Markets – Page 158

Chinaâs great bond market opening leap forward

On: May 16, 2023

In: Asia

Beijing regulators are leaning into a seven-week rally in China’s sovereign bond market by widening access to onshore interest-rate swaps. Yet what sounds like a rather technical turn of the screw is a huge and timely reform win for institutional investors keen on trading Asia’s biggest economy.

“Timely,” because it coincides with Group of Seven (G7) members heading to Hiroshima, Japan to contain any number of financial troubles. They include runaway inflation, failing Western banks, the specter of a US default and desperate attempts to woo Global South countries.

In China, though, the vibe is more about opening a recovering financial system to global investors hungry for growth and higher-yielding assets as the post-Covid-19 trade gains momentum.

Here, the new “Swap Connect” program between China and Hong Kong is wisely timed. It opens the way for overseas funds to access derivatives vital to hedging bets in China’s bond market. The dearth of hedging tools has long turned off the biggest of the big money.

The swap scheme will enable punters to deal in key money-market rates tied closely to People’s Bank of China (PBoC) policies. This will likely deepen institutional investors’ involvement in China markets, building on the existing Bond Connect plan. The move dovetails with a powerful bond rally driven by expectations that the central bank will add more liquidity this year.

For Chinese leader Xi Jinping, Swap Connect helps fulfill a pledge to open mainland capital markets to international funds. It turns the page, to some extent, from the regulatory crackdowns of 2020 and 2021. It also reminds top investment banks that geopolitical turbulence between Beijing and Washington isn’t getting in the way of market reforms.

The program “will be a huge leap forward in developing the domestic derivatives and bond markets,” says Rose Zhu, chief China country officer at Deutsche Bank, which Beijing named as a key market maker for Swap Connect.

“Leveraging our cross-border strengths, we look forward to playing an active role in helping international investors get a head start via Swap Connect” and “helping accelerate the opening up of China’s financial markets and RMB internationalization.”

Monish Tahilramani, head of Asia Pacific markets at HSBC, says the hedging tool marks “an important complement to Bond Connect and a positive sign that onshore markets continue to open up.”

It’s not that simple, of course. Nicolas Aguzin, CEO of Hong Kong Exchanges and Clearing Limited, is absolutely right to call Swap Connect “the latest chapter in our ‘connect’ story.”

The reference here is to Xi’s habit of connecting markets to Hong Kong’s first-world system to increase China’s financial street cred. First it was Stock Connect, then Bond Connect. Now, Swap Connect rounds out Xi’s regional ambitions.

Yet the question is whether this time financial reforms will keep pace with rising investor optimism? Or will this be another episode of China over-promising and under-delivering?

Li Qiang is promising big market reforms. Image: Screengrab / NDTV

New Premier Li Qiang has signaled the former. Since March, when he formally took over as Xi’s No 2, Li seems to have hit the brakes on the tech company crackdown that in recent years has sent foreign capital fleeing.

In March, for example, Li said that “for a period of time last year, there were some incorrect discussions and comments in the society, which made some private entrepreneurs feel worried.

“From a new starting point, we will create a market-oriented, legalized and internationalized business environment, treat enterprises of all types of ownership equally, protect the property rights of enterprises and the rights and interests of entrepreneurs.”

The plan, Li explained, is to “promote fair competition among various business entities and support the development and growth of private enterprises” and to “shore up” investor confidence.

Hence the importance of Swap Connect. It’s equally important, though, that Li’s reform team ensures that China follows through this time.

Earlier episodes of market opening saw Xi’s government putting the proverbial cart before the horse. In 2014, for example, the Stock Connect program lured tidal waves of capital but steps lagged to increase transparency, level playing fields and reduce limits on yuan convertibility.

The same with Bond Connect in 2017. Regulatory upgrades lagged as capital zoomed in. In between there, in 2016, China gained access to the International Monetary Fund’s “special drawing-rights” program.

That came after years of lobbying by former PBoC Governor Zhou Xiaochuan. The yuan’s inclusion in the IMF’s club of reserve currencies along with the dollar, euro, yen and the pound signaled China was achieving prime-time status.

Unfortunately, seven years on, the yuan still isn’t fully convertible. That’s limiting the yuan’s appeal as a rival to the dollar — even as the US government does its worst to damage the reserve currency’s credibility.

Part of the problem, though, is what this state of affairs says about Xi’s first 10 years in power: China doesn’t trust markets to decide the yuan’s value. If so, the thinking goes, why would investors trust Team Xi?

Still, the Swap Connect narrative is a powerful one if Li can reinvigorate the reform process as Xi’s third term heats up. It’s a “northbound” trading system enabling dealing in mainland yuan-denominated contracts with a net cap of 20 billion yuan (US$2.9 billion) per day. Next, a “southbound” channel might be added from China to Hong Kong.

As Hong Kong’s Chief Executive John Lee said this week: “The new scheme will strengthen Hong Kong’s role as an offshore yuan trading center and as a risk-management center.”

Julia Leung, CEO of the Securities and Futures Commission, added that Swap Connect “deepens connectivity between mainland and overseas capital markets and bolsters Hong Kong’s position as a risk-management hub.”

In a note to clients, HSBC argued that “compared to offshore interest-rate swaps, onshore interest-rate swaps are less volatile and correlate better with onshore bond yields. This makes onshore interest rate swaps more efficient interest rate hedges of onshore bonds. The other benefit of entering the onshore swap market is having access to SHIBOR interest rate swaps, which are rarely quoted in the offshore market.”

China has big plans to rein in local government debt. Image: Screengrab / CNBC

HSBC analyst Candy Ho notes that “Swap Connect has immediate value for global investors and is a timely move in China’s ongoing commitment to its markets opening up.” She adds it will make “participating in the world’s second-largest fixed-income market more attractive by introducing a central clearing model and providing better access to the deep onshore liquidity in financial derivatives markets.”

A deep and vibrant bond market is needed to finance everything from the growth of the private sector to adjust to an aging and shrinking population to funding bigger social safety nets so China can pivot to a consumption-led growth model. Beijing is expected to rack up a record 3.88 trillion yuan ($557 billion) deficit this year.

A more resilient debt market would help PBoC Governor Yi Gang’s team gain greater traction when it tweaks monetary policy. The odds of more assertive PBoC easing may have increased Tuesday with news that retail sales, industrial output and fixed investment expanded much less than hoped in April. The youth unemployment rate meanwhile hit a record high of 20.4%.

“China’s activity indicators missed expectations by a wide margin even with a favorable base,” says economist Xiangrong Yu at Citigroup. “With China now out of the sweet spot of reopening, hope of further sentiment repair could be diminishing in the absence of decisive government actions.”

Such trends may be more positive for Chinese bonds than stocks in the short-to-medium term. And here, news that Beijing is stepping up efforts to develop a more developed bond market to provide the economy with a bigger shock absorber if global markets go awry will bolster confidence. The ability to hedge is an important step in that direction.

The new risk-hedging instrument is being introduced just as rising US interest rates put foreign outflow pressure on China’s bond market, with overseas funds cutting their holdings by $169 billion over the past five quarters. At the same time, global investors still own 10 times as many of the securities as they did a decade ago.

Before May 15, Beijing only allowed foreign funds to access onshore interest-rate swaps via the China Interbank Bond Market framework. Swap Connect vastly broadens access at a moment when G7 members are giving investors reasons to seek opportunities elsewhere – not least China.

Follow William Pesek on Twitter at @WilliamPesek

Exchanging views on crypto: Exclusive interview with Coinhakoâs co-founder and CEO, Yusho Liu | cryptocurrency, crypto, coinhako, founder, exclusive interview, yusho liu, singapore, digital assets | FinanceAsia

By: Marcus Ching

On: May 16, 2023

In: Asia, Finance, South-East Asia

From the fallout of FTX in November 2022, to the collapse of Silicon Valley Bank (SVB) and other US lenders associated with start-up clients, the last few months have been challenging for the crypto industry.

Singapore-based cryptocurrency exchange, Coinhako, however, remains optimistic in terms of its industry outlook as sector participants focus on “rebuilding trust and faith” across the digital asset universe.

Coinhako was conceptualised in 2014 and started off as a bitcoin wallet service for Singaporeans. Today, it is a multi-currency trading platform for cryptocurrencies and is licensed, regulated and headquartered in the city-state.

Receiving its Major Payment Institution licence from the Monetary Authority of Singapore (MAS) in May 2022, the firm is one of nine financial institutions in the market permitted to provide Digital Payment Token (DPT) services.

Confident about Singapore’s future as a Web3 hub, its team wants to play a part in growing the market’s ecosystem. To do so, the company founders recently launched Berru.co, a separate entity that seeks to support Web3 start-ups as they navigate setting up in the city.

In this interview, Coinhako’s co-founder and CEO, Yusho Liu speaks to FinanceAsia about the challenges faced by the crypto industry; the future of Singapore as a digital asset hub; and where exactly the company has its sights set on next.

Excerpts from the interview have been edited for clarity and brevity.

FA: What’s your take on the cryptocurrency market and what developments are you focussed on?

2023 is the year of reset. With the developments of the last few months and bad actors bringing the industry back several steps, we need to rebuild trust and faith in the sector.

Beyond this, we are seeing more regulatory clarity from the likes of the Hong Kong and EU authorities, which paves the way for Asia and Europe to lead when it comes to innovation in the space.

Given that Washington’s current regulatory environment is less hospitable – coupled with the issues faced by the wider US tech industry, it will be challenging for innovation to emerge from the market.

FA: Was Coinhako exposed to any of the US banks that recently collapsed?

We had zero exposure to Silvergate and SVB. We did have some exposure to Signature Bank, but no money parked there. The collapse of these banks has affected many companies but thankfully, our strongest banking relationships are based in Asia.

FA: Is Coinhako looking to raise funds to expand further? How do you view the fundraising environment?

Overall, global and regional venture capital (VC) firms have poured record amounts of money into Southeast Asian technology companies because they consider them to be at the next frontier of growth and these countries have shown very high rates of adoption and interest in digital assets. They have focussed less on companies based in more mature, traditional markets, such as the US, Europe, China, South Korea or Japan.

However, it is currently a challenging climate and investments into crypto start-ups or in the broader technology space have slowed down. While we are continuing conversations with investors, we do not think this is the right timing or environment in which to be actively fundraising.

FA: Do you have any expansion plans?

We do have plans to expand, but this year our focus is on embedding deeper into Singapore, because we think the city-state is going to be a relevant crypto hub, regardless of what the rest of the world is doing.

We see a lot of Web3 founders building a nexus in the market. There is an influx of start-ups looking to establish their presence in Singapore and we’ve set up a separate, professional advisory entity, Berru.co, to support them. Since inception this year, we’ve connected with 10 or more clients and hope to grow this multi-fold further down the road.

Drawing on Coinhako’s experience since entering the market in 2014, we want to help founders navigate the crypto landscape. We’ve done the legwork and we know what works and what doesn’t – whether that be related to finance, accounting, tax or legal considerations. This is in line with Singapore’s status as a hub, and as such, we want to make sure that companies can develop easily. A bad user experience would likely make these founders consider going elsewhere.

FA: Where else in Asia do you see opportunity?

We are watching developments in Hong Kong, with the government having recently come up with a crypto framework to foster growth in the industry. But Hong Kong is just one of the markets we’re looking at for expansion, alongside other countries in Southeast Asian and the broader Asia region.

Coinhako has a domicile-registered licence in Singapore and the beauty of being based here, is that we can use it as a centre from which to reach the rest of the region.

FA: What’s your view on Singapore’s future as a crypto hub, given that many peers have relocated to Dubai?

I’ve always said that time will tell the story.

Dubai was a hot spot when its authorities announced updated licensing frameworks. But I think that, to date, we haven’t really seen or heard much about crypto exchanges moving to the market, except for Bybit, that is trying to establish global headquarters there.

The reality is that Dubai is a regional hub for the Middle East and North Africa (MENA), but if you’re trying to establish a global or Asian base, Singapore might be more suitable.

FA: Is Dubai perceived to be friendlier from a regulatory perspective, compared to Singapore?

I think it’s important to differentiate between what people say, versus what people do.

From our perspective, we don’t see many licensed entities going to Dubai, but we’re seeing unlicensed entities go there to try to obtain a licence.

FA: How optimistic are you about the growth of the Web3 and crypto industries in Asia?

We remain optimistic about the growth of the Web3 sector, in general. Yes, the industry is volatile, but most nascent industries are.

Of course, where money is involved, so too will there be bad actors. And indeed, we are seeing more overlap between the tech and finance industries.

However, as long as builders continue to come in to develop purposeful technology and applications – and good people enter the space, we remain positive.

China’s factory output, consumption highlight slack post-COVID economic momentum

By: Jing Write

On: May 16, 2023

In: Asia

BEIJING: China’s April industrial output and retail sales growth undershot forecasts, suggesting the economy lost further momentum at the start of the second quarter and adding to the raft of recent data highlighting a wobbly post-COVID recovery. China’s industrial output grew 5.6 per cent in April from a year earlier,Continue Reading

Biden taps communicator to replace Milley

By: Bolen C

On: May 15, 2023

In: Asia

US President Joe Biden has reportedly picked the charismatic US Air Force General Charles Q Brown to replace the all-but-disgraced chairman of the Joint Chiefs of Staff, US Army General Mark A Milley.

Brown will become Biden’s top military adviser, whose mission will be to help achieve an unambiguous victory of Ukraine over Russia and deter a Chinese invasion of Taiwan.

YouTube video — US Air Force Chief of Staff General Charles Q Brown Jr speaks to Capitol Intelligence/CI Ukraine on Ukraine and China threats at The Brookings Institution and The National Press Club in Washington, DC.

The decision by President Biden to pick Brown over a traditional military strategist such as Marine Commandant General David H Berger underlines what Ukrainian President Volodymyr Zelensky has shown the world: Communication defeats brute military strength.

Brown, a black fighter pilot, never hesitates to recount how differently he was treated versus an archetype, Tom Cruise, in the Hollywood blockbuster Top Gun/Maverick and notes that in real life, only 2% of US fighter pilots are black.

“I’m thinking about my Air Force career where I was often the only African-American in my squadron or, as a senior officer, the only African-American in the room. I’m thinking about wearing the same flight suit with the same wings on my chest as my peers, and then being questioned by another military member, ‘Are you a pilot?’” Brown said in an interview with Defense One.

Brown, unlike Milley, is a maverick, having become the first black to be Chief of Staff of the US Air Force and then the second chairman of the Joint Chiefs of Staff after the late US secretary of state General Colin Powell.

Brown matches his words with actions. He’s currently organizing a monument dedicated to the Tuskegee Airmen, the black fighter aces of World War II later immortalized by George Lucas’ film Red Tails, at the Ramitelli Airfield in Campo Marino in the southern Italian region of Molise and the political heartland of the now pro-American, pro-Ukraine Italian Prime Minister Giorgia Meloni.

The Tuskegee pilots are a living symbols of the sacrifice and heroism black Americans have given to the United States in all its wars. Living Tuskegee Airmen include William T Fauntroy, brother of a key Martin Luther King supporter, the Reverend Walter Fauntroy, while the late Emmett John Rice was father of former White House national security adviser and now domestic policy adviser to Biden, Susan Rice.

Not only does Brown front USAF recruiting ads but he shakes up the chain of command by acting as an “undercover boss” by engaging in no-holds-barred conversations with enlisted ranks whenever he visits US Air Force bases, to the great chagrin of the accompanying brass.

Brown is fully aware that he must be effective in the near term in Ukraine and Taiwan to prevent the US arms industry from pushing Congress to balloon military spending to levels not seen since World War II.

Major US defense groups such as Lockheed Martin, Northrop Grumman and General Dynamic have spared no expense on lobbying Congress that the United States needs to re-create a new “industrial military complex” – producing arms for arms’ sake as criticized by the late president Dwight Eisenhower – so that in the next two years the military will have enough weapons to challenge China and defeat Russia in a new world war.

Such a military buildup risks in effect bankrupting the United States, but would be little help to Ukraine’s efforts to defeat Russia this year and probably not arrive in time for an eventual ground war with China.

Instead, Brown can use his power as presidential adviser to have President Biden order defense companies either to acquire private-sector Ukrainian arms companies or create joint-venture companies, as Germany’s Rheinmetall AG did with Ukraine’s state defense holding Ukroboronprom, which envages an initial US$200 million investment to build and repair Panther KF51 battle tanks in Ukraine.

The White House and Congress can effectively force other European arms companies dependent on US Department of Defense contracts such as Italy’s Leonardo SpA and the UK’s BAE Systems to shorten the supply chain by acquiring Ukrainian defense and dual-use companies.

South Korea also indicated its willingness to join forces with US arms companies to produce weapons for the Ukraine war and a military conflict involving China and North Korea during President Yoon Suk Yeol’s state visit with President Biden on April 26.

L3 Harris chief executive officer Chris Kubasik is also looking at taking a page from Microsoft president and vice-chairman Brad Smith in making a significant Ukraine investment to put public pressure on US Federal Trade Commission (FTC) chairwoman Lina Khan to approve its $4.67 billion acquisition of US rocket=fuel supplier Aerojet Rocketdyne. The takeover already has the full approval of the Pentagon.

This year Microsoft announced that it had signed a wide-ranging partnership agreement with Kiev-based Boosteroid, the world’s third-largest cloud gaming company, as part of its proposed $70 billion takeover of Activision.

In fact, Brad Smith is preparing a trip to Kiev joining Boosteroid CEO Ivan Shvaichenko to highlight the transformational partnership agreement to the world’s media and also highlight the arbitrary opposition to the Activision takeover by Lisa Khan and her “allied” authority, the UK Competition Market Authority (CMA). On Monday the European Union approved Microsoft’s takeover of Activision.

Microsoft’s footprint with Activision/Xbox in the gaming industry would be half the size of its nearest rival, Tokyo-based Sony unit PlayStation. PlayStation has spent millions upon millions to lobby Khan and the CMA to block the merger.

It will be to everyone’s benefit if General Brown can fully exploit his talent as a communicator – in the same way Zelensky has used his gift as a political satirist to unite his country – to advise Biden on how to defeat Russian aggression in Ukraine and prevent any land war with China.

Peter K Semler is the chief executive editor and founder of Capitol Intelligence. Previously, he was the Washington, DC, bureau chief for Mergermarket (Dealreporter/Debtwire) of the Financial Times and headed political and economic coverage of the US House of Representatives and Senate.

Winners: FinanceAsia Awards 2022-2023 Southeast Asia | awards, financeasia awards, southeast asia, sustainability, impact, esg, flagship awards, annual winners, 27th iteration | FinanceAsia

By: Marcus Ching

On: May 15, 2023

In: Asia, Finance, South-East Asia

Still reeling from the effects of last year’s supply chain woes, energy disruptions and geopolitical tensions, financial markets are now also contending with the impact of consecutive interest rate hikes and uncertainty following recent banking turmoil.

While 2023 may not deliver the capital markets rebound we were all hoping for, it is worth pausing to recognise leading financial institutions that have forged through and made waves in these volatile times.

Marked progress and innovation across deals continues to demonstrate regeneration and resilience. After all, the goal posts have not changed: each of Asia’s markets is bound by net zero commitments; and digital transformation continues to drive regulatory discourse and development around emerging sectors and virtual assets. As a result, sustainability and digitisation continue to be underlying themes shaping a new paradigm for deal-making in the region.

The FinanceAsia team invited banks, brokers and ratings agencies to showcase their capabilities to support their clients as they navigated these uncertain economic times. Our awards process celebrates those institutions that showed determination to deliver desirable outcomes, through display of commercial and technical acumen.

This year marks the 27th iteration of our FinanceAsia awards and celebrates activity that has taken place within the past year (2022).

To reflect new trends, this year we introduced an award for Biggest ESG Impact (encompassing all three elements of ESG strategy) and updated our D&I award to include equity: Most Progressive DEI Strategy.

Read on for details of the winners for Southeast Asia. Full write-ups explaining the rationale behind winner selection will be published in the summer edition of the FinanceAsia magazine, with subsequent syndication online.

Congratulations to all of our winners!

*** SOUTHEAST ASIA ***

CLM (CAMBODIA, LAOS, MYANMAR)
Domestic
Best Bank: Cambodian Public Bank
***

INDONESIA
Domestic
Best Bank: PT Bank Central Asia
Best Broker: PT Mirae Asset Sekuritas
Best DCM House: PT Mandiri Sekuritas
Best ECM House: PT Mandiri Sekuritas
Best ESG Impact: PT Bank Mandiri
Best Investment Bank: PT Mandiri Sekuritas
Best Sustainable Bank: PT Bank Mandiri
Most Innovative Use of Technology: PT Bank Mandiri
Most Progressive DEI: PT Bank Rakyat Indonesia

International
Best Bank: BNP Paribas
Best Investment Bank: BNP Paribas
Best Sustainable Bank: MUFG
***

MALAYSIA
Domestic
Best Bank: Public Bank Berhad
Best DCM House:
Winner: CIMB Investment Bank
Finalist: Maybank Investment Bank
Best ECM House: Maybank Investment Bank
Best ESG Impact: Public Bank Berhad
Best Investment Bank:
Winner: Maybank Investment Bank
Finalist: CIMB Investment Bank
Best Sustainable Bank:
Winner: Public Bank Berhad
Finalist: Maybank Investment Bank
Most Progressive DEI: CIMB Bank

International
Best Bank: Citi
***

PHILIPPINES
Domestic
Best Bank: BDO Unibank
Best DCM House:
Winner: BPI Capital Corporation
Finalist: China Bank Capital
Best ECM House:
Winner: First Metro Investment
Finalist: China Bank Capital
Best ESG Impact: Bank of the Philippines Islands
Best Investment Bank:
Winner: First Metro Investment Corporation
Finalist: SB Capital Investment Corporation
Best Sustainable Bank: Bank of the Philippine Islands

International
Best Bank: HSBC
Most Progressive DEI: Citi
***

SINGAPORE
Domestic
Best Bank: DBS Bank
Best Broker: CGS-CIMB Securities
Best DCM House: United Overseas Bank
Best ESG Impact: DBS Bank
Best Investment Bank: DBS Bank
Best Sustainable Bank: DBS Bank
Most Innovative Use of Technology: DBS Bank

International
Best Bank: Citi
Best Investment Bank: Citi
Best Sustainable Bank: MUFG
Most Progressive DEI: Citi
***

THAILAND
Domestic
Best Broker: InnovestX Securities Co., Ltd.
Best ECM House: Kiatnakin Phatra Securities PCL
Best DCM House: Kasikornbank
Best Investment Bank: Kiatnakin Phatra Securities PCL
Best Sustainable Bank: Bangkok Bank PCL
Most Innovative Use of Technology: InnovestX Securities Co., Ltd

International
Best Bank: HSBC
Best Investment Bank: Citi
Best Sustainable Bank: MUFG
Most Progressive DEI: Citi
***

VIETNAM
Domestic
Best Bank: Techcombank
Best Broker: SSI Securities Corporation
Best Investment Bank:
Winner: Viet Capital Securities Corporation
Finalist: SSI Securities Corporation
Best DCM House: SSI Securities Corporation
Best ECM House:
Winner: Viet Capital Securities JSC
Finalist: SSI Securities Corporation
Best ESG Impact: Saigon-Hanoi Commercial Bank
Most Innovative Use of Technology: TechcomSecurities

International
Best Bank: HSBC
Best ESG Impact: HSBC
Best Investment Bank: HSBC
Best Sustainable Bank: Citi
Most Innovative Use of Technology: HSBC

***

For other winners:

Click here to see the winners across North Asia.

Click here to see the winners across South Asia.

A brief, chaotic history of US debt ceiling crises

By: Bolen C

On: May 13, 2023

In: Asia

There have been numerous fiscal crises in the United States where Congress has either failed to pass a budget on time or there were doubts that the federal debt ceiling would be raised, which could cause the US to default on its debt.

These two kinds of crises can sometimes play out at the same time. A federal budget was not adopted in time, for example, and there were threats of not increasing the debt ceiling.

I worked as the deputy director of the Congressional Budget Office and the executive director of the National Governors Association, and I witnessed firsthand much of the wrangling in Congress during these crises.

Since 1976, there have been 22 shutdowns of the federal government due to lack of a federal budget.

While these were very disruptive and damaged the economy and employment, they pale in comparison to the potential effects of failing to lift the debt ceiling, which could be catastrophic. It could bring down the entire international financial system. This in turn could devastate the world gross domestic product and create mass unemployment.

Fortunately, the US has never experienced a default. The debt ceiling has been raised 78 times since 1917 and currently stands at US$31.4 trillion.

Here are three debt-limit crises I watched play out – which not only had economic consequences, but political ones as well.

1995: A GOP revolution – and blunder

Often, a debt-limit crisis is preceded by an election that produces a major shift in who controls Congress.

In the 1994 midterm election, during President Bill Clinton’s first term, the Republicans gained eight Senate seats and 54 seats in the House, flipping both chambers. The election was seen as a Republican revolution. Bob Dole became the majority leader in the Senate, and Newt Gingrich became the speaker of the House.

GOP lawmakers pledged to pass a balanced budget as part of what they named their “Contract with America.” House Republicans sent Clinton a budget that cut spending on domestic programs, which he vetoed. This in turn led to a five-day shutdown of the federal government.

Gingrich then threatened not to increase the debt limit. A Washington Post story described the House leader’s actions as “House Speaker Newt Gingrich (R-Ga) threatened yesterday to take the government into default for the first time in history unless President Clinton bows to Republican demands for a balanced budget.”

Clinton responded to the latest GOP budget offer with a second veto, which led to a longer government shutdown of 21 days.

In the end, the Republicans passed a budget offered by Clinton and also lifted the debt ceiling.

There were unique aspects to this standoff. Dole was not interested in continuing the negotiation, as he was running for president. Gingrich made comments about being snubbed by the president while traveling with him on Air Force One, and the press had a field day with those comments, linking the shutdown to the snub.

Polling increasingly showed that the Republicans were getting blamed for the shutdown – a 1995 ABC poll indicated 46% blamed the Republicans and only 27% blamed the Democrats.

2011: Budget reductions and reforms, with a side of financial chaos

As in 1995, the 2011 crisis happened after an election and a major power shift on Capitol Hill.

The election of 2010, in the middle of President Barack Obama’s first term, saw the Republicans gain seven Senate seats, but not yet a majority, and a net gain of 63 House seats, making the GOP the majority. The House then demanded that Obama negotiate a deficit reduction package in exchange for raising the debt ceiling.

As the deadline for increasing the debt limit approached, both the U.S. domestic and even international financial markets became chaotic. The S&P 500 fell by 17% and bond rates spiked. On August 5, 2011, the Standard and Poor’s rating agency reduced the rating for long-term U.S government debt, which could result in higher interest rates on that debt.

On July 31, 2011, only two days before the US government ran out of money, an agreement was reached between Congress and Obama that, once enacted, became the Budget Control Act of 2011. It reduced spending over the following 10 years by $917 billion and authorized raising the debt ceiling to $2.1 trillion.

The act also included several budget reforms – a concession to Republicans by Obama and the Democrats – including creating a congressional joint select committee to make recommendations on deficit reduction. It also included an automatic provision to cut the budget should Congress fail to act.

2013: ‘We got nothing’

A middle-aged man in a suit, standing in front of several US flags with his eyes closed, looking glum. — U.S. House Speaker John Boehner, a Republican, on Oct. 8, 2013, the eighth day of a government shutdown over the debt limit crisis. Photo: Saul Loeb / AFP via Getty Images / The Conversation

In January 2013, the debt ceiling that was established in 2011 was hit and the Treasury Department began extraordinary actions to continue funding necessary spending.

This included not paying into retirement funds of federal workers and borrowing from trust funds such as Social Security.

Treasury told Congress that those extraordinary measures to avoid default would be exhausted by mid-October 2013, and the debt limit would be reached then, meaning the US could not borrow any more money to pay its bills.

At the same time, Republicans, who controlled the House, had demanded budget cuts as well as policy changes. They wanted Obama to eliminate the funding for his Affordable Care Act, which was considered his major legislative achievement.

The government was shut down once more, for 16 days. Again, public support for the Republican approach began to erode. That led the GOP to capitulate and adopt a budget that did not include significant cuts, and raised the debt ceiling, all in a vote the day before the government was slated to run out of money.

“We got nothing,” said conservative Republican Representative Thomas Massie from Kentucky.

Risks to both sides

It is difficult to predict how the 2023 potential crisis over the debt limit will be resolved – each crisis is unique and depends on the specific leaders on both sides as well as how the public reacts to the crisis.

History indicates there are substantial risks to both parties as well as their respective leaders as the nation heads for the early June showdown. The 1995 crisis did not benefit Republicans, and some even argue it contributed to Clinton winning reelection.

In 2011, I would argue that the Republicans gained substantial budget reduction and budget reform concessions from Democrats. But lack of support for the Republican position in 2013 saw them concede.

The 2023 crisis that is unfolding is like 1995 and 2011 in that it was preceded by an election that flipped the House majority. But it differs substantially in the size of that majority. With only a four-seat majority, the risks to the Republican leadership are high.

If this standoff is long and financial markets react as they did in earlier crises, the stakes for the two parties and their respective two leaders are huge and will grow over time. This could well affect President Joe Biden’s reelection and the longevity of the current Speaker of the House, Kevin McCarthy.

Raymond Scheppach is Professor of Public Policy, University of Virginia

This article is republished from The Conversation under a Creative Commons license. Read the original article.

China, Russia to accelerate grain corridor project

By: Bolen C

On: May 12, 2023

In: Asia

Russia is speeding up the construction of a corridor in its Far East region in a bid to export more grain to Inner Mongolia in Northeast China.

On Wednesday, the same day the Ukraine military said it had driven Russian infantry back from some positions around Bakhmut, the Kremlin said that it will boost its grain exports to China via the New Land Grain Corridor.

Russian President Vladimir Putin instructed the cabinet and the central bank to work out an intergovernmental agreement to boost grain exports to China by October 1, Russia’s national day, Russian news agency TASS reported.

Chinese state media said that, after tariffs, quotas and logistic problems are solved, China will import more wheat and barley from Russia and reduce its reliance on grain imported from western countries including Australia, the US, Canada and France.

Commentators said that, while Russia and China can work together to overcome western sanctions, at the same time the development will further push the decoupling of the global economy into United States-West and China-Russia spheres.

A decade-long project

The idea of building the New Land Grain Corridor, which will connect China with the Eurasian Union countries, was first proposed by Beijing in 2012. It gained support from Putin and Chinese President Xi Jinping in 2016.

Xi Jinping and Vladimir Putin see eye-to-eye ,in various strategic realms. Photo: WikiCommons

The construction of Grain Terminal Zabaikalsk (GTZ), a railway transshipment facility at Russia’s border with Inner Mongolia, commenced in July 2020. Most of the Russian grain sold to China is still being shipped from the Black Sea.

As of April last year, the terminal had been 75% completed, according to Russian media.

Russian Vice-Prime Minister Yuri Trutnev said on March 16 this year over 700 billion rubles (US$9 billion) had been invested last year in the Far East and 140 enterprises had been established. He said the amount of the contracted investments in the Zabaikalsk Territory will exceed 316 billion rubles. Of that eventual total, the amount already invested comes to 143 billion, he said.

Karen Ovsepian, chief executive of the GTZ, said total capital investments under the New Land Grain Corridor program will amount to 500 billion rubles. He said the GTZ, with a transshipment capacity of up to 8 million tons a year, will boost trade between Russia and China and also enable the Far East to drive the development of the Siberian and Ural regions.

When Xi on March 21 signed a joint statement with Putin to deepen comprehensive partnerships and strategic cooperation between China and Russia, he also met Russia’s Prime Minister Mikhail Mishustin to discuss the New Land Grain Corridor.

The Russian government will “consider concluding an intergovernmental agreement between Russia and China” by October 1 and will “increase grain production in the Far Eastern, Ural and Siberian federal districts, as well as the volume of its export to the market of China,” TASS reported.

The agreement will allow Russia to export more wheat and barley, in which it has advantages both in price and quality, Zhang Hong, an associate research fellow at the Institute of Russian, Eastern European, and Central Asian Studies at the Chinese Academy of Social Sciences, told the Global Times.

“As for the land corridor, trains running through ports such as Manzhouli and Suifenhe could transport grain from Russia,” Zhang said, adding that the agricultural trade between China and Russia “is not very big” now.

Unrestricted imports

China’s General Administration of Customs announced on February 24 last year that it would allow unrestricted imports of Russian wheat into China. Scott Morrison, then prime minister of Australia, criticized Beijing for supporting Russia, which was launching a full-scale attack on Ukraine on the same day.

In 2021, China imported 2.74 million tons or US$860 million of Australian wheat, accounting for about 28% of the grain’s total import both by volume and value, according to Research and Markets, an industry data provider. It also imported wheat from eight other countries, including the US, Canada and France.

In the same year, China imported $2.88 billion of barley, mainly from France ($901 million), Canada ($861 million), Ukraine ($619 million), Argentina ($432 million), and Russia ($20.8 million), according to the Observatory of Economic Complexity (OEC). It also imported soybeans from Brazil ($27.2 billion), US ($14.3 billion), Argentina ($1.78 billion), Canada ($345 million) and Russia ($297 million).

Black Sea Grain Initiative

A Fujian-based writer says in an article published Friday that Russia wants to speed up the New Land Grain Corridor project as it cannot sell its agricultural products with the Black Sea Grain Initiative.

“Although both Ukraine and Russia signed the Black Sea Grain Initiative last July, Russia has so far faced big difficulty in exporting its grains amid western sanctions,” he says. “No insurer can provide service to Russia’s grain carriers while Russian exporters cannot settle their transaction without SWIFT.”

For the sake of the world’s needs, Russia has extended the Black Sea grain deal twice, in November and March, he says. But if the deal ends after May 18, Russia must find a new way to sell its grain and China is now its best choice, he says.

A Hebei-based columnist on Thursday published an article titled “Russia finally wakes up, Putin opens Far East barn for mutual benefits of China and Russia.”

The writer adds: “Due to sanctions, Russia has been kicked out from the western markets and must look at the East, particularly China, the biggest consumption market in the world.”

He says Moscow has previously been worried that it will lose the Far East over the long run if the region’s population is diluted by Chinese. But now, he says, Russia is facing a severe challenge in the Ukrainian crisis and has to boost Far East development for the Chinese market.

He adds that, as China is also seeking a way to grow its economy to compete with the US, it will be a win-win situation if both China and Russia can work together and overcome the West’s sanctions and containment.

“With the rapid change of the international situation in recent years, the stability of China’s overseas grain supply chain has been affected,” he says. “The risk of China importing grain from South and North American countries will be effectively mitigated by the increase in Russian grain exports to China.”

According to the China Center for International Economic Exchanges, China will only be able to self-supply 65% of its food consumption in 2035, compared with about 76% at present. The country will still have to import 83% of soybeans it needs by 2035.

Read: RMB-based trade hasn’t worked out for Moscow

Follow Jeff Pao on Twitter at @jeffpao3

Freeport digging deep for new Grasberg mine deal

By: Bolen C

On: May 12, 2023

In: Asia, Business

Freeport McMoRan Copper & Gold (FCX) chairman Richard Adkerson has twice flown to Jakarta this year as he tries to persuade President Joko Widodo’s administration to make an early decision on extending the American mining company’s contract over the fabled Grasberg mine beyond 2041.

Adkerson wants a guarantee of a 20-year extension in planning the future development of the four rich ore bodies comprising one of the world’s most lucrative mines lying 3,500 meters up in Papua’s rain-swept Central Highlands.

Under production since 1988, the bottomless Grasberg still has proven and probable reserves of 15.1 million tonnes of copper and 28.3 million ounces of gold, making it the world’s third-largest copper reserve and biggest gold deposit.

Consolidated sales from the mine amounted to 4.2 billion pounds of copper and 1.7 million ounces of gold in 2022, the first year it returned to full production after converting from a vast open pit to a fully underground, rail-fed operation.

Adkerson and president and treasurer Kathleen Quirk met personally with Widodo on one of their two trips to Jakarta, an indication of the importance FCX attaches to retaining the glittering jewel in the Phoenix-based company’s crown.

Insiders describe the discussions as “fluid” and say they revolve around three conditions, which include boosting the government’s stake in PT Freeport Indonesia (PTFI) subsidiary from 51.2% to 61.2%, the completion of a long-delayed US$3 billion smelter at Gresik, East Java, and adding a second Papuan to the PTFI board.

FILE PHOTO: Freeport McMoRan Chief Executive Officer Richard Adkerson gestures during a press conference with Indonesia's Finance Minister Sri Mulyani Indrawati and Mineral Resources Minister Ignasius Jonan (not pictured) at the Ministry of Energy and Mineral Resources in Jakarta, Indonesia August 29, 2017. REUTERS/Darren Whiteside — Freeport McMoRan chairman Richard Adkerson gestures during a press conference in a 2017 file photo. Image: Agencies

Investment Minister has indicated progress is being made. “The discussions are nearly complete, and the focus is on ensuring that the state acquires the additional shares at the lowest possible cost,” he said earlier this month.

Lahadalia expects state-owned mining holding company PT Mineral Industry Indonesia (MIND-ID) to make the final payment of the $3.8 billion it laid out for its 51.2% stake in PTFI in 2024, five years after sealing the deal.

“It is personally gratifying to experience the markedly more positive attitudes there (in Indonesia) about Freeport than in the past,” Adkerson said in an upbeat presentation to a first-quarter earnings conference call last month.

Apart from the growth of the electric car industry driving a positive outlook for copper, he said FCX’s relationship with Indonesia had improved greatly since the government took the majority interest in PTFI in 2018.

Up until then, Freeport had been treated as public enemy No 1, under attack from environmental groups for its in-river tailings (rock waste) disposal system and often blamed for past human rights abuses committed by the Indonesian military in the mine’s vicinity.

It was also criticized for the cozy relationship between legendary Freeport CEO Jim-Bob Moffett, who died in 2021, and president Suharto, the authoritarian leader who was always grateful for the gamble Freeport took on Papua in the late 1960s.

In previous years as well, traffic on the steep 100-kilometer road between the lowland logistics center of Timika and Freeport’s high-altitude Tembagapura mining camp had been the target of sniper fire from Papuan rebels.

S&P Global estimates that Grasberg represents an earnings concentration for FCX of 35-40%, but the firm also owns more than 50% of each of its two less profitable copper assets in Peru and Chile and 72% of the Morenci copper mine in Arizona.

“As resource nationalism appears to be rising around the world, we believe the globally important Grasberg mine could be exposed to further changes in economics (for FCX), particularly as permits are reconsidered for extension in the next decade or two,” the ratings agency said in a note last month.

Although MIND-ID posted a $1.45 billion profit last year, Center for Energy and Mining Law executive director Bisman Bakhtiar feels the company will be taking on an unnecessary burden by buying a further 10% stake in PTFI.

Papuan students display placards during an anti-Freeport rally in front of the US giant Freeport-McMoRan office in Jakarta on April 7, 2017.The students demanded an end to mining by Freeport in Papua and the freedom of Papua from Indonesia. / AFP PHOTO / Bay ISMOYO — Whipping boy: Papuan students display placards during an anti-Freeport rally in front of the US giant Freeport-McMoRan office in Jakarta on April 7, 2017. Photo: AFP / Bay Ismoyo

FCX will continue to retain operational control of the world’s biggest underground hard-rock operation, and along with it the lucrative supply contracts that make it an enticing prize for political interests in Jakarta.

Sources familiar with the way the mine is operated say the government has no practical mining expertise at all to replace the existing Freeport team, despite an obvious divergence of objectives between Phoenix and the state.

Analysts say if FCX is not granted an early extension, considered unlikely at this stage, planners may be tempted to “high grade” the mine, giving priority to exploiting the more profitable ore deposits over the next 18 years.

Freeport’s new $3.4 billion smelter at the Java Integrated Industrial Park Estate (JIPE), north of Surabaya, was originally planned to be commissioned by mid-2024 but construction is reportedly running behind schedule.

When complete, the facility and Mitsubishi’s existing Gresik smelter, PT Smelting, which began commercial operations in 1999, will process the bulk of the three million tonnes of copper concentrate the Grasberg produces each year.

About 60% of PT Smelting’s output currently goes to overseas markets, but the Widodo government plans to impose a ban on all copper exports next year in line with its strict policy of adding value to its vast mineral wealth.

Nickel ore exports were banned in 2020 with official data showing that the three new Chinese-funded processing facilities in Sulawesi and Maluku had increased the commodity’s value from $1.1 billion to $20.8 billion in 2021 alone.

The Energy and Resources Ministry was forced to delay its plan to ban copper concentrate exports in June after Freeport warned it would have to cut back production until the new 1.7 million-tonne smelter is in operation.

Amman Mineral, a subsidiary of Indonesian-owned conglomerate Medco Energy, may be in worse shape because it exports all its concentrate from Sumbawa’s Batu Hijau copper and gold mine.

Executives said in an October 2022 presentation that Amman’s $1.4 billion smelter, with a production capacity of 220,000 tonnes of copper cathode, would not be operational until the end of 2024.

Bauxite is on the export ban list next month, with mining officials confident the country’s four existing bauxite smelters are sufficient to absorb 12.5 million tonnes of bauxite and produce 3.9 million tonnes of alumina.

Eleven new plants are also under construction. They will eventually churn out a combined 12.6 million tonnes of chemical and smelter-grade alumina, the precursor for the manufacturing of aluminum.

The ministry puts total bauxite reserves at 1.27 billion tonnes, or about 4% of the world’s total, mostly concentrated in West Kalimantan. That places Indonesia in sixth place among the countries with the largest reserves.

China’s state-owned ENFI Engineering Corp and PT Rasamala Metallurgy Indonesia (RMI) have signed a preliminary deal to build a fourth, $2.3 billion copper smelter at Fakak in Papua’s western Bird’s Head region.

Trucks haul raw earth materials from copper mine site. Photo: AFP, PT Newmont Nusa Tenggara — Trucks haul raw earth materials from a copper mine site in Indonesia. Photo: AFP

PTFI and MIND-ID have been cited as strategic partners, but PTFI president-director Tony Wenas told Asia Times that the company had yet to talk to ENFI about where it would source its concentrate from.

Fakfak lies 550 kilometers west of Timika and only a short distance overland from BP’s Tangguh LNG complex in Bintuni Bay, a potential source of power for both the new plant and to replace Freeport’s current coal-fired generators.

Only known up to now for its auto-cleaning and courier services, PT RMI is making its first venture into minerals. It is headed by Hence Carlos Kaparang, a member of the Suharto family’s Berkaya Party which failed to gain a seat in the 2019 legislative elections.

State power utility Perusahaan Listrik Negara (PLN) recently signed an MOU with a French technology company to build a hydrogen manufacturing plant in Fakfak as part of the proposed industrial complex.

Bintuni Bay is also the site of Genting Oil and Gas Ltd’s Kasuri block, which will supply 230 million cubic feet (MCF) of gas a day to a floating LNG terminal, the first time the process will be used in Indonesian waters.

A further 101 MCF will go to a $1.5 billion ammonia and urea plant to be built by state-owned fertilizer company PT Pupuk Kalimantan Timur on the south coast of Bintuni Bay in Papua’s Bird’s Head region.

Discovered in 2011, Kasuri contains proven reserves of 2-3 trillion cubic feet (TCF) and is expected to come on stream in 2025, adding to Indonesia’s existing LNG production of 32.2 million tonnes a year and giving West Papua another economic anchor.

Turkish election less risky than the market thinks

By: Bolen C

On: May 11, 2023

In: Asia

The implied volatility of emerging market currencies during the past six months has tracked world market conditions. The main macro determinant of volatility in the whole EM currency complex is American monetary policy.

As rates peaked at the end of 2022, so did emerging markets’ currency volatility, and volatility fell with US bond yields during 2023 – with the exception of Turkey. Hedging in the advent of the country’s May 14 presidential election has pushed the implied volatility of short-term options above 40% and the interest rate on overnight deposits to above 80%, as the central bank squeezes the money market to discourage shorts.

Noteworthy is that the cost of default protection against the Turkish sovereign hasn’t moved while the cost of hedging the Turkish currency has jumped.

We think concerns about Turkey are overdone. In fact, Turkish policy has very little room to change. Financially, Turkey is dependent on the Gulf States and China. A great deal of attention was focused on China’s role in mediating the restoration of diplomatic relations between Saudi Arabia and Iran. But Turkey was a de facto partner to this agreement, in several ways. Turkey’s role in containing the long-simmering civil war in Syria is central.

On April 25, Turkey, Russia, Iran and Syria held “constructive” talks. Turkey has been the main sponsor of anti-government Sunni rebels during the past dozen years, and the main bulwark against Shia militias supported by Iran.

Turkey’s role in containing Iran’s expansionist ambitions is an implicit feature of the Iran-Saudi agreement. It follows a year of rapprochement between Turkey and the Gulf States, and establishes Turkey’s role as an economically dependent but militarily dominant force in Western Asia.

Turkey’s economic relationship with China is the cement that holds this together. China’s exports to Turkey have tripled since 2019. Some part of the increase reflects indirect exports to Russia. Turkey has emerged as a key economic intermediary between Russia and the rest of the world, including electronic equipment from China and Russian hydrocarbons shipped via Turkish pipelines.

We expect Erdogan to win the election given the blandness of his main opponent, an elderly retired civil servant heading a coalition of six mutually antagonist parties. But whoever wins will have to stay in the groove that China, the Gulf States and Russia have carved out for Turkey.

Rather than become a hegemonic neo-Ottoman Empire, as Erdogan once hoped, Turkey is settling into a role as the most powerful nation-state in Western Asia. It is well suited for this and unlikely to deviate from the course that Erdogan has charted for the past two years.

The dirty five laundering Russia’s oil

By: Bolen C

On: May 11, 2023

In: Asia

SINGAPORE – Western nations have taken major steps to cut energy ties with Russia by cracking down on imports of seaborne crude oil and refined petroleum products while imposing a US$60 price cap on sales to non-Western countries in a bid to crimp the Kremlin’s ability to finance its war in Ukraine.

At the same time, nations that sanctioned Russian oil have dramatically increased imports of refined oil products from countries that have become the largest importers of Russian crude since Moscow invaded Ukraine last February, according to a recently released report by the Finland-based Center for Research on Energy and Clean Air (CREA).

The organization tags five non-sanctioning countries – China, India, Turkey, United Arab Emirates (UAE) and Singapore – as “launderers” of Russian oil, which is blended with non-Russian origin crude and re-exported globally, including to the very nations enforcing the price cap and embargo in what CREA describes as a “major loophole” in the sanctions regime.

Isaac Levi, an energy analyst at CREA and the report’s co-author, told Asia Times that the EU’s oil ban and price cap, imposed in December and February respectively, have cost Moscow an estimated 160 million euros (US$175.3 million) per day, but were cautiously designed to allow Russian oil flows onto global markets to keep prices down and avoid supply disruptions.

“Now that the bans are in place, Russia’s revenues are starting to rebound,” he said, describing the loophole as a “legal way” for sanction-imposing countries to buy oil products previously bought directly from Russia, which are now being sold by third countries at a premium. “This process provides higher demand for Russian oil, creating higher export volumes and prices.”

In November, the International Energy Agency (IEA) projected that Russian oil output would fall by 1.4 million barrels per day (bpd) in 2023 following the EU’s ban on seaborne exports of Russian crude. But with more than 90% of Russian crude now finding buyers in Asia, exports averaged 3.76 million bpd in April, 22% above the average pre-war level of 3.1 million bpd, according to S&P Global.

CREA’s report shows seaborne imports of Russian crude oil to China, India, Turkey, UAE and Singapore increased by 140% in volume terms, or 182% in value from the year prior, since the eruption of the Ukraine war. The total value of their imports was 74.8 billion euros ($82 billion) over the 12 months, with the five countries accounting for 70% of Russia’s crude oil exports since the war began.

The line-up of traders dealing with Russian barrels has changed significantly since the war began, said Viktor Katona, lead crude analyst at commodity analytics firm Kpler. “First it was the Western majors that quit the game, then followed the global trading companies, so basically there is very little Western presence in the trading of Russian barrels right now.”

Since the invasion, the EU, G7 and Australia increased their volume of refined oil products imported from China by 94%, India by 2%, Turkey by 43%, UAE by 23%, and Singapore by 33%. The five nations’ exports of oil products increased 80% in value terms and 26% in volume terms to price-cap countries, the report states, with a rise of only 2% in volume to non-price-cap countries since February 2022.

CREA has said it is unable to verify the precise amount of oil products from Russian crude oil that passes through the five “laundromat” countries to nations that abide by the price cap, though it cites the data trends as “evidence that laundromat countries are providing funds to the Kremlin through higher imports for Russian crude on the prior year.”

The trade flows, coincident with the imposition of sanctions, have led to “the inference that the sanctions are being avoided by the export of Russian crude oil to the laundromat countries, where the crude oil is refined into products which are then sold as non-Russian origin products,” said Larry Cantú, an international oil and gas attorney with risk advisory firm Ball PLLC.

In addition to the “laundering” of Russian crude in third countries, Cantú added that the incomplete or false documentation of crude oil shipments and the manipulation of Automatic Identification Systems (AIS) to conceal that a vessel has called at a Russian port are among the suspected practices employed to evade the sanctions.

Irina Tsukerman, a US national security lawyer and the programs vice chair for the American Bar Association’s Oil and Gas Committee, told Asia Times Russia is believed to be adopting evasion schemes used by other sanctioned oil exporters such as Iran and Venezuela, such as the maritime practice of vessels transferring oil ship-to-ship in international waters.

“One of the ways Russia has been able to create an opaque market is by sending out the tankers without a precise destination. That’s how they eventually get to ship-to-ship transfers,” said Tsukerman, who is a geopolitical and business analyst and president of Scarab Rising, Inc, a strategy advisory specializing in security and market research.

“Some of the ‘disguised’ oil is even making its way into the United States as a result of the success of these measures… [Russia] has also engaged in schemes to obscure the real prices it is charging, by putting on paper lower prices that fit under the price cap, as with exports to India, but in reality, charging above the price cap to make profit,” she added.

Cantú noted that trade in products made from Russian crude has become “extremely profitable” since it is more difficult to trace the origins of refined oil products than it is to identify the source of crude oil.

“Consequently, when the sanctions against Russian oil were implemented, the price of Russian crude fell sharply but the price of refined products made from Russian crude did not.”

Tsukerman went on to identify Singapore as “one of the leading trade hubs benefiting from the Russian sanctions circumvention schemes,” with the Southeast Asian trade hub reported to be “one of the locations where that oil is blended with others to begin with, giving traders as much as a 20% profit margin from combining the Russian grade oil with other grades.”

Singapore’s refining industry is one of the largest in the world with a combined processing capacity of over 1.5 million bpd, and it plays a significant role in the global oil market. The business and financial hub is also a leading center for oil bunkering and trading, with the Singapore Exchange (SGX) offering crude oil futures and options, fuel oil derivatives and other energy products.

Singapore has been publicly critical of Russia’s invasion of Ukraine, imposing targeted sanctions and restrictions on Russia covering export controls on military and certain dual-use goods, as well as measures prohibiting financial institutions from dealing with designated Russian banks. The island nation has not, however, banned the import of Russian oil or petroleum products.

Besides refining Russian crude oil, Singapore has sharply increased its imports of refined oil products from Russia in recent months, with April seeing the highest volume since January 2019, said CREA’s Levi. “This increased inflow has not been matched by a corresponding increase in exports, so Singaporean refiners have in fact been squeezed by the inflow of refined products from Russia,” he said.

“Refineries in Singapore may be profiting from importing lower-cost Russian crude oil and refining this to then either sell the oil products domestically or exporting these oil products. Singaporean traders and refiners are not only tarnishing themselves morally but also taking a commercial risk by doing business with oil producers closely connected to the Kremlin and its war crimes,” Levi added.

Moral hazard and commercial risks aside, Singaporean businesses are conducting themselves legally and are not apparently breaking any laws in this trade. Authorities in the city-state have said local companies will have to consider and manage any potential impact on their business activities, transactions and customer relationships when dealing with Russian crude oil and refined products.

Minister of State for Trade and Industry Low Yen Ling told parliament in February that while Singapore is “not a participant of the EU ban, companies and financial institutions in Singapore have been informed of the ban imposed by the EU and other countries, via circulars issued by relevant government agencies.”

In addition to Russian diesel imports hitting their highest volume in more than a year, official data showed Singapore’s imports of Russian naphtha, which is used in gasoline blending and also a key ingredient in plastics and petrochemicals, nearly tripled in the first quarter of 2023 to 741,000 tons, up from around 261,000 tons in the fourth quarter last year.

Demand for oil storage tanks in Singapore has also reportedly increased, which analysts see as an indication that Russian fuel is being blended and re-exported globally, clearing the way for ship insurance and financing that would otherwise be banned under sanctions. “Because the whole product is no longer of Russian origin, some oil companies have accepted it,” Tsukerman said.

“The demand for Singapore’s onshore tanks as well as offshore floating storage has been on the rise. A six-month lease for Singapore fuel oil or crude oil storage rose by as much as 17-20% in costs over the course of last year,” the veteran lawyer and analyst added. “This points to the fact that Russia’s oil – and petrol blends meant to obscure its origins – are likely flooding the markets.”

Skeptics of the West’s efforts to deny the Kremlin an energy export windfall may interpret the existing loopholes and evident sustained Western demand for Russian oil as proof that Russia is, in fact, too big to sanction. CREA, however, argues that the price cap countries continue to wield strong leverage to ratchet down the price cap level and close the exploited loopholes.

Under the price cap system, companies shipping Russian oil outside of Europe are only able to access EU insurance and brokerage services if they sell the oil at or under $60. According to CREA’s report, 56% of Russian crude oil shipped to the five “laundromat” countries has been transported by vessels owned or insured by the price cap nations from December 2022 to February 2023.

The Helsinki-based research organization suggests the price cap countries use their clout in insurance and shipping industries to ban imports from refineries receiving any Russian crude, deny imports of refined oil products of Russian origin, as well as ban maritime services in perpetuity to vessels used to transport Russian crude without complying with the price cap.

An oil pump-jack at an oil and gas field in the Krasnodar region of Russia. Vitaly Timkiv / Sputnik

“The penalty for violating the price cap policy is exclusion from insurance and financial services for three months. This amounts to a slap on the wrist compared with the initial proposal, which was exclusion in perpetuity. The punishment should clearly be toughened,” said CREA’s Levi, who said he was not aware of any companies that have yet been caught in the dragnet for sanctions violations.

Mike Salthouse, head of external affairs at marine mutual liability insurer NorthStandard P&I Club, told Asia Times that the vessels which we insure “are aware of the requirement to obtain an attestation [of compliance with the price cap] from their contractual partner before lifting the cargo. Whilst it is difficult to be sure, the attestation system appears to be effective.”

Russia, which has banned deals that involve applying the price cap mechanism, and its partners are now “investing in ships, that are flagged, classed and insured in jurisdictions beyond the reach of the EU and G7 […] to avoid price cap constraints,” he added. “Of concern is that the safety and inspection regime is likely to be less rigorous and the insurance less reliable than we have been used to.”

Follow Nile Bowie on Twitter at @NileBowie

Markets (Page 158)

1995: A GOP revolution – and blunder

2011: Budget reductions and reforms, with a side of financial chaos

2013: ‘We got nothing’

Risks to both sides

A decade-long project

Unrestricted imports

Black Sea Grain Initiative