The China Connection
My March 6 Comments
- Outside of hard currency, what does Russia need?
- Technology? 5G? Parts and supplies from the US via China?
- Look for China to take advantage in many ways.
March 7 Eurointelligence: China Will Bail Out Russia
Please consider China Will Bail Out Russia by Eurointelligence founder Wolfgang Münchau.
We read about a small, but revealing anecdote of how Huawei, itself sanctioned by US, is helping the Russian government fend off western hacker attempts. This is not what we call a verified story. It appeared on a Chinese website, and was then deleted. But Huawei later said that it would use its capacity to train 50,000 technical experts in Russia. The two most sanctioned entities in the world, Huawei and the Russian government, are colluding.
Huawei is a cautionary tale for trigger-happy sanctions advocates. Trump’s sanctions mean that Huawei was no longer able to use Google’s Android operating system for Huawei smartphones. Nor could Huawei source US developed microchips. Huawei’s phone sales plummeted. Its flagship model launched last year was not available for sale in Europe and the US. But Huawei has since replaced its Android with its own operating system, HarmonyOS. Western sanctions had a negative impact on Huawei’s sales and profits in the short term. But they will make the company stronger in the long run.
The whole idea of economic sanctions is premised on the notion of western monopolies and monopsonies. This was the world of a bygone age. The only real monopolies we see emerging are China’s and Russia’s hold on important raw materials, which the west needs to import. Western-dominated financial infrastructure, like the Swift payment communications system, are losing their monopoly status. China and Russia have built their own infrastructure. And when Visa, Mastercard and American Express stopped business in Russia over the weekend, Russia switched to a Chinese system.
Russia vs Germany and France
Münchau notes seriously wrong analysis of Russia by Western media along this line of thinking: Russia is only the economic size of Belgium. That line of reasoning is based on the plunging Ruble.
But the Russian 2020 population is 144 million. The German population is 83 million and France 67 million, totaling 150 million.
That’s a better comparison. But here’s an even better way of looking at things.
Russia and Ukraine Exports
- Russia and Ukraine are key exporters of C4F6 and neon gas. Ukraine produces about 25% of the neon used in global semiconductor production.
- Russia produces about 12 percent of platinum and 40 percent of palladium used in automotive catalytic converters.
- Russia produces 3.9 metric tons of aluminium (6% of world supply). Russia and Ukraine together account for about 10% of global steel exports, according to SteelMint.
- Russia is the third-largest producer of petroleum after the U.S. and Saudi Arabia, exporting almost 5 million barrels a day of crude oil in 2020, according to the U.S. Energy Information Administration.
- Russia produces about 12 percent of the world’s oil and 17 percent of its natural gas, according to estimates from J.P. Morgan.
- Russia and Ukraine account for about one third of global wheat exports.
- Russia supplies about half of Airbus titanium needs, while a U.S. industry source said Russia provided a third of Boeing’s requirements.
- Caspar Rawles, chief data officer at specialist consultancy Benchmark Mineral Intelligence (BMI), said that while Russia accounts for 5% of global nickel production, it supplies about 20% of the world’s high-grade nickel.
Spotlight Titanium
Reuters reported yesterday that Boeing Suspends Russian Titanium as Airbus Keeps Buying.
“We have suspended purchasing titanium from Russia. Our inventory and diversity of titanium sources provide sufficient supply for airplane production,” Boeing said in an emailed statement.
The head of state-controlled VSMPO-AVISMA hit out at Boeing’s decision to suspend the contract, which had been renewed four months ago at the Dubai Airshow where Boeing pledged to keep the Russian company as its largest titanium supplier.
For now it appears Boeing had a stockpile and Airbus doesn’t. Then again, Barron’s says Boeing Might Have a Russian Titanium Problem
Given US sanctions forced Boeing to halt business with Russia, Boeing’s statement reads a bit hollow.
Spotlight Nickel
Yesterday I commented Nickel Market Breaks, Price Doubles to $100,000 In 1 Day, Deliveries Fail
Palladium, Lead, Tin, Zinc
Oil Question of the Day
My Comment to US Senator Ed Markey
Not That Simple
Dear Venezuela Please Send Help!
How stupid is this?
U.S. Officials Meet With Regime in Venezuela, to Discuss Oil Exports to Replace Russia’s
Gold
Ban Bans?
We can safely rule that idea out.
Senator Rubio says “I am working on legislation that would impose sanctions on #China if we catch trying to use their Cross-Border International Payments System (CIPS) to help #Russia get around SWIFT sanctions“
Great Idea Senator!
Let’s halt global trade altogether!
What can possibly go wrong? I am sure Biden can work out a deal with Venezuela that will save us all.
Let’s ban all of Russia and China too (on top of Venezuela and Iran).
Six Reasons Huge Demand Destruction Coming Up
- Stimulus wearing off
- Fed tightening
- Mortgage rates low but rising will kill cash-out refis and reduce purchases
- Wealth effect of stock market collapse will be enormous
- Neither China nor the US can save the global economy
- Massive commodity inflation
Not to worry, nearly everyone tells me “No Recession”. A few brave souls agree with me.
Buy Gold
In case you missed it, please see Macro Dream Team Videocast Parts One and Two
A Recession Looms, Blame the Fed and Biden, Not Russia
A recession fueled by collapsing demand, a liquidity crunch, and fading stimulus effects is coming up. Inflation sure doesn’t help.
My March 3 Call: A Recession Looms, Blame the Fed and Biden, Not Russia
To stem off ridiculous replies, Russia will not be the “cause” but the war in Ukraine and the global reaction to it will make things dramatically worse.
Oil Irony
Today we have Oil Irony: US and UK to Ban Russian Oil, Russia Threatens the Same
Question to Fed: Can you print oil, titanium, nickel, wheat, aluminum, neon, or gold?
If not, what do you propose?
Meanwhile, let’s all pray Biden does not follow Rubio’s suggestion and start a global depression.
This post originated on MishTalk.Com.
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Mish
Can we perhaps settle for sanctioning only those dictatorial regimes that threaten the rules-based international order? That includes Russia, China, Iran, and North Korea but probably not Venezuela, Syria, or Cuba.
Hilarious. Or pathetic. Your pick!
European Green Party tabling a question in the European Parliament about
‘the dumping of toxic waste from German, French and Italian nuclear
power plants and hospitals’ in Somalia.”
“Isaac Newton’s third law of motion basically says that for every action, there is an equal and opposite reaction. The same might be said about economic sanctions.
If Russia can’t sell its oil and natural gas to the United States, it will turn east and sell them to China. That market switch is already under way. Beijing probably has already concluded the war in Ukraine might do more good than harm to the Chinese economy. Last week, it hedged its geo-economic bets by declining to condemn Russia’s invasion of Ukraine in a UN General Assembly vote – China abstained.
Russia’s motivation to expand its already enormous economic ties to China increased on Tuesday, when U.S. President Joe Biden announced an embargo on imports on Russian oil and oil products; Britain was quick to follow.
The move was expected as the U.S., Britain and the European Union tighten the economic noose around Russian President Vladimir Putin’s neck, and it propelled already surging oil prices up by 6.5 per cent. In London trading, Brent crude, the international benchmark, went to US$131 a barrel, for a one-year rise of 93 per cent.
Oil prices might have gone far higher if the U.S. and Britain were bigger consumers of Russian oil. The U.S. Energy Information Administration says only about 3 per cent of all the country’s imported crude came from Russia in 2021; the figure rises to 8 per cent when petroleum products are included. Both figures were falling even before the American embargo was announced.
Mr. Biden’s move will still hurt, since a few per cent of the world’s biggest oil market is not nothing, making the announcement, unlike Canada’s, more than symbolic (Canada hasn’t imported any Russian oil since 2019). The big question is whether the EU will also put an oil embargo into place at some point. It might, but not any time soon.
The EU’s mistake was making itself overly dependent on Russian energy exports; it can’t possibly wean itself off them overnight and keep the lights on. That’s why German Chancellor Olaf Scholz and Italian Prime Minister Mario Draghi, among other European leaders, lobbied to make Russian energy exempt from European sanctions.
To be sure, they are now motivated as never before to veer away from Russian energy, a process that will take many years. Watch them buy American and Qatari liquefied natural gas (LNG), ramp up their renewable energy efforts, rebuild old nuclear reactors and launch new ones, and perhaps stay the planned executions of their remaining coal burners.
https://www.theglobeandmail.com/world/article-allies-consider-sending-warplanes-to-poland-if-warsaw-delivers-soviet/
https://www.theglobeandmail.com/business/commentary/article-banning-russian-oil-exports-might-hurt-europe-far-more-than-the-us-or/
In the meantime, Mr. Putin’s rage will be tempered by China, which, in spite of its economic slowdown in recent years, still has a voracious appetite for hydrocarbons, including coal, and has little incentive to curb its carbon dioxide emissions in the near term.
China and Russia had been expanding their economic ties in recent years and sanctions against Russia, which China does not support, will only bring them closer.
There is no doubt that any oil Russia cannot sell to the West will be happily bought by China, all the more so since Russia’s benchmark Urals crude is trading at a steep discount – as much as US$30 a barrel less than Brent crude in recent days. Oil is mobile; the tanker ships that were headed west will do a U-turn and go east.
The same cannot be said for gas, which is generally delivered by pipeline. China would like to buy more Russian gas but can’t, at least not right away. Mr. Putin cannot divert the gas he sends to Germany, Italy, Austria, the Netherlands and other EU countries to China because the pipelines that supply Europe are not connected to the ones in the far east of Russia that go to China.
In time, Russia will expand its gas pipeline network to China, but that would take years. In the meantime, it seems likely Russia will keep exporting gas to Europe because Europe has no alternative to Russian gas and is willing pay a fortune for it. It seems unlikely Russia will turn off the gas taps, just as it seems unlikely Europe will slap an embargo on that gas.
You can see where this is going. Not only will Russia sell more oil and gas and other commodities to Europe, but Russia will import more Chinese technology and use Chinese financing to invest in Russian hydrocarbon projects. Already, there are rumours Chinese companies might buy the stakes in Russian energy plays being abandoned by Western companies. One is BP’s 20-per-cent stake in Kremlin-controlled oil giant Rosneft, which the British company wants to sell.
There might be more. China and Russia will be tempted to create their own interbank payments system now that Russian banks are being banned from the SWIFT network. They will also try to boost the profile and acceptance of their national currencies, a process that will not be quick, because the U.S. dollar utterly dominates international trade settlements. Still, Russia and China will push hard to de-dollarize their foreign transactions.
The theory of unintended consequences already seems in fully display. The U.S. and Europe are working hard to isolate and punish Russia for it invasion of Ukraine, as they should. But in doing so, they can only push Russia and China closer together, making China stronger as it feeds off cheap and plentiful Russian commodities. Dealing with a stronger and potentially expansionary China will be the next U.S president’s problem.”
Your kooky has gone to 11… time to call the men in white coats!