News round-up, April, 17, 2023
Most read…
Economy stumbled after banking crisis, stirring renewed recession fears
The White House sees resilience in labor market, dismisses concerns
TWP by David J. Lynch, April 16, 2023How Europe Can Best Stand Up To China
Europe has a plan for dealing with China without betraying our interests. Unfortunately, the leaders of Germany, France and other countries have so far failed to adopt it.
A DER SPIEGEL Editorial By Georg Fahrion in BeijingG7 ministers set big new targets for solar and wind capacity
As part of a commitment made last year to reach at least a "predominantly" decarbonized power sector by 2035, the countries are prioritizing "concrete and timely efforts" towards speeding the phase-out of "domestic coal power generation."
REUTERS by Katya Golubkova, and Yuka Obayashi/Editing by Germán & CoBrazil's Lula discusses joint Russia war mediation with China and UAE
President Luiz Inacio Lula da Silva said the two countries and others should join a 'political G20' to try to end the war, and accused the West of prolonging the conflict.
Le Monde with AFP, published yesterday at 3:17 pm (Paris)
Russia's Gazprombank deepens ties with Indian banks for bilateral trade
Gazprombank is the third-largest lender in Russia and a crucial link in the country's energy trade.
REUTERS by Nidhi Verma, Editing by Germán & CoSaudi Arabia, U.A.E. Scoop Up Russian Oil Products at Steep Discounts
Despite U.S. objections, petroleum-rich Gulf countries are capitalizing on cut-rate prices
TWSJ by Benoit Faucon and Summer Said, April 17, 2023 
“We’re living in a volatile world…
it’s easy to get distracted by things like changeable commodity prices or a shortage of solar panels. But this wouldn’t be true to our purpose – we can’t allow ourselves to lose sight of our end goal; said Andres Gluski, CEO of energy and utility AES Corp
Today's events
〰️
Today's events 〰️
A strong U.S. job market has supported steady consumer spending in the face of higher interest rates. (Matt Rourke/AP) / Editing by Germán & CoEconomy stumbled after banking crisis, stirring renewed recession fears
The White House sees resilience in labor market, dismisses concerns
TWP by David J. Lynch, April 16, 2023A strong U.S. job market has supported steady consumer spending in the face of higher interest rates. (Matt Rourke/AP)
The U.S. economy wobbled in the weeks following the collapse of Silicon Valley Bank, as consumers spent less, factories slowed their assembly lines and the nation’s bankers grew more cautious in making loans.
If those trends continue, the recession that many analysts have predicted for much of the past year will finally arrive in the coming months.
But throughout the recovery from the coronavirus pandemic, the $26 trillion U.S. economy has defied the odds, minting new jobs at a remarkable pace and avoiding the oft-predicted downturn. Like a prizefighter absorbing a punch, it may yet recover its balance and persevere.
The news on Friday, however, was not great. Retail sales fell for the second straight month, as Americans bought fewer cars, clothes and pieces of furniture. Manufacturing output dipped. And commercial bank lending rose only slightly after two weeks of declines. New business loans in March increased by just $30 billion, the smallest monthly gain since mid-2021, when the pandemic was gathering force, according to the Federal Reserve.
“I think it’s increasingly likely we’ll end up with some form of recession,” said Gregory Daco, chief economist at EY Parthenon. “We’re seeing more and more evidence of a slowdown in economic activity.”
Global economy faces weakest growth patch since 1990s
Aftershocks from the recent banking turmoil make a recession more likely, Jamie Dimon, chief executive of JPMorgan Chase, the nation’s largest bank, told analysts Friday. The sudden failure of two U.S. banks and the takeover by a European rival of Credit Suisse, a global titan, left other institutions more cautious about extending credit.
“Obviously, there's going to be a little bit of tightening,” he said. “So I just look at that as a kind of a thumb on the scale. It just makes the finance conditions be a little bit tighter, increases the odds of a recession.”
That view is shared by Fed staff economists, who anticipated a “mild recession starting later this year,” according to minutes of the central bank’s March 21-22 meeting, which were released this month. Citing fallout from banking industry woes, Fed experts said the economy was slowing faster than they had anticipated in January.
Their forecast of continued softening was not enough to keep the Fed from raising interest rates again. Fed Chair Jerome H. Powell has said higher credit costs will reduce the pressure on prices by slowing business activity and cutting demand for labor.
The Fed has raised rates over the past year from near zero to almost 5 percent, its fastest such move since the early 1980s. So far, the labor market has been resilient, adding more than 1 million new jobs over the past three months and driving unemployment among African Americans to a historic low.
But as the full effects of higher interest rates make themselves felt, workers will pay the price. Employment in construction — among the industries most sensitive to credit costs — fell last month for the first time since the end of 2021.
Over the next year, the Fed anticipates the unemployment rate rising to 4.6 percent from the current 3.5 percent. Some economists worry the Fed will overdo its monetary tightening, just as more Americans are starting to enjoy the benefits of a full-employment economy.
“If we get a recession, it is the Fed’s fault,” said William Spriggs, chief economist for the AFL-CIO. “There is nothing else on the horizon that gets us a recession.”
The economy has shrugged off earlier bouts of weakness, including in 2022 when it shrank for two consecutive quarters to open the year. New jobs remained abundant during that period and growth swiftly resumed.
Likewise, even as analysts mark down their expectations for corporate earnings this year, some businesses remain upbeat. At Delta Air Lines, executives told investors last week that they anticipate strong consumer travel demand this summer.
“We see strength in all of our core hubs,” said Glen Hauenstein, Delta’s president.
Heartland lawmakers push bans on Chinese purchases of American farmland
Economists at Goldman Sachs said Friday that they see just a 35 percent chance of recession in the next 12 months. The latest inflation report — showing prices rising at a 5 percent annual pace — means the Fed will probably raise interest rates at its May meeting and then pause, the bank said.
For the past three years, as the economy has weathered a global pandemic, war in Europe and the highest inflation in 40 years, forecasts have often missed the mark.
But so far this year, the stock market has been largely unfazed by recession fears. The S&P 500 index has gained more than 7 percent.
Biden administration officials also insist the economy is not flagging. In public appearances this month, officials said the banking system remained sound in the wake of Silicon Valley Bank’s failure; inflation is cooling; and the labor market is strong.
Latest crisis to hit U.S. economy illustrates the costs of complacency
The Federal Reserve Bank of Atlanta’s real-time tracker pegs first-quarter growth at an annual rate of 2.5 percent.
“Recent economic indicators are not consistent with a recession or even a prerecession,” White House press secretary Karine Jean-Pierre said on Thursday.
The bond market, however, has been flashing a warning. Short-term bonds offer investors a higher yield, or interest rate, than do longer-term securities, suggesting that investors anticipate an eventual recession.
Friday’s report card on the nation’s factories also reflected weakening. Manufacturing output in March dropped 0.5 percent from February, with motor vehicle factories particularly hard hit. The dip suggests that U.S. production has gained little from China’s reopening, Capital Economics said in a client note.
The economy’s performance for the rest of this year hinges on two players: the consumer and the banks.
Consumer spending accounts for nearly 70 percent of the economy. For much of the pandemic, Americans stuck at home splurged on purchases of electronics, furniture, clothes and other goods. As the nation reopened for businesses, they began devoting more of their money to in-person experiences, such as restaurant dining and visits to movie theaters.
At first, government stimulus payments enabled consumers to accumulate $2.4 trillion in above-trend savings, according to Daco’s estimate. That pile of excess cash now is down to about $1.4 trillion and the share of consumers who are delinquent on their credit cards is rising, meaning the end of the consumption boom is drawing near.
Just when it will arrive is unclear. Despite the head winds, consumers have more money in their pockets as a result of the strong labor market. Inflation-adjusted disposable income has increased for eight consecutive months, its best streak in almost five years.
“A recession is still very far from inevitable,” said Jason Furman, who was President Barack Obama’s top economic adviser. “In the U.S., real incomes actually are growing even as consumers run out of excess savings. Labor earnings are rising in a way that can support consumption.”
No place to hide for global investors facing mounting political risks
The big worry now is how banks react to the turmoil that convulsed the industry after the March 10 collapse of SVB, followed two days later by the failure of another midsize institution, Signature Bank of New York.
The worst fears of an unchecked financial contagion have eased. The rush by depositors’ to move their money from similarly sized banks to one of the industry’s giants, such as JPMorgan Chase or Citigroup, has tapered off. And bank demand for emergency Fed loans fell for the fourth straight week, as worries about broader problems eased.
The economic damage from the banks’ missteps could prove more consequential.
Even before the crisis erupted, lenders had begun tightening their credit standards. In the weeks since the failures, commercial banks have cut back on lending.
In the last three weeks, commercial loans fell by more than $94 billion, according to Fed data. Much of that reflects a bookkeeping change related to the Federal Deposit Insurance Corporation’s seizure of the failed institutions. But about $34 billion probably reflects an actual drop in lending.
Small businesses already are feeling the first squeeze from the credit crunch. In March, 9 percent of business owners said loans were harder to obtain, the highest figure in several years, according to the National Federation of Independent Business. Credit is available but at interest rates around 8 percent.
Some tightening by banks would help the Fed fight inflation. But if banks tighten too much, economic growth could sink.
Investors expect the Fed to raise rates at its May meeting and then stop. The extent of any emerging credit crunch could determine whether the market is correct.
French President Emmanuel Macron in Beijing with Chinese President Xi Jinping. Foto:Thibault Camus / AFP / Editing by Germán & CoHow Europe Can Best Stand Up To China
Europe has a plan for dealing with China without betraying our interests. Unfortunately, the leaders of Germany, France and other countries have so far failed to adopt it.
A DER SPIEGEL Editorial By Georg Fahrion in BeijingThere it is, finally: a strategic blueprint on how Europe should deal with authoritarian China. And what does one of the most powerful men on the Continent do with it? He torpedoes it, at least for now.
Officials in Beijing courted French President Emmanuel Macron last week, and he returned the favor with remarks that delighted his authoritarian hosts. On his return flight to Paris, he warned that Europe cannot allow itself to degenerate into a vassal of the United States. A possible escalation of the Taiwan conflict, he said, is "not ours," sending a devastating message. His China trip turned into a debacle.
But Macron had been accompanied to Beijing by a woman who at least knows how things could have been handled. European Commission President Ursula von der Leyen recently gave a remarkable speech in which she sketched the outlines of a modern China policy more clearly than any leading European politician has done before her.
Whereas Germany has for too long believed the China would transform itself into a liberal state through trade, von der Leyen recognizes the country is "becoming more repressive at home and more assertive abroad." She sees how relentlessly China is in its desire to make the world increasingly dependent on it. And she is right to say that state and party leader Xi Jinping wants to transform the international system with the goal of placing China at its center.
Wisely, von der Leyen’s conclusion is not that Europe should adopt the American concept of "decoupling." An economic decoupling would neither be desirable nor feasible, at least not with a daily trade volume of almost 1 billion euros and thousands of European companies operating their own subsidiaries and factories in China. Not every screw or kitchen appliance traded with China immediately endangers Europe’s interests.
Rather than "decoupling," von der Leyen is calling for "de-risking," the reduction of risks arising from dependencies. It’s a clever device that allows Europe to keep open its dialogue with China. And, of course, the cultural, scientific and political exchange must also continue.
In sensitive areas like quantum computing, artificial intelligence and biotechnology, the EU should not cooperate with China.
Europe should impose higher barriers in areas where China violates free competition or there are sensitive security issues. Companies that are provided with unfair subsidies must be barred from doing certain business in the EU. In sensitive areas like quantum computing, artificial intelligence and biotechnology, the EU should not cooperate with China.
The European Commission president is also right to question the previously negotiated investment agreement. Rather than deeper ties with China, what is needed is closer cooperation with other countries similar to the EU member states. This is the only way that Europe’s economy can open itself up to new sources of raw materials and markets.
So, if the EU wants to gain "strategic autonomy" vis-à-vis China, as Macron is calling for, then he should simply take his cue from von der Leyen.
Leaders in other European capitals could be bolder when it comes to going up against Xi Jinping. But their fear of being punished by Beijing runs too deep. China is very skillful at playing to the appetites of individual prime ministers and presidents. They are too tempted to create advantages for their own industry. Corporate bosses’ influence on governments is also too considerable. Volkswagen, BMW, Daimler and BASF, in particular, have exposed themselves to the Chinese market to a frightening extent and are unlikely to be able to do much extract themselves.
Allowing China to access critical infrastructure in Germany is the complete opposite of a "de-risking" strategy.
For Europe to adopt a strong position vis-à-vis Beijing, it needs to act in a united and disciplined manner. But Macron’s trip to China demonstrates once again that this is precisely what is lacking. From the Germans, too.
During his inaugural visit to Beijing in November, German Chancellor Olaf Scholz managed to find clear words on Taiwan and the human rights violations in Xinjiang. Yet he still considers the plan by the Chinese shipping company Cosco to acquire part of the Port of Hamburg to be perfectly acceptable. Allowing China to access critical infrastructure in Germany is the complete opposite of a "de-risking" strategy.
German Foreign Minister Annalena Baerbock, who arrived in China on Thursday, is taking a harder line, but she has proven unable to prevail against Scholz. The disunity within the German government is another reason why a smart European China policy is failing.
The EU cannot afford to be wayward on this issue. Because one thing should be clear to everyone: The strong man on the other side, Xi Jinping, knows exactly what he wants.
Japan's Minister of Economy, Trade and Industry Yasutoshi Nishimura, Environment Minister Akihiro Nishimura and other delegates attend the photo session of G7 Ministers' Meeting on Climate, Energy and Environment in Sapporo, Japan April 15, 2023, in this photo released by Kyodo. Mandatory credit Kyodo via REUTERSG7 ministers set big new targets for solar and wind capacity
As part of a commitment made last year to reach at least a "predominantly" decarbonized power sector by 2035, the countries are prioritizing "concrete and timely efforts" towards speeding the phase-out of "domestic coal power generation."
REUTERS by Katya Golubkova, and Yuka Obayashi/Editing by Germán & CoSAPPORO, Japan, April 16 (Reuters) - The Group of Seven rich nations on Sunday set big new collective targets for solar power and offshore wind capacity, agreeing to speed up renewable energy development and move toward a quicker phase-out of fossil fuels.
But they stopped short of endorsing a 2030 deadline for phasing out coal that Canada and other members had pushed for, and left the door open for continued investment in gas, saying that sector could help address potential energy shortfalls.
"In the midst of an unprecedented energy crisis, it's important to come up with measures to tackle climate change and promote energy security at the same time," Japanese industry minister Yasutoshi Nishimura told a news conference.
"While acknowledging that there are diverse pathways to achieve carbon neutral, we agreed on the importance of aiming for a common goal toward 2050," he said.
G7 ministers finish two days of meetings on climate, energy and environmental policy in the northern Japanese city of Sapporo on Sunday. Renewable fuel sources and energy security have taken on a new urgency following Russia's invasion of Ukraine.
"Initially people thought that climate action and action on energy security potentially were in conflict. But discussions which we had and which are reflected in the communique are that they actually work together," said Jonathan Wilkinson, Canada's minister of natural resources.
In their communique, the members pledged to collectively increase offshore wind capacity by 150 gigawatts by 2030 and solar capacity to more than 1 terawatt.
They agreed to accelerate "the phase-out of unabated fossil fuels" - the burning of fossil fuels without using technology to capture the resulting C02 emissions - to achieve net zero in energy systems by 2050 at the latest.
On coal, the countries agreed to prioritise "concrete and timely steps" towards accelerating the phase-out of "domestic, unabated coal power generation", as a part of a commitment last year to achieve at least a "predominantly" decarbonised power sector by 2035.
Japan's Minister of Economy, Trade and Industry Yasutoshi Nishimura, Environment Minister Akihiro Nishimura and other delegates attend the photo session of G7 Ministers' Meeting on Climate, Energy and Environment in Sapporo, Japan April 15, 2023, in this photo released by Kyodo. Mandatory credit Kyodo via REUTERS
Canada was clear that unabated coal-fired power should be phased out by 2030, and Ottawa, Britain and some other G7 members committed to that date, Canada's Wilkinson told Reuters.
"Others are still trying to figure out how they could get there within their relevant timeframe," Wilkinson said.
"We are trying to find ways (for) some who are more coal-dependent than others to find technical pathways how to do that," he said.
'HUGE STATEMENTS'
"The solar and wind commitments are huge statements to the importance that they will rely on the energy superpowers of solar and wind in order to phase out fossil fuels," said Dave Jones, who is head of data insights at energy think tank Ember.
"Hopefully this will provide a challenge to Japan, for which offshore wind is the missing part of the jigsaw that could see its power sector decarbonise much quicker than it thought possible."
Host country Japan, which depends on imports for nearly all its energy needs, wants to keep liquefied natural gas (LNG) as a transition fuel for at least 10 to 15 years.
The G7 members said investment in the gas sector "can be appropriate" to address potential market shortfalls provoked by the crisis in Ukraine, if implemented in a manner consistent with climate objectives.
They targeted 2040 for reducing additional plastic pollution to zero, bringing the target forward by a decade.
Seaboard: pioneers in power generation in the country
…Armando Rodríguez, vice-president and executive director of the company, talks to us about their projects in the DR, where they have been operating for 32 years.
More than 32 years ago, back in January 1990, Seaboard began operations as the first independent power producer (IPP) in the Dominican Republic. They became pioneers in the electricity market by way of the commercial operations of Estrella del Norte, a 40MW floating power generation plant and the first of three built for Seaboard by Wärtsilä.
Image: Germán & Co by Shutterstock, São Paulo, Brasil - 08, 20, 2022Brazil's Lula discusses joint Russia war mediation with China and UAE
President Luiz Inacio Lula da Silva said the two countries and others should join a 'political G20' to try to end the war, and accused the West of prolonging the conflict.
Le Monde with AFP, published yesterday at 3:17 pm (Paris).
UAE President Sheikh Mohamed bin Zayed al-Nahyan and Brazil's President Luiz Inacio Lula da Silva at an reception at Qasr al-Watan in Abu Dhabi, on April 15, 2023. RYAN CARTER / AFP
Brazil's president on Sunday, April 16, said he had discussed joint mediation for Russia's war in Ukraine with China and the United Arab Emirates, accusing the United States and Europe of prolonging the conflict.
President Luiz Inacio Lula da Silva, who was wrapping up an official visit to China and the UAE after returning for a third term in office, said the two countries and others should join a "political G20" to try to end the war.
The veteran leftist, who has faced accusations of being overly cosy with Russian President Vladimir Putin, also remarked that the war was caused "by decisions made by two countries."
"President Putin doesn't take any initiatives to stop the war. (President Volodymyr) Zelensky from Ukraine doesn't take any initiatives to stop the war," Lula, speaking through an official translator, told reporters in Abu Dhabi. "Europe and the US continue to give their way of contribution to continue the war. So they have to sit around the table and say, 'That's enough'."
While in China, Lula accused Washington of "encouraging" the war by supplying weapons to Ukraine. He also lashed out at the dollar's dominance in global trade, calling for a new currency for transactions between the BRICS countries – Brazil, Russia, India, China and South Africa.
Biofuel deal
The 77-year-old said he spoke to UAE President Sheikh Mohamed bin Zayed Al Nahyan and Chinese President Xi Jinping about forming a group of countries to mediate, styled after the G20 group of advanced economies.
"The G20 was formed to bail out the (world) economy that was in crisis," Lula said. "Now it's important to create another kind of G20 to end this war and establish peace. This is my intent and I think that we'll manage to have great success."
"Yesterday I talked to the sheikh about the war. I talked to Xi Jinping about the war. And I think that we're meeting a set of people that prefer to talk about peace than war. And so I think we're going to have success."
Lula said he had already discussed his initiative with US President Joe Biden, German Chancellor Olaf Scholz, French President Emmanuel Macron and the leaders of some South American countries.
Despite his comments about the US, the 77-year-old, who returned to power in January after serving two terms from 2003 to 2010, is also seeking closer ties with Washington. His visit to China and the UAE, postponed by a bout of pneumonia, came after a meeting with US President Joe Biden in February.
Unlike Western powers, neither China nor Brazil has imposed sanctions against Moscow over Russia's February 2022 invasion of Ukraine. The UAE has maintained a neutral stance in the conflict.
A view shows a board with the logo of Gazprombank at the St. Petersburg International Economic Forum (SPIEF) in Saint Petersburg, Russia June 16, 2022. REUTERS/Anton Vaganov/File Photo, EDITING BY GERMAN & CORussia's Gazprombank deepens ties with Indian banks for bilateral trade
Gazprombank is the third-largest lender in Russia and a crucial link in the country's energy trade.
REUTERS by Nidhi Verma, Editing by Germán & CoA view shows a board with the logo of Gazprombank at the St. Petersburg International Economic Forum (SPIEF) in Saint Petersburg, Russia June 16, 2022. REUTERS/Anton Vaganov/File Photo
NEW DELHI, April 17 (Reuters) - Russia's Gazprombank has expanded its links with banks in India to expedite trade between the two countries in national currencies, a key executive told Reuters on Monday, as Russia this year has become the biggest supplier of oil to India.
Trade between India and Russia has surged since the West imposed sanctions against Russia for its invasion last year of Ukraine, which has altered flows of oil and other goods.
"We worked hard to establish our level of partnership with Indian banks and our representatives here worked hard," Elena Borisenko, deputy chairman of the board of management of Gazprombank, told Reuters on the sidelines of an India-Russia business dialogue event in New Delhi on Monday.
"Now we have infrastructure, we have payments from banks ... it is much better than it was three months ago," she added.
Gazprombank is Russia's third-largest lender by assets and a key conduit of the Russian energy trade.
Due to higher purchases of oil, the trade balance is tilted increasingly in favour of Russia. That balance could be improved through Russian companies investing in infrastructure projects in India, Borisenko said.
"We are hoping that it (trade) will be better, it will be improving, and ... payments between Russia and Indian will be more and more in national currencies," the executive said.
India last year implemented a broader framework to facilitate overseas trade in rupees and since then many foreign banks, including Gazprombank and other Russian institutions, have opened vostro accounts with Indian banks.
Image: Germán & CoCooperate with objective and ethical thinking…
At Fujairah, the United Arab Emirates’ main oil-storage hub, Russia now accounts for more than one in 10 barrels of gas oil. PHOTO: KARIM SAHIB/AGENCE FRANCE-PRESSE/Editing by Germán & CoSaudi Arabia, U.A.E. Scoop Up Russian Oil Products at Steep Discounts
Despite U.S. objections, petroleum-rich Gulf countries are capitalizing on cut-rate prices
TWSJ by Benoit Faucon and Summer Said, April 17, 2023 As Russia scours the globe for buyers of its energy products, it is finding eager trade partners in an unlikely place: The oil-rich petrostates of the Persian Gulf.
Since Western sanctions over the war in Ukraine cut off Russia from many of its established trading partners, state companies from Saudi Arabia and the United Arab Emirates have stepped in to take advantage of discounted prices for Russian products, according to oil executives and industry analysts.
Despite U.S. objections, the Gulf countries are using the discounted Russian products internally, including for consumption and refining purposes, and exporting their own barrels at market rates, boosting their profits.
The Gulf countries, especially the U.A.E., have also become key storage and trading hubs for Russian energy products that can’t be as easily shipped around the globe because of the war.
The counterintuitive shift, in which countries with the world’s largest reservoirs of oil are eager buyers of more, is an illustration of the unexpected consequences of Western sanctions and another example of the U.S.’s waning influence over the Middle East.
Russian oil exports to the U.A.E. more than tripled to a record 60 million barrels last year, according to data-commodity provider Kpler. By contrast, Russian oil exports to Singapore, another large trading hub, only rose 13% to 26 million barrels in 2022, according to Kpler.
Russia now accounts for more than one in 10 barrels of gas oil stored in Fujairah, the U.A.E.’s main oil-storage hub, second only to Saudi Arabia, according to Argus Media, a market-data provider.
Russia is shipping 100,000 barrels a day to Saudi Arabia, according to Kpler, compared with virtually none before the war. That would equate to more than 36 million barrels annually.
The Saudi and Emirati trade in Russian oil and fuel products has drawn scrutiny from U.S. officials, who argue that it undermines Western efforts to tighten the screws on the Kremlin’s revenue streams.
The Treasury’s Undersecretary Brian Nelson toured the Middle East in February to try to persuade countries such as Saudi Arabia, the U.A.E., and Turkey to enforce the Western sanctions against Russia.
The U.S. Treasury and Saudi royal court didn’t return requests for comment, while the Emirati Foreign Ministry said it couldn’t immediately comment.
There are no signs yet that the Gulf countries are turning off the spigot of Russian oil, analysts say.
Saudi Arabia is increasingly pursuing a nationalist energy policy that takes precedence over U.S. concerns. Saudi and its allies earlier this month announced an oil production cut aimed at boosting prices, going against U.S. objections that higher prices aid the Russian war machine.
The U.A.E. has adopted a neutral stance in the war, despite its longstanding security partnership with the U.S. After the Ukraine invasion, Dubai and other emirates have become an international hub of choice for many Russian companies and wealthy individuals seeking to run their businesses and protect their money while avoiding sanctions.
But the oil trade is perhaps the most sensitive aspect of the burgeoning bilateral relationship.
Because of price caps and other sanctions, Russia’s flagship Urals crude has typically traded at a discount of over 30% to benchmark Brent in recent months.
The arbitrage available for Gulf countries is especially pronounced in refined products such as naphtha, fuel oil and diesel. They are abundant in the Gulf “so the only reason for importing from Russia is to capitalize on the price difference,” said Elshan Aliyev, head of the Mideast Gulf product department at Argus.
Russian naphtha and diesel respectively sell $60 and $25 a ton below their equivalent produced in the Persian Gulf, he said.
In the past year, Saudi Arabia has ramped up its diesel exports to France and Italy, two countries that previously relied largely on Russia for their motor fuel, Kpler data shows.
Moscow is “pretty much satiating the [Saudi] domestic market with discounted transportation fuels and freeing up volumes for subsequent diesel exports elsewhere,” said Viktor Katona, a Russia-focused analyst at Kpler.
On March 12, Saudi national oil company Saudi Arabian Oil Co., or Aramco, reported record annual profit of $161 billion for 2022, the largest ever by an energy firm. That included a 27% boost to profits for the state-run giant’s refining unit.
Aramco declined to comment.
Meanwhile, the U.A.E. has become a major storage and re-export hub for Russian oil products, while some traders are making a brisk business shipping Moscow’s cargoes to other destinations using the Gulf nation and its financial system as a base.
Private trading firms import from Russia to the U.A.E. mostly for re-export purposes to Pakistan and Sri Lanka or East Africa, said Mr. Aliyev.
Some of Russia’s discounted oil cargoes are scooped up by Emirati state-run companies, including five shipments of gasoline to the Dubai-based Emirates National Oil Co. since December. In November, a cargo of 700,000 barrels of Arctic crude oil loaded by Russian government giant Gazprom PJSC was delivered to a refinery of the Abu Dhabi National Oil Co., which is owned by the emirate, Kpler data shows.
ENOC and ADNOC didn’t return requests for comment.
Some transactions appear to be designed to be discreet, avoiding the scrutiny of banks and insurers involved in the trade and also because dealing with Russia is politically sensitive.
Aramco has often been buying oil cargoes that were initially sold by Rosneft Oil Co., a Russian oil company sanctioned by the U.S. But the shipments were carried through transshipments in the Mediterranean, sometimes using Emirati intermediaries and then stored in the U.A.E. rather than delivered directly to Saudi Arabia.
Last year, Rosneft was the main source of Russian oil products entering the U.A.E., Kpler data shows. The Russian state-controlled company, which is headed by key Putin ally Igor Sechin, has been accused by Ukraine of supplying subsidized fuel to Russian forces fighting in Ukraine. Rosneft has denied the allegation.
Aramco has been buying Russian fuel oil using Fujairah, rather than Saudi ports, according to a Saudi official and Kpler data.
In a case in point, a vessel loaded a cargo of vacuum gas oil—a precursor of gas oil—owned by Rosneft in the Russian Black Sea port of Tuapse on Sept. 11, according to data from Kpler, MarineTraffic and OPIS.
Rosneft then sold its cargo of 207,000 barrels to an intermediary company, U.A.E.-based Tejarinaft FZCO, which transferred it to an Aramco-chartered tanker offshore Kalamata, Greece, on Sept. 19, according to Kpler. The Saudi oil giant then stored the shipment at a commercial storage tank in Fujairah on Nov. 8, the data shows.
Tejarinaft and Rosneft didn’t return a request for comment.
Companies that trade mostly or exclusively Russian products have also set up shop in the trading hubs of the Emirates despite the shipments taking place elsewhere.
Coral Energy and Petroruss, which are both registered at the Dubai Multi Commodities Center, have handled dozens of shipments from the Russian Black Sea to Turkey, Tunisia and even Europe since the war started, according to commodity-data providers Kpler and OPIS.
Coral, which has previously said it would stop handling Russian oil at the start of 2023, and Petroruss didn’t return a request for comment.
OPIS is an energy-data and analytics provider that is part of News Corp’s Dow Jones, publisher of The Wall Street Journal.
Last year, Russia’s largest oil-tanker company, Sovcomflot, transferred its operations to Dubai away from St. Petersburg in Russia and Cyprus, which is enforcing European Union sanctions.