G7 likely to remove cap on Russian oil

According to Reuters, the Group of Seven (G7) and allies have shelved regular reviews of the Russian oil price cap scheme, people familiar with the matter told Reuters, even though most Russian crude is trading above the limit because of a rally in global crude prices.

Russian producers have found ways to sell oil using fewer Western ships and insurance services, making it difficult for the West to enforce the existing price cap because the companies facilitating the trade are outside of their remit.

The G7 countries along with the European Union and Australia imposed the price cap mechanism on Russian oil last December, followed by a cap on fuel from February this year. Initially, EU countries agreed to review the price cap every two months and to adjust it if necessary while the G7 would review as appropriate including implementation and adherence.

The G7 has not reviewed the cap since March 2023 and people familiar with G7 policies said the group had no immediate plans to look into adjusting the scheme.

There were some talks in June or July to do a review, or at least talk about it, but it never formally happened.

While some EU countries were keen for a review they said that there was little appetite from the United States and G7 members to make changes.

The sidelines of the upcoming UN General Assembly later this month could serve as an informal platform for talks on the cap

The mechanism allows third countries to buy Russian fuel using Western ship insurance if there is proof the purchase does not exceed price limits of US$60 per barrel for crude, US$45 per barrel of heavy fuel and US$100 per barrel of light fuel such as gasoline and diesel.

The idea was spearheaded by Washington to cut Moscow's revenues amid its war on Ukraine while avoiding market disruptions as a result of an EU ban on Russian oil.

Benchmark Brent oil futures are trading at their highest this year at above US$90 a barrel, raising the value of global crude, including Russian Urals.

Russia's finance ministry said the average price on its flagship crude grade Urals has recovered to US$74 a barrel on average in August - well above the US$60 a barrel cap - and up from an average US$56 in the first six months of the year.

Russia was forced to cut exports of oil and products immediately after the price cap imposition as it struggled to find enough ships to transport all of its output.

However, the country has managed to move most of its exports into the hands of domestic or non-Western foreign shippers, which do not require Western insurance coverage.

According to Reuters, at least 40 middlemen, including companies with no prior record of involvement in the business, handled at least half of Russia's overall crude and refined products exports between March and June.

While mostly dark fleet of tankers with murky ownership was being now used to transport Russian crude, Western ships were still involved in moving products since those were harder to police, an industry source said.

According to LSEG data, Russian crude has been trading above the cap since mid-July and is currently being traded at around US$67 a barrel at Russian crude terminals. Russian refined products such as fuel oil and diesel have also surpassed their caps.

A US Treasury official said this week the cap was still effective as it had helped cut Russian revenues. He said the group would stay nimble but added there was no plan for an immediate revision.

 

Pakistan Victim of Geopolitics

I am pleased to share one of my articles published in Eurasia Review on December 27, 2012. Despite lapse of more than a decade, many of the assertions seem most current as Pakistan continue to suffer from unabated interference of the super powers. 

Since independence Pakistan has remained the focus of global and regional powers. The country is termed a natural corridor for trade ‑ including energy products ‑ gateway to Central Asia and landlocked Afghanistan.

There is a perception that often regimes are installed and toppled in Pakistan by the super powers to achieve their vested interest. This is evident from cold war era to occupation of Afghanistan and from love and hate relationship with India to creation of Taliban (phantom now having many offspring).

At present Pakistan is facing extremely volatile situation, which has become a threat for its own existence. Fighting a proxy war for United States in Afghanistan for nearly four decade has completely destroyed the economic and social fabric of the country. Pakistan is suffering from the influx of foreign militant groups getting funds and arms from different global operators.

Analysts say over the years Pakistan has been towing foreign and military policy of the United States, which has often offended USSR, China, India and Iran. Therefore, one needs to analyze Pakistan’s relationship with Afghanistan, India and Iran, enjoying common borders with the country. It may not be wrong to say that at present Pakistan doesn’t enjoy cordial relation with none of these countries.

Pakistan helped Afghans in averting USSR attack. After the pullout of USSR forces Afghanistan plunged into civil war. It was often alleged that Pushtoons were supported by Pakistan and Northern Alliance was highly annoyed. After 9/11 Pakistan was made to fight Taliban under the US dictate. As the time for withdrawal of Nato forces is getting closer Pakistan once again faces a precarious position.

When British Raj left the subcontinent in 1947 it left a thorn, Kashmir. Since independence India and Pakistan have been living in constant state of war, spending billions of dollars annually on the purchase of conventional as well as non-conventional arms and have also attained the status of atomic powers. However, both the countries suffer from extreme poverty. There seems no probability of reconciliation between the two countries because of presence of hawks on both the sides. Even the trade relations could not be normalized due to Kashmir dispute as Hindus are not ready for another division of Hindustan on the basis of religion.

Pakistan and Iran have enjoyed the best time till toppling of Shah’s rule as both the countries were under the US influence. Iran has been persistently enduring economic sanctions for more than three decades after the Islamic revolution. Pakistan is suffering from severe energy crisis but not allowed to construct Iran-Pakistan gas pipeline or even buy Iranian crude oil under food for oil program. Iran has often complaint that certain outfits, most notorious being Jundullah, having its base in Balochistan province of Pakistan, are involved in cross border terrorism.

Pakistan also faces a difficult situation when Saudi Arabia, under the US pressure asks it to do or not to do certain things. One such example is Saudi Arabia promising to meet Pakistan’s oil requirement if it opts not to buy Iranian oil. There are also allegations and counter allegations that Saudi Arabia and Iran are supporting Sunni and Shia factions in Pakistan. This point is being highlighted by referring to sectarian killings. However, Pakistanis have no doubt that killing is being done by those who are neither Sunni nor Shia. This point got credence when it was discovered that Taliban involved in attack on Peshawar airbase had tattoos on their bodies.

Till today, Pakistan offers the shortest and cost effective route to landlocked Afghanistan, leading to Central Asian countries. Gwadar deep seaport has been constructed in Balochistan province with the financial and technical assistance of China. India often raises its concerns on Chinese presence along Pakistan’s coastal belt. However, India is not only constructing Chabahar port in Iran but also road and rail links up to Central Asia via Afghanistan.

Pakistanis completely fail to understand the duality of US policy. India was asked to withdraw itself from Iran-Pakistan-India gas pipeline project and also rewarded nuclear technology in return. On top of that it has not been stopped from building port and supporting infrastructure in Iran. Some experts say all this is being done to construct an alternate route once the objective of creation of greater Balochistan is achieved. This new country will be created taking one slice each from Iran, Afghanistan and Pakistan.

The level of US pressure on Pakistan can also be gauged from the fact that President, Asif Ali Zardari, on the eleventh hour, cancelled his visit to Tehran and went straight to UK. The new date of his visit to Iran has not been announced as yet. This reminds Pakistani’s of a similar cancelled visit of Prime Minister Liaquat Ali Khan to USSR and he instead went to United States.

It is also on record that Chinese experts working in Pakistan have often come under attack to make them leave Pakistan. Chinese experts working on Gwadar and Thar coal projects have been repeatedly attacked. At one stage it was feared that Chinese will completely withdraw their support for Thar coal mining and power plant.

China has also complaints that some extremist Muslim groups are trying to create disturbance in one of its province bordering with Pakistan. It seems these attempts are made to disrupt trade being done through this land route.

 

 

Bank of China opens branch in Saudi Arabia

China’s most internationalized state bank on Tuesday opened its first branch in Saudi Arabia in a move to expand the use of yuan amid a growing number of economic deals between the two countries.

Bank of China (BOC), one of China’s four biggest state-owned banks, opened its branch in Riyadh, the capital city of the oil-rich Middle Eastern country, more than two years after being given approval by the Saudi Arabian government.

The branch has more than 20 staff, with a majority hired locally – a condition requested by local authorities.

It is the second Chinese bank to open a branch in Saudi Arabia after the Industrial and Commercial Bank of China (ICBC) opened its first branch in Riyadh in 2015. ICBC also opened a branch in Jeddah in May.

China’s ambassador to Saudi Arabia, Chen Weiqing, said the opening of the branch was a result of positive developments in the bilateral relations between the two countries, and new stage of financial cooperation.

“It also shows that China highly recognizes the financial regulations, investment environment, and geographical advantages of Saudi Arabia,” Chen said, as he attended the opening ceremony with Bank of China president Liu Jin.

Saudi Central Bank governor Ayman al-Sayari and Saudi Arabia’s deputy investment minister, Saleh Ali Khabti, also attended the opening ceremony along with 250 guests.

The Saudi-listed ACWA Power, Saudi Arabia’s Ministry of Investment, Ajlan & Bros Holding Group and Zhejiang Rongsheng Holding Group signed memorandums of understanding involving internationalizing the yuan and green financing with BOC during the opening ceremony, the statement added.

The move came as part of a growing series of economic activities between China and Saudi Arabia, with their bilateral relations described as being at the best stage ever following President Xi Jinping’s state visit in December 2022, with both countries facing souring relations with the West.

During the trip at the end of last year, Xi pledged to work towards widening the use of yuan in oil and gas trade in the region, amid a push to establish the currency internationally and weaken the US dollar’s grip on world trade.

Saudi Arabia is China’s largest source of crude oil imports, with 87.5 million metric tons (641 million barrels) shipped in 2022.

Amid efforts by state banks to tap potential in the Middle East, BOC’s new branch has been licensed to provide basic commercial banking services to individual consumers and small- to medium-sized businesses, ranging from deposit accounts and loans to mortgages and yuan transactions.

At the weekend, BOC president Liu also met Khaled Mohamed Salem Balama Al Tameemi, the governor of the central bank of the United Arab Emirates, to court more support for its yuan clearing in the region and potential cooperation with the nation’s sovereign wealth funds.

In an interview with local media in June, BOC said the new branch aimed to offer the yuan to the wider Middle East region to assist commercial and financial trade between China, Saudi Arabia and beyond.

As there are many Chinese companies entering the market in the region, being able to trade and make financial transactions using the yuan would encourage Chinese companies to invest in the area.

The Saudi Arabian government first agreed to allow BOC to open its branch in January 2020. At the time, Saudi Arabia had only 14 foreign banks, including ICBC.

BOC also has existing branches in Abu Dhabi and Dubai in the UAE, as well as Bahrain, Turkey and Qatar.

Li Tong, president of the bank’s investment banking unit, Bank of China International, said in June during the Arab-China Business Conference in Riyadh that the new branch in Riyadh would push for financial cooperation, and further boost economic cooperation between the two countries.

The bank has also been in discussion with local counterparts to offer panda bonds – yuan-denominated bonds sold by overseas entities in China’s onshore bond market to raise investments in China.

A number of other banking sector collaborations have also been announced this year.

In March, the Export-Import Bank of China announced a first loan cooperation with Saudi National Bank, Saudi Arabia’s largest bank, in yuan.

Hong Kong has also been named as a major hub for financial cooperation between China and Saudi Arabia.

In July, the Hong Kong Monetary Authority, the city’s de facto central bank, signed a memorandum of understanding with the Saudi Central Bank, pledging initiatives in financial infrastructure development, open market operations, market connectivity and sustainable development.

 

 

Crude oil prices take a dip despite supply cut by Saudi Arabia and Russia

Oil prices reversed course on Wednesday after rising over 1one percent in the previous session, on a firmer dollar and as investors shrugged off jitters arising from supply cuts from Saudi Arabia and Russia.

"The reason the market gave back half of the gains and is listless this morning, is because within the language of the joint announcement there is a caveat that these cuts will be reviewed on a monthly basis," said John Evans of oil broker PVM.

"This flexibility add-in allows for wiggle room, but the market smells a taper," he said, citing conditions like anti-inflation battles in the United States and other countries, whether crude prices near US$100 a barrel, or the effect on Saudi oil revenues.

Saudi Arabia and Russia on Tuesday extended their voluntary oil cuts to the end of the year 2023. While Saudi Arabia relinquished one million barrels per day (bpd), Russia agreed to cut 300,000 bpd. These are on top of the April cut agreed by several OPEC Plus members till end 2024.

Both countries will review their decisions monthly to consider deepening cuts or raising output depending on market conditions.

The rising oil prices could be restrained when crude demand dips as US refineries enter their September-October maintenance period, said Sugandha Sachdeva of Acme Investment Advisors.

Iranian crude supply rises could also hobble price gains. "Iran is producing close to 3.1 million bpd and plans to pump around 3.4 million bpd," ING Economics analysts noted.

 

Iran oil exports touch new high in August 2023

Iranian oil exports continued upward trend in August and reached 1.85 million barrels per day (bpd), Bloomberg reported, citing TankerTrackers.com which provides data on oil cargoes to governments, insurers and other institutions.

The increase in Iranian shipments comes in the same month that key OPEC Plus producers Saudi Arabia and Russia kept a lid on their own oil exports in a bid to tighten the market.

According to the TankerTrackers data, Iranian crude exports topped two million barrels a day in the first 20 days of August, the highest this year.

Iran has been steadily ramping up its oil production and exports this year, finding buyers for its supplies in Asia. The country’s production is now at the highest level since a ban on its exports kicked in five years ago, with US officials privately acknowledging they’ve gradually relaxed enforcement on some of the measures.

Earlier this month, SVB International, an energy consultant, estimated Iran’s oil production in August to be 3.15 million bpd, the highest since 2018.

“Iran is on the path to recover its pre-sanctions oil production,” said SVB’s Sara Vakhshouri, Business Recorder reported.

Analysts believe the higher exports of Iranian crude oil appear to be the result of the Islamic Republic’s success in evading US sanctions.

Back in August, Bloomberg reported that China’s oil imports from Iran were soaring in August so that the shipments were expected to reach 1.5 million bpd, the highest since 2013.

Citing estimates from data intelligence firm Kpler, Bloomberg put China’s imports of Iranian oil during the January-July 2023 period at 917,000 bpd on average.

In late July, Kpler said that Iran’s oil shipments to China have more than tripled over the past three years despite the U.S. sanctions on the country and the increase in Russia’s shipments to the Asian country.

According to the data analyzing firm, Iranian crude exports to its major trade partner have been hovering around one million bpd in 2023, while the figure was roughly 325,000 bpd in 2020.

Also, the International Energy Agency (IEA) in a recent report titled "Oil 2023" confirmed Iran's daily export of one million barrels of oil to China, saying, “Despite severe financial restrictions, Iran managed to increase its crude oil production by about 140,000 barrels per day in 2022 to an average of 2.5 million barrels per day. It seems that Tehran has maintained its crude sales to China, which has been around one million barrels per day since the third quarter of last year.”

Earlier in April, Bloomberg reported that “Chinese private refineries are buying more Iranian oil despite the rising competition for supplies from Russia.”

“So-called teapots are prioritizing the flows, with Russian supplies getting pricier as mainstream buyers such as state-owned Chinese refiners and Indian processors take a greater share,” the report read.

In March, China’s imports of Iranian crude and condensate jumped 20% month-on-month to 800,000 barrels a day, and are on track to extend gains in coming months, Emma Li, an analyst with data intelligence firm Vortexa Ltd told Bloomberg that month.

While Iranian oil has long been sanctioned by the U.S., refiners in China have proved to be a consistent outlet.

Most Iranian oil used to go to state-owned refineries but “the private refiners in Shandong especially are now running the show,” said Homayoun Falakshahi, senior crude oil analyst at Kpler.

 

Saudi Arabia, Russia extend production cuts

According to Reuters, Oil prices surged about 2% on Tuesday to their highest since November last year, after Saudi Arabia and Russia extended their voluntary supply cuts to the end of the year 2023, worrying investors about potential shortages during peak winter demand.

Brent crude futures rose by US$1.32, or about 1.5%, to US$90.32 a barrel by 1739 GMT. The global benchmark, used to price over three-quarters of the world's traded oil, rose to US$91.15 per barrel earlier in the session, its highest since November 17, 2022.

US West Texas Intermediate crude (WTI) futures rose US$1.49, or about 1.7%, to US$87.04 a barrel, after also hitting a 10-month high of US$88.07 earlier in the session.

Investors had expected Saudi Arabia and Russia to extend voluntary cuts into October, but the three-month extension was unexpected.

"Certainly the market was caught off-guard by the aggressiveness of their stance," said John Kilduff, partner at Again Capital LLC in New York.

Both Saudi Arabia and Russia said they would review the supply cuts monthly, and could modify them depending on market conditions.

"With the production cut extended, we anticipate a market deficit of more than 1.5 million barrels per day in 4Q23," UBS analyst Giovanni Staunovo wrote in a note to clients. UBS now expects Brent crude to rise to US$95 a barrel by end 2023.

Reflecting concerns about the short-term market supply, front month Brent and WTI contracts were also trading at their steepest premium since November 2022 to later-dated prices. This structure, called backwardation, indicates tightening supply for prompt deliveries.

Also supporting oil prices on Tuesday, Goldman Sachs said it now sees the probability of a US recession starting in the next 12 months at 15%, down from an earlier forecast of 20%.

Along with the Saudi supply cuts, which began in July, prospects of the US economy avoiding a hard recession have helped lift oil demand and prices in recent months.

Both Brent and WTI futures have gained more than 20% since the end of June this year.

 

 

Israel, Cyprus and Greece mull energy pacts

The leaders of Israel, Greece and Cyprus on Monday pledged to deepen energy cooperation and explore ways to get East Mediterranean gas to Europe, as well as connect electricity grids.

The eastern Mediterranean has yielded major gas discoveries in the past decade, mostly off Israel and Egypt, with interest rising since Russia's invasion of Ukraine hit flows to Europe.

"We will have to decide soon about how Israel exports its gas and the same decisions have to be made by Cyprus. We are looking at the possibility of cooperating on this," Israeli Prime Minister Benjamin Netanyahu told reporters in Nicosia after a tripartite summit with Greek Prime Minister Kyriakos Mitsotakis and Cyprus' President Nikos Christodoulides.

"Those decisions will be made, I think, in the next three to six months, probably closer to three months," he said.

Earlier this year, Cyprus suggested expediting gas to market by the creation of a short pipeline linking Israel's east Mediterranean gas fields to a liquefaction facility on Cyprus, which could then be shipped to Europe.

"We agree that natural gas and renewable energy is a prime pillar of cooperation in the region, especially in light of the recent geopolitical developments," Christodoulides said. "Especially in Europe, (it) dictates the need for energy diversification and increased interconnectivity," he said.

Netanyahu said Israel was also "eagerly pursuing" being part of a planned subsea electricity link. The European Union-supported EuroAsia Interconnector subsea cable is envisaged to carry up to 2,000 megawatts of electricity to eventually link grids from Israel and Cyprus to Greece.

"We would like to have it connected obviously to Israel, and possibly to the east of Israel," Netanyahu said.

The three countries have built strong bonds over the years, and Netanyahu said one direct example of economic bonding was through food.

"We like your food," he interjected off script as Mitsotakis finished speaking. "We like your dairy products. We like your yoghurt."

Netanyahu said authorities would soon open the country's dairy product market, which now protects local production with high import duties.

"We intend to open the dairy market very soon to Greek and Cypriot—and other—imports. May the best yoghurt win. You have a pretty good chance at winning."