Russia has had record revenues from oil exports in the 115 days of the war in Ukraine: in May alone, receipts reached 20 billion. $20 billion - up from $15 billion last year - in May alone, according to the International Energy Agency, leading Vladimir Putin to declare last Friday that Western sanctions had failed to hurt the Russian economy while costing Europe $400 billion this year. The oil embargo announced by the European Union against Russia for later this year, combined with the economic sanctions it has imposed on Moscow along with the US and Britain, has led many energy companies operating in the European market to avoid trading in Urals crude since the early days of the war.
However, the Russians have managed to substitute exports to Europe with other markets to a very large extent: having to offer large discounts - even over The Russians have been China's biggest oil supplier since last month, up 55% year-on-year, undercutting the Saudis, but the most striking example is India: before the war in Ukraine it was buying just around 100,000 barrels of Russian crude a day.
Since the invasion and the sanctions that followed, Indian companies have increased their daily purchases from Russia tenfold; their refineries produce from it gasoline and diesel that are normally exported to the US, despite the fact that the Biden administration has announced that it has stopped sourcing oil and petroleum products from Moscow! Of course the "war of sanctions" is still in its infancy - economists continue to estimate that in the medium term the Russian economy will be badly hit. However no one knows how long this will take and until then the Western economies will be captive to inflation and Putin.
Sanctions and inflation
Prime Minister Kyriakos Mitsotakis has said several times that Europe must be careful that sanctions do not hurt it more than Russia and so far he seems to be vindicated: very large increases in oil and gas prices are pushing the rate of inflation into double digits in Europe and Greece. Economists estimate that 60% of the rise in inflation comes from the rise in energy prices; in fact, this is now the driving force behind the "lowering" of growth and the forced increase in interest rates.
Recall that the first inflationary wave had started last summer, when economies began to emerge from the coronavirus lockdown because global production - and especially China - had adjusted to the COVID data and there was no immediate capacity to respond to increased demand. However, the war in Ukraine caused huge increases in energy, increases that were fuelled by Moscow. On 18 June 2021, the price of gas on the European market was €19.6 per MWh.
A year later it is priced at €124.7, having appreciated by 60% in the last week due to cuts in flows from Russia to Europe. When did the price rise start? Last year, in early autumn, when the company that operated several of Germany's gas storage facilities, the largest in Europe, announced that they were almost empty, with winter approaching. For some reason that has not been adequately explained, Germany had entrusted the management of several gas storage facilities to a subsidiary of Russia's Gazprom and when the time came Putin used this 'gift' to artificially raise prices. The Germans nationalized Gazprom Germania at the start of the invasion of Ukraine, but it was a little too late
Could the same happen this year? The truth is that since the beginning of April, with the arrival of spring and lower demand for gas, Europe's total energy stocks started to rise, reaching 52% in June. However, they are starting to empty again. "Stockpiles were filling at a good pace," said Warren Patterson, head of commodity strategy at ING Bank. "However, that changed abruptly this week," he noted, adding that the 60% reduction in Nord Stream flow in recent days "is significant" for Europe.
The Russians cite "technical reasons" to justify the reduction in flow on a key pipeline like Nord Stream that brings gas to Germany via the Baltic Sea. They even accused Germany's Siemens of not providing the equipment needed to stabilize the gas flow because of the sanctions. However, Italian Prime Minister Mario Draghi called the Russian claims "lies": on Friday, Eni, the Italian energy behemoth, received half the amount of gas it requested from Gazprom, while the day before it had received two-thirds of the demand. Everyone suspects that Putin wanted to give a response to Mario Draghi's joint Mario Draghi Olaf Solts Emmanuel Macron appearance in Kiev, but experts warn that if the storage facilities are not filled in the summer, it is very likely that Europe will be forced to ration gas consumption in the winter.
Biden against the "oilmen"
During the early days of the war in Ukraine, there was a belief throughout Europe that the US had stayed out of the fire and would not face the same degree of inflationary pressures. The Fed's 75 basis point increase in the US interest rate last week to deal with inflation threatening to reach double-digit levels for the first time since the 1980s proves otherwise. In the US they measure gasoline consumption by the gallon, which is equivalent to 3.7 liters.
In June 2020 the average price of gasoline was at $2.1 per gallon, and a year later at $3.1 per gallon. Today the price has reached $5 per gallon, more than doubling in two years. A simple calculation shows that Americans are still paying EUR 1.28 per litre for their petrol - much cheaper than all Europeans - but they do not see it that way: The USA is one of the world's largest oil producers, but it has not yet reached pre-pandemic levels for various reasons, mainly due to the collapse in prices when the world economy was 'wiped out' by the coronavirus, which forced some 'oilmen' to abandon oil wells, if not permanently. Daily oil production in the US was at 11.6 million barrels in May, down from just under 13 million barrels before the pandemic.
And the dependence of average Americans on gasoline is much greater, especially in the summer, when millions travel within the US for vacations. On Wednesday, in an unusual move, Carine Jean-Pierre, the new White House spokeswoman, addressed the "oilmen" by declaring that it is their "patriotic duty" to increase production and reduce profits. This was preceded by Joe Biden himself, who sent a letter to the seven largest oil companies accusing them of reducing gasoline production during the war in order to raise prices and increase profits.
Ukraine has started seizing Gazprom assets
A day earlier, on Tuesday, Reuters had published a poll showing Biden with a very low approval rating (just 39%), with losses also among Democratic voters, just months before the November midterm elections, ballots where all House seats and 35 Senate seats will be decided, with the Biden administration in danger of losing control of one or both houses of Congress. In Europe, Emmanuel Macron renewed his term on the Champs Elysees amid the war in Ukraine, but now has to deal with fears of stagflation, since unlike Greece, which recorded 2.3% growth in Q1, the French economy contracted 0.2% in Q1 22 compared to the last quarter of 21 in both cases.
However, the big problem for the southern countries - and Greece - lies in the rise in government bond rates brought on by inflation. On this front, Greece is the least exposed country in the European South, with Italy being the champion of fear, having to refinance about €1 trillion of debt from the markets in 2022, at a time when its banks are overloaded with government bonds and will be driven to national elections in the spring of 2023 at the latest.
Source: protothema.gr
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