukraine war and turn it towards the right track.

“The authorities made the right decision to come to the Fund — and most importantly, to come to the Fund early,” said Rahul Anand, the IMF’s mission chief to Bangladesh.

Turning to the IMF when the country is already in crisis could make the adjustments particularly hard on people — a situation confronting Pakistan and Sri Lanka. But Bangladesh is not in crisis, Anand said.

“Just like countries around the world, Bangladesh is dealing with the impact of global shocks — first from the pandemic and then from the ongoing war in Ukraine,” he added.

In that vein, the program’s immediate task is to prop up the country’s shrinking foreign exchange reserves, which has already hit businesses and ordinary people hard.

While the IMF would make US$476 million immediately available, the lender’s impact would be beyond that: it would give the other multilateral agencies, such as the World Bank, to make more funds available for Bangladesh.

This along with the import curbs placed by the government will shore up the gross foreign reserves to US$30 billion by the end of the fiscal year, according to the IMF’s projections.

As per the lender’s balance of payments and investment position manual (BPM6), gross foreign reserves calculation does not include the various funds that the Bangladesh Bank has formed from the reserves as well as the loan guarantees provided for Biman, the currency swap with Sri Lanka, the loan to Payra Port Authority and the below-investment-grade securities. These account for about US$7.5 billion.

When these components are taken out, the IMF projection matches the government’s expected foreign currency reserve position at the end of fiscal 2022-23: US$37.7 billion.

Gross reserves would increase to US$34.2 billion in fiscal 2023-24 and to US$40 billion in the following year, as per IMF’s projections. It would hit US$46.4 billion once the program ends.

Other than restoring macroeconomic stability by way of the reserves, the program would also give impetus to some long-due structural reforms such as raising more tax revenues, scaling up social spending, modernizing the monetary policy framework, strengthening the financial sector and building climate resilience.

“While confronting challenges resulting from the global headwinds, the authorities need to accelerate their ambitious reform agenda to achieve a more resilient, inclusive and sustainable growth,” said Antoinette Monsio Sayeh, the deputy managing director of IMF, in a press release.

Thanks to the reforms ushered in by the program, Bangladesh’s tax revenue would increase from 7.8% of GDP this fiscal year to 8.3% next year and then 8.8%. At the end of the program, it would be 9.4% of GDP, as per the IMF’s projections.

The program would insist on cutting back on subsidies, which would free up more resources for social and development spending.

“Not all subsidies are helping the poor and vulnerable. In Bangladesh where gas and electricity are being subsidized, the rich drive more cars and use more air conditioning,” Anand said.

Rationalization of untargeted subsidies will free fiscal resources to strengthen social safety nets and increase development spending.

Substantial investment in human capital and infrastructure will be needed to achieve Bangladesh’s aspiration to reach upper-middle income status by 2031 and meet the Sustainable Development Goals.

By the end of the program, the size of the annual development program would increase from the existing 5.2% of GDP to 6.5%, as per the IMF’s projections.

Public investment would increase from 8.8% of GDP this fiscal year to 11.2% of GDP in fiscal 2025-26, when the program ends. Subsequently, Bangladesh’s real GDP growth would be back to 7% by fiscal 2024-25.

This fiscal year, the growth would be 5.5%, as the IMF’s projections, which is in line with other multilateral lenders’ forecasts.

Earlier last month, the WB pared back Bangladesh’s growth forecast for this fiscal year by 1.5% to 5.2%. In December last year, the government revised down the growth forecast from 7.2% to 6.5%.

The IMF will disclose the specifics of the loan program in the coming days.

The mandatory conditions would be a minimum level of net international reserves and domestic revenue collection and a ceiling on the government’s budget deficit, The Daily Star has learnt from people involved in the negotiations with the IMF staff mission to thrash out the terms for the loan.

Implementing the income tax law, setting up an asset management company to dispose of soured loans, bringing down the banking sector’s default loans to within 10% and raising the capital adequacy ratio to the BASEL 3 requirement of 12.5%, are among the reforms agreed upon.

Periodically adjusting the fuel price through a formula and increasing remittance receipts through formal channels are also on the task list.

A social spending floor and better targeted social safety net programs, market-based exchange rate interest rate, developing the capital and bond market, expanding and diversifying exports and modernizing the monetary policy framework and reporting on net foreign reserves are the other agreed reforms.

The interest rate on the loan would be about 2.2%. Of the US$4.7 billion, US$1.4 billion can be repaid over a 20-year horizon with a grace period of ten years. The remaining amount must be paid back within ten years; the grace period for a portion of the sum is 3.5 years and for another portion 5.5 years.

 

Western companies still doing business in Russia

Fewer than one in ten Western multinationals with subsidiaries in Russia has quit any of them in the year wo22 since the Ukraine invasion began.

This finding by two highly regarded academics, Simon Evenett from University of St Gallen and Niccolo Pisani from IMD Business School, contradicts earlier reports of a mass exodus by Western businesses and points to a lack of alignment between the geopolitical strategies of Western governments and the commercial realities of Western businesses.

The study identified 1,404 companies headquartered in EU and G7 countries with a total of 2,405 subsidiaries in Russia before its February 2022 invasion of Ukraine. Only 120 of these companies, or 8.5% of the total, had exited at least one of their subsidiaries by the end of November.

Moreover, some of the companies that have trumpeted their withdrawal from Russia, such as McDonald’s and Nissan, have buy-back options. Russia’s anti-monopoly agency says McDonald’s can repossess its Russian operations within 15 years, while Nissan, which sold its business to a Russian state-owned enterprise for €1, can buy back within six years.

The study is at odds with earlier work by Yale University’s Jeffrey Sonnenfeld, which said more than 1,000 companies had pulled out, threatening Russia with economic oblivion, but it is broadly consistent with research by the Kyiv School of Economics. The latest research double-checked the prior-data bases to see whether companies that said they were withdrawing had in fact done so.

The researchers acknowledge that there are many sound reasons why companies might fail to withdraw. A Western firm operating in a sector excluded from official sanctions may decide that it is inappropriate to abandon its Russian customers, who may have played no part in the decision to invade Ukraine or in the prosecution of the armed conflict, they wrote.

In other cases, Western firms may not want to abandon long-term relationships with employees or suppliers or decide to cease operations because of the societal relevance of their products and services (for instance, the supply of lifesaving medicines).

Even when a Western firm has decided to exit and committed to do so publicly, it may still ultimately fail to do so. For instance, it may not be able to find a buyer for its subsidiary that is prepared to pay a high enough price. And even when a buyer is found and the price agreed, the Russian government may have put in place obstacles that impede or anyway delay the sale, or ultimately prevent transfer of proceeds abroad.

It can take time to conclude such sales in adverse circumstances so it is likely that the percentage quitting will rise, however the evidence shows the overwhelming majority of Western companies with operations in Russia are staying put.

US Treasury Secretary Janet Yellen has repeatedly called on the US business sector to strengthen the resilience of its supply chains by friend-shoring, or redirecting investment to allies. In the context of the risk of conflict in the Taiwan Strait, she urged US businesses to pay greater heed to geopolitical realities. We are seeing a range of geopolitical risks rise to prominence, and it’s appropriate for American businesses to be thinking about what those risks are.

However, the latest study suggests that those pressures may not translate into meaningful changes in the international footprint of companies. It is reasonable to conclude that the high cost of exiting an operation that may have taken years and billions of dollars to establish has restrained companies from following their country’s wishes, even if that means they are effectively ‘trading with the enemy.

The authors note that, if the immense geopolitical pressure on companies to decouple from Russia has been resisted, it’s unlikely that the similar pressure for companies to pull out of China will gain traction. For every US$1 invested in Russia, Western multinationals have US$8 invested in China.

They argue that the Russian economy is large enough to be a good test of the willingness of companies to respond to geopolitical pressure, while not being so large (as China’s economy is) that Russia’s future economic prospects are decisive for the global strategies of most companies.

The study found wide variation in both national and sectoral responses to the geopolitical pressure to withdraw from Russia. About 16% of US firms have closed subsidiaries, compared with 15% of British firms, 7% of Japanese firms and 5% of German firms.

Companies were more likely to close loss-making subsidiaries than those with healthy profits. The 120 companies that have shut subsidiaries in Russia represent 15.3% of the pre-invasion workforce of Western multinationals in the country but only 6.5% of the profits. The inclusion of large service firms like McDonald’s and Starbucks among the exiting firms would help to explain this difference.

In the manufacturing sector, the 50 subsidiaries that were sold or closed were responsible for 18.6% of the workforce of Western operations in the sector but only 2.2% of the profits.

The study said its finding that 8.5% of Western multinationals had exited their Russian operations was almost certainly an overestimate. Companies were counted if they had withdrawn one or more subsidiaries but not necessarily all their operations in Russia. The presence of buy-back options casts doubt on the finality of exits.

The study says greater attention should be given to the costs of decoupling and friend-shoring.

If the write-offs announced by publicly traded Western companies are anything to go by, divestment, decoupling, and supply chain reconfiguration are likely to be costly to firms, their employees, and their shareholders.

If those costs must be borne on geopolitical grounds, who should bear them? Answering this question is of the essence since to date Western corporate retreat from Russia has been limited.