Naphtha to put out the fire?

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India, Russia’s major energy client, would seem to have better information than others about the calamities that threaten to engulf the Kremlin in this war. With a certain disdain for the Russian military triumphalist verbiage, he has just made a singular proposal to Moscow: he asked it to sell him the oil with an extraordinary discountat an average of 70 dollars a barrel, almost 40 less than what the market says.

The Indian government claims that this liquidation price is fair because Russia is a country sanctioned by half the planet. That is to say, it warns him that there is an invoice behind the grotesque war adventure in Ukraine and you must pay it. Remarkable. It is worth imagining the conditions of China when it negotiates the same issue with Russia. But that’s secret between friends.

The synthesis is that the centrality of energy grows in the present and future of this war, an element even more powerful than that of the cannons. Nafta promising to put out the fire.

Remains of a Russian helicopter at the Gostomel airport, near kyiv. Photo EFE

It is not the first time that a similar derivation has occurred, although there are enormous differences. When Russia seized the Crimean peninsula in 2014, after annihilating with similar quotas of miscalculation and arrogance the influence it held over Ukraine, the Russian state-owned oil company Rosneft was left dying. under a rain of western sanctions, with an ocean of debts and without world credit.

The business

The rescue came from a powerful broker in the oil business, Trafigura Group, a leading trader in the business based in Singapore, with offices in Geneva and an Australian CEO.

“Armed with a giant balance sheet and easy access to funding from Western banks and the global bond market, Trafigura immediately saw the deal and pounced on Russia,” recall Joe Wallace and Eliot Brown in The Wall Street Journal.

They made a basic deal to buy large quantities of Russian oil and pay 25 days in advance, thus alleviating Rosneft’s cash shortage and renewing the credit circuit.

war russia ukraine east offensive

Trafigura became in the largest Western exporter of Russian crude as early as 2015leaving behind its two main competitors, Dutch Vitol Holding BV, also based in Geneva, and Switzerland’s Glencore.

It was the first step in a great corporate friendship between the middleman and state run by an ally and admirer of Putin, Igor Sechin. Among his entourage of executives is the former German Social Democratic president, Gerhard Schroeder, The man who brought down the German welfare state paving the way to power for Angela Merkel.

The two companies quickly became multipurpose partners. They bought an Indian oil refinery and the trader invested $8.4 billion in the vast Vostok Arctic oil field of the Russian state company in exchange for a 10% stake in the business. All financed by a Russian bank that took the risk of the operation with the guarantees of the Kremlin.

The losses

Trafigura moved an average of more than 500,000 barrels per day throughout 2021, according to specialized publications in the oil business.

Russian air strikes destroyed an oil depot in Dnipro.

Russian air strikes destroyed an oil depot in Dnipro.

The numbers involved were huge. But now the Swiss trader, and the other Western intermediaries, they just announced that they will remove Rosneft from world oil markets. The decision is so drastic that it widely exceeds the limits of the sanctions themselves.

What happened? When the Kremlin invaded Ukraine, world markets for Russian crude collapsed, and it could only be placed, saving many difficulties, with heavy discounts per barrel compared to Brent, the international benchmark. Trafigura’s business, which consisted of selling at a slight profit, it fell apart in an instant.

The clientele disappeared. But in the decision of that and the other intermediaries another more important factor weighed: the concrete information, which India also surely handles, about the terminal extremes to which Europe will advance in Russia’s oil embargo.

That future comprises another fact. According to International Energy Agency, Russian oil production began to decline from March to fall 7.5% in mid-April. It is expected that the year will end with a 17% cut. They will be the lowest levels since 2003.

One observation must be insisted upon. The pandemic and this war have proven in the global age the impossibility of depending on unpredictable suppliers. It is true that Russia has gained a lot from the increase in the price of crude oil and gas that triggered the conflict. Almost double the budget. But it is a short-lived achievement.

Nations are managed in terms of medium and long term. And what looks forward is not exactly comfortable. Last Wednesday the European Union announced a new package of sanctions but the essential message is that it has decided to ban all Russian oil imports for the next six months.

More sanctions

The offensive, the harshest to date, included the blocking of the swift system of the largest Russian bank, Sberbank, which had been excused earlier because it channeled fluid payments. It does not matter anymore.

“Let’s be clear, it will not be easy but we have to work on it,” said the president of the European Commission, Ursula von der Leyen in a message with the tones of Churchill against the Nazis, which was received with applause in the European Parliament in Strasbourg . A consensus point.

Ukrainian President Volodimir Zelenski who has managed to keep his country's spirits high.  AFP photo

Ukrainian President Volodimir Zelenski who has managed to keep his country’s spirits high. AFP photo

Is not wrong. The battle against the Kremlin’s oil will be a very damaging boomerang for the European economy, already hit by inflation that comes from the cost associated with the disease. A problem that also involves the US and that explains the last slight increase in rates, yes, but at its highest level in 22 years in an effort to try to offset a rising cost of living.

Russia is at the same crossroads with a rise of 17.3% in the annual rate, unprecedented in two decades. This distortion is reflected in domestic increases of 35% in water service, 77% in products such as sugar or up to 50% in vegetables.

Within that scenario there is another darker one that is famines whose risk was anticipated by the French leader Emmanuel Macron last March, This threat flutters with the crises in the universe of poor countries that depend on food grains and energy, imported commodities in general and in serious growth.

For some analysts, the European plan will not have a full effect because Hungary and Slovakia, two members with a great dependence on Russian oil imports, are opposed in one case or will have until December 2023 to ban the fuel, in the other. . Czech also asks for a more extensive transition.

But the attitude of these small countries should not reassure the Kremlin. They are not keys in the business. For illustrative purposes, it is worth noting that last year Russia supplied the EU with a quarter of its oil exports, and the Netherlands and Germany were the main buyers.

Today the Dutch government proposes to stop all imports of Russian fossil fuels by the end of this year and Germany has reduced its purchases of crude from that origin, from 35% to 12%. The UK, which is no longer in the EU, also removes oil from the Kremlin which accounts for 8% of its purchases.

The President of the European Commission, Ursula von der Leyen.  AFP photo

The President of the European Commission, Ursula von der Leyen. AFP photo

The crisis of the war in Ukraine in its effects exposes other points in common with the pandemic. Just as the global economic damage caused by the disease prompted the creation in record time of a variety of vaccines, most of them very efficient, this tragedy points to accelerate energy alternatives, including renewables, in periods that were previously considered unreal.

The EU is already building liquefied natural gas facilities in northern Greece that will come online early next year. Among the sources of the fluid is the US, Algeria, and Qatar, great ally of Iran in the gigantic South Pars-North Dome gas field in the Persian Gulf. They are heresies dictated by necessity.

Also on the maps is the trans-Adriatic gas pipeline that runs from the Turkish satellite Azerbaijan to Italy. A new pipeline linking the gas networks of Greece and Bulgaria will be launched next month.

Nuclear power, too, is back in fashion. France announced the construction of six new nuclear power plants. Also the UK.

On the side of new technologies, alternatives are being explored to obtain supplies of certain critical minerals that are dangerously concentrated in the hands of autocracies, he points out. The Economist.

Tesla, for example, is developing new rechargeable batteries for its electric cars with nickel that it will import from New Caledonia. This French territory in the Pacific has a proven tenth of the world’s mineral reserves and, by the way, much more importantly, an invaluable guarantee of predictability.
© Copyright Clarin 2022

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