Algeria vs Spain
Here’s a Tweet that caught my eye just as the EU wants to look outside Russia for oil and gas supply.
Palm Oil
That’s about food, not energy, but everything is related.
Russia is “Only” Nonsense
Reminders
- Reminder: Russian energy exports to Europe is about 20% of Russia’s GDP, but 1.6% of EU GDP
- Counter Reminder: “The blind macro-economists who only see the dollar-equivalent of Russia’s GDP may well conclude that Russia is a small country.”
The counter reminder is from Eurointelligence founder Wolfgang Münchau in After Pestilence and War Comes Famine.
Russia, Ukraine and Belarus together are absolutely critical for the global food supply chains. The price of nitrogen-based fertilisers has gone up from $200-300 per tonne to $1700.
Hyper-globalisation has made us so interdependent that we have become limited in our ability to slap sanctions on any country that forms a critical part of global supply chains.
The blind macro-economists who only see the dollar-equivalent of Russia’s GDP may well conclude that Russia is a small country. But what they do not see is that the world food supply is dependent on it.
Janet Yellen Issues “Call to Action” Over Food Shortages and Soaring Fertilizer Prices
I discussed the above Eurointelligence quotes in Janet Yellen Issues “Call to Action” Over Food Shortages and Soaring Fertilizer Prices
Dear Janet Yellen
- Have you thought through your call to action on food?
- Have you thought through sanctions?
- Do you have any idea what prolonging the war for another year means?
- What will free fertilizer and free food to Africa mean to fertilizer prices here?
- What about energy policy, natural gas used in fertilizers, and minerals (from Russia and China) needed to decarbonize?
- What about de-globalization and USA first (every country for itself first)?
- Is more “free money” really the solution to anything?
- Soft Landing? Really?
The above take was just about food.
It’s absurd to think the European economy would not crash if Russia cut off gas supplies or Europe cut off gas supplies.
Russia shuts off gas supplies to Poland and Bulgaria
CNN reports Russia shuts off gas supplies to Poland and Bulgaria
Russian state energy giant Gazprom said in a statement Wednesday that it had fully halted supplies to Polish gas company PGNiG and Bulgaria’s Bulgargaz after they refused to meet a demand by Moscow to pay in rubles, rather than euros or dollars.
The European Commission described the decision to halt supplies as attempted “blackmail” and said it was coordinating a response among EU member states.
“Europeans can trust that we stand united and in full solidarity with the member states impacted in the face of this new challenge. Europeans can count on our full support,” European Commission President Ursula von der Leyen said in a statement.
Rubles for Gas
The amusing thing about all of this is the EU is using Euros, not rubles to pay for gas.
What’s happening above is Poland and Bulgaria refuse to use the procedure Russia created that makes it “look” as if payments are in rubles.
“The announcement by Gazprom that it is unilaterally stopping delivery of gas to customers in Europe is yet another attempt by Russia to use gas as an instrument of blackmail,” von der Leyen said. “This is unjustified and unacceptable.”
The Facts
- Russia is not unilaterally stopping delivery.
- Payments are indeed in Euros
- Poland and Bulgaria did not like the procedure which makes it appear as if payments are in rubles.
Q&A on Blackmail
Q: Is the energy threat blackmail?
A: Of course it is. But in essence, what are sanctions?
Poland and Bulgaria apparently have ample supply, at least for now. The rest of the EU? No chance, which of course is why the EU did not halt Russia deliveries.
Italy to Pay in Rubles?
- March 28, 2022 (The Local): Italy rejects Russian demand for gas payment in rubles
- April 27, 2022 (Bloomberg): Eni Prepares to Open Ruble Accounts for Gas as EU Warns Firms
Italian energy giant Eni SpA is preparing to open ruble accounts at Gazprombank JSC, allowing it to potentially comply with Russian demands that gas must be paid for in local currency, according to people familiar with the matter.
European Commission President Ursula von der Leyen warned companies on Wednesday not to bend to Russia’s demands to pay for gas in rubles, saying that doing so would breach sanctions. Europe’s ability to maintain a united front against Moscow is set to be tested in the coming weeks as countries have to decide whether to accept Vladimir Putin’s demands or risk having to ration gas at home.
That unity may already be fraying. According to a person close to Russian gas giant Gazprom PJSC, four European gas buyers have paid in rubles and 10 have opened the accounts at Gazprombank needed to meet the new payment demands.
Italy gets about 40% of its gas from Russia, though Prime Minister Mario Draghi has been scouring the globe for replacements and has secured new agreements with suppliers particularly in North Africa.
Via Clever Tactics, Putin Gets His Way on Rubles for Energy Demand
The absurdity of all this yap is that no one pays in rubles. It just looks like it.
I commented on the ruble mirage on March 31 in Via Clever Tactics, Putin Gets His Way on Rubles for Energy Demand
What’s Really Happening?
- German Chancellor Olaf Scholz agreed to Vladimir Putin’s clever way around the problem of rubles payments.
- The EU will pay in euros and via a separate account at Gasprom, the euros are immediately converted to rubles.
- The Russia Central Bank gets euros. Exactly as before. The entire thing is essentially a mirage. It really makes no fundamental difference if the euro for ruble switch happens by Germany, somewhere in the middle, or at the back end by the Russia central bank.
- Whether by the EU, some middleman, or later on the back end by Russia, the Russia central bank gets euros. Gazprombank gets rubles from the Russian central bank in exchange for euros.
- Aside from sanctions, currencies are fungible. This is always the case and a point most simply fail to understand in all this oil priced in something other than dollars nonsense. Hopefully now people can see it.
- One slight difference is the Russia central bank gets 100% of the euros instead of 80% of them. This benefits Putin but he could always demanded that. It now happens immediately instead of perhaps later.
- However, Putin extracted a mechanism and thus an implied promise from Scholz to not sanction Gazprombank. And he gets bragging rights that Scholz agreed to a maneuver that gets rubles to Gazprombank.
The EU pays in euros for gas and oil. There is then an immediate switch at Gazprombank (which is not sanctioned) in which the Russian central banks takes the euros and pays the Russian suppliers rubles.
Avoiding Sanctions
This workaround highlights the silliness of the debate that one needs dollars to buy oil or gas despite dollars being the pricing unit.
In this case, Russia demands rubles and get them via immediate conversion from euros or in some cases US dollars, depending on the contract.
Given that currencies are fungible (sanctions aside), it does not matter what the pricing or payment unit is.
Please read that last paragraph over and over until you understand it. The amount of nonsense over “petrodollars” is staggering.
Especially note that no one needs dollars to guy oil or gas and despite appearances, the EU is still paying in euros, not rubles.
This entire process is about avoiding sanctions and getting paid. The major concession Putin extracted is to avoid sanctions on Gazprombank which can then use euros to trade with India and China.
That Italy is willing to comply with the process is proof enough of the implied nonsense “Russian energy exports to Europe is about 20% of Russia’s GDP, but 1.6% of EU GDP”.
Sanctions Don’t Work
Here’s a twelve-word synopsis of the above post Misguided Souls Still Do Not Understand This Simple Truth: Sanctions Don’t Work
The last three of those twelve words emphasize the key point.
Meanwhile, Biden Doing Everything Possible to Drive Up the Price of Oil, Some of It’s Illegal
Finally, US Sanction Policy Drives China Into Russia’s Loving Arms.
This post originated at MishTalk.Com.
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Mish
But oil *prices* have increased more than 50 percent from last year. Do you know basic arithmetic?