Research & Insights #39

Arctic LNG 2 shareholders prepare for US sanctions

The United States is seeking to ‘kill’ the Russian Arctic LNG-2 project implemented by Novatek. This was recently stated by US Assistant Secretary of State for Energy Geoffrey Pyatt. The sanctions would require shareholders (such as France’s TotalEnergies group and Japanese and Chinese companies) to sell their shares in the project company by January 31, 2024. The Arctic LNG 2 project, with a capacity of 19.8 million tonnes per year, is the first Russian LNG terminal to be directly blacklisted by the USA. In 2014, the United States imposed sectoral sanctions on Novatek, limiting its access to US dollar financing. The Arctic LNG 2 project company’s recent inclusion on the Specially Designated Nationals and Blocked Persons (SDN) list means that any entity or person interacting with it is at risk of sanctions, according to Energy Intelligence.

Russian oil is systematically sold above the price ceiling
In October, Russia exported almost all its oil shipments at a price above the ceiling imposed by the Group of Seven. According to a study by the KSE Institute, over 99% of Russian oil was sold at prices well above the US$60/barrel threshold set by the G7 countries almost a year ago. It is unclear whether the Western powers are ready to take further measures that could restrict Russian oil supply and push up its world price. Exports from Russia’s main ports reached an average price of US$79.40 a barrel at the point of export, according to the Institute. However, around 30% of crude oil transported by sea was covered by protection and compensation from G-7 and EU countries. Shipping companies and insurers must receive certificates from traders confirming that the cargo does not exceed the price ceiling. According to Bloomberg, they have no real way of verifying this, and Russian oil prices have been known to exceed the threshold for months.

BRICS to account for 45% of global GDP by 2040

In 2001, the group of emerging market economies known as BRICS (Brazil, Russia, India, China and South Africa) accounted for 19% of world GDP in purchasing power parity terms. In August 2023, the BRICS invited six more countries to join: Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the UAE. In purchasing power parity terms, the enlarged BRICS are already larger than the Group of Seven, which includes Canada, France, Germany, Italy, Japan, the UK and the USA. By 2022, the BRICS account for 36% of the world economy, compared with 30% for the group of advanced economies. Bloomberg Economics predicts that by 2040, this share will rise to 45%, compared with 21% for G-7 economies. The aim of this alliance is to overcome the domination of the United States, notably through dedollarization, and to develop alternative institutions to the International Monetary Fund and the World Bank, both centered in Washington.

Russian hedge fund Prosperity Capital leaves the UK
Russia-focused hedge fund Prosperity Capital Management is relocating its operations from London to Abu-Dhabi. According to bne IntelliNews, the company’s co-founder and CEO Mattias Westman stated that the UK’s decision to exit the European Union and the uncooperative business environment had triggered the decision. While international asset managers, hedge funds and pension plans are said to hold around US US$90 billion worth of shares blocked in Russian financial plumbing, Prosperity is probably the most exposed fund in terms of share of assets under management. The company has admitted that there remains “material uncertainty about the long-term future” of the funds it manages as a result of the war. The company managed around US$3.5 billion in assets before the conflict.

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