Research & Insights #23

Semiconductors. On May 30, the Russian government decided to limit its exports of noble gases such as neon. Noble or inert gases, such as neon, argon or xenon, are essential to the semiconductor manufacturing process. Semiconductors compose the significant part of electronic devices (computers, tablets, smartphones) critical to the industry 4.0, aeronautics or automotive sector. Restricting these Russian exports could exacerbate the supply shortage on the global market. Ukraine was one of the world’s leading suppliers of noble gas until it suspended production at its plants in the cities of Mariupol and Odessa in March. According to ministry estimates, Russia accounts for 30 percent of the world’s supply of three noble gases: neon, krypton and xenon. After the European Union banned the export of semiconductors, machinery and other equipment to Russia in April, Moscow wants to remind the “unfriendly countries” that they also depend on Russian exports in the field of semiconductor manufacturing.

Oil & Gas. China and India have increased Russian oil purchases, allowing Moscow to secure export revenue. According to Refinitiv data, China imported 800,000 barrels of Russian oil per day by sea last month, which is a 40% increase in volumes compared to January. Russian seaborne oil imports by India have also risen from zero in January to nearly 700,000 barrels per day in May. China and India are taking advantage of the drop in Western demand due to the embargo on Russian oil to buy it massively at good prices. Russian Urals crude is currently trading at around US$90 a barrel compared with Brent, the international benchmark for crude, at around US$125. While Asia is buying more and more Russian crude, the European Union recently decided to block most of it by the end of the year.

Russian stock market. The possibility for non-residents to trade their securities on the Moscow Exchange (MOEX) in a special session is under discussion. According to Interfax, the largest exchange in Russia plans to launch a separate trading session for non-residents at the end of June. They could then buy and sell Russian securities for rubles. Since the crisis in Ukraine and the sanctions taken by the West, the Russian authorities have banned the sale of securities on behalf of non-residents as one of the first capital controls. For its part, the U.S. Treasury Department has just prohibited U.S. fund managers from buying any Russian debt or equity on the secondary markets. Until now, Americans were still allowed to trade hundreds of billions of dollars of assets already outstanding on the secondary markets. 

Food Crisis. While Ukraine and the West accuse Moscow of weaponizing food, Russia blames the situation on international sanctions against its economy and mining Ukrainian ports. Indeed, the main Ukrainian port, Odesa, is currently blocked. The Russian Foreign Minister is in Turkey to discuss unblocking grain exports from Ukraine. Opening a safety corridor for ships carrying grain is at the heart of the negotiations. The United Nations is also working on plans with Kiev and Moscow on how to restart grain exports. Russian Defense Minister Sergei Shoigu said two major Ukrainian ports on the Sea of Azov seized by Russian forces (Berdyansk and Mariupol) were ready to resume grain shipments. The Russian offensive in Ukraine has disrupted shipments of wheat and other commodities from both countries, raising concerns about the risk of food shortages and famine worldwide.

DISCLAIMER: The statements, views and opinions expressed in this article are solely those of the author and may not necessarily represent those of Equinox.