Oil trading above $90 a barrel for the first time in 2023
Oil reached its highest level of the year after rising on the back of OPEC+ supply cuts.
Brent crude, the international benchmark, was up 1.2% at US$90.04 on September 5. US West Texas Intermediate was up similarly at US$86.69. Saudi Arabia recently announced that it would extend its voluntary output cut of 1 million barrels per day through the end of December. Russia also extended its voluntary reduction in oil exports by 300,000 barrels per day until the end of the year. The move is likely to revive fears of global inflation at a time when much of the world is facing rising energy costs. Saudi pressure for US$100 oil is a new headache for the Biden administration. The rise in energy prices comes at a time when the US President is putting his economic record at the heart of his re-election campaign. Joe Biden has used the Strategic Petroleum Reserve (SPR) to ease the pressure on prices, but reserves are already half depleted, the lowest level for 40 years.
Talks between Putin and Erdogan fail to produce new grain deal
The meeting between the Turkish and Russian presidents in Sochi on September 4 failed to produce a new agreement on cereals. Vladimir Putin said that Western claims that Russia had caused a food crisis by suspending its participation in the grain agreement were wrong, as prices had not risen as a result of Russia’s exit from the agreement. Moscow claims that restrictions on payments, logistics and insurance have hampered shipments. One of Moscow’s key demands is that the Russian Agricultural Bank be reconnected to the SWIFT international payment system. Mr. Putin said that a plan to supply up to one million tons of Russian grain to Turkey at reduced prices, for further processing in Turkish factories and shipment to countries most in need, was not an alternative to the grain agreement. The United Nations is ready to agree to all of Russia’s conditions for the resumption of the grain deal, the Bild newspaper said with reference to a confidential letter from UN Secretary-General Antonio Guterres to Russian Foreign Minister Sergey Lavrov dated August 28.
Europe gets poorer, Russia’s friends get richer
The Bank of Canada has published a study on the impact of economic sanctions on three types of country: sanctioning countries, the sanctioned country and non-sanctioning countries. The analysis shows that the welfare losses of the sanctioned country are considerably attenuated, and the losses of the sanctioning countries are amplified, if third countries do not join the sanctions, but above all the latter gain by not joining them. Calculations show that if more countries were to join the restriction on Russian gas purchases, Russia’s GDP growth could fall by 9%. However, as long as only European countries comply with the measures, Russia’s GDP per capita is only reduced by 4%. This probably explains why, this week, representatives of the United States, Britain and the European Union plan to jointly pressure the United Arab Emirates to stop supplying products to Russia, according to the WSJ. Western officials complain that requests to halt exports to Russia have been largely ignored. Asked about this, a UAE official stressed that his country strictly complied with international law.
Russia overtakes Germany to become the world’s fifth-largest economy
According to the World Bank, in purchasing power parity (PPP) terms, Russia has just overtaken Germany to become the fifth-richest economy in the world, and the largest in Europe, with a value of US$5,300 billion. Analyzing GDP in terms of purchasing power parity makes it possible to compare data between countries whose currencies do not have the same value. It takes into account the fact that the same amount of money does not represent the same wealth in different countries. Even PPP estimates underestimate the strength of the Russian economy, argue some academics. In recent decades, Western economies have seen a rapid increase in the importance of services, whereas the Russian economy remains heavily focused on manufacturing and industry. In wartime, having a large industrial base is a considerable advantage, as the speed with which a country can produce weapons is a key factor in combat. In this sense, Russia is even more important than Germany, which is not an insignificant industrial country, according to Jacques Sapir’s research.